<PAGE>   1
                       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

/ /      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the Period From _________ to __________.

                        Commission File Number: 001-14593

                          THE MIIX GROUP, INCORPORATED
             (Exact name of Registrant as specified in its charter)


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


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

                                 (609) 896-2404
              (Registrant's telephone number, including area code)
             Securities registered pursuant to Section 12(b) of the
                  Act: Common Stock, par value $0.01 per share
        Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                    YES /X/  NO / /

         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 on March 21, 2001 of the voting stock held
by non-affiliates of the registrant was $104,706,159.

         As of March 21, 2001, the number of outstanding shares of the
Registrant's Common Stock was 13,563,938.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held May 3, 2000 ("Proxy Statement") are incorporated by
reference in Part III.
<PAGE>   2
THE MIIX GROUP, INCORPORATED
2000 FORM 10-K
TABLE OF CONTENTS

<TABLE>
<S>                                                                                                    <C>
PART I    ..........................................................................................    2

ITEM 1.   BUSINESS..................................................................................    2
ITEM 2.   PROPERTIES................................................................................   22
ITEM 3.   LEGAL PROCEEDINGS.........................................................................   22
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................   22

PART II   ..........................................................................................   23

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................   23
ITEM 6.   SELECTED FINANCIAL DATA...................................................................   23
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS.................................................................   24
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................   33
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................   33
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE......................................................................   33

PART III  ..........................................................................................   33

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................   33
ITEM 11.  EXECUTIVE COMPENSATION....................................................................   34
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................   35
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................   35

PART IV   ..........................................................................................   35

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...........................   35

SIGNATURES..........................................................................................   40

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES.........................................................  F-1
</TABLE>
<PAGE>   3
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Form 10-K, the Company's Annual Report to
Shareholders, any Form 10-Q or any Form 8-K of the Company or any other written
or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to uncertainties and other factors that could cause
actual results to differ materially from such statements. These uncertainties
and other factors (which are described in more detail elsewhere in this Form
10-K) include, but are not limited to: the Company having sufficient liquidity
and working capital; the Company's ability to achieve consistent profitable
growth; the Company's ability to diversify its product lines; the continued
adequacy of the Company's loss and loss adjustment expense reserves; the
Company's avoidance of any material loss on collection of reinsurance
recoverables; increased competitive pressure; the loss of significant customers;
general economic conditions, including changing interest rates; rates of
inflation and the performance of the financial markets; judicial decisions and
rulings; changes in domestic and foreign laws, regulations and taxes; geographic
concentration of the Company's business; effects of acquisitions and
divestitures; and various other factors. The words "believe," "expect,"
"anticipate," "project," and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

PART I

ITEM 1. BUSINESS

The MIIX Group, Incorporated ("The MIIX Group") was organized as a Delaware
corporation in October 1997 and is the parent company of a group of insurance
and insurance-related subsidiaries conducting business principally in New
Jersey. The MIIX Group began operating as a publicly traded company on July 30,
1999. On August 4, 1999, the reorganization of the Medical Inter-Insurance
Exchange of New Jersey (the "Exchange") was consummated according to a Plan of
Reorganization. The Plan of Reorganization included several key components,
including: formation of The MIIX Group to be the ultimate parent; the transfer
of assets and liabilities held by the Exchange to MIIX Insurance Company
("MIIX"), formed for that purpose; acquisition of New Jersey State Medical
Underwriters, Inc. and its wholly owned subsidiaries (the "Underwriter");
distribution of shares of common stock of The MIIX Group and/or cash to current
and former members of the Exchange("Distributees") as defined in the Plan of
Reorganization; and dissolution of the Exchange. In connection with the
reorganization, 11,854,033 shares of The MIIX Group Common Stock were issued to
Distributees and 814,815 shares of The MIIX Group Common Stock were issued to
the Medical Society of New Jersey, plus $100,000 in cash, in exchange for all
Common Stock of the Underwriter. The MIIX Group sold three million shares of its
Common Stock in an underwritten public offering ("the Offering") that closed on
August 4, 1999. Of the offered shares, 90,000 were reserved for sale and
subsequently sold to officers and employees of the Company. On August 11, 1999
an additional 450,000 shares were sold to underwriters of the Offering pursuant
to an over-allotment option contained in the Offering underwriting agreement.
The Common Stock is listed on the New York Stock Exchange("NYSE") under the
trading symbol "MHU."

For purposes of this Report on Form 10-K, the "Company" refers at all times
prior to August, 4, 1999, the effective date of the Reorganization, to the
Exchange and its subsidiaries, collectively, and at all times on or after such
effective date, to The MIIX Group and its subsidiaries, collectively; the term
"The MIIX Group" refers at all times to The MIIX Group, Incorporated, excluding
its subsidiaries.

OVERVIEW

Based on direct premiums written in 1999, the Company is the leading provider of
medical professional liability insurance in New Jersey and is ranked 6th among
medical professional liability insurers in the United States. The Company
currently insures approximately 15,000 physicians and other medical
professionals who practice alone, in medical groups, clinics or in other health
care organizations. The Company also insures more than 141 hospitals, extended
care facilities and other health care organizations. The Company's business has
historically been concentrated in New Jersey but has expanded to other states in
recent years. The Company currently writes policies in 24 states and the
District of Columbia. In


                                                                               2
<PAGE>   4
2000, approximately 49% of the Company's total direct premiums written were
generated outside of New Jersey. In addition to the Company's medical
malpractice insurance operations, the Company also offers complementary
insurance products to its insureds and operates other fee-based consulting and
service businesses.

Medical professional liability insurance, also known as medical malpractice
insurance, insures the physician, other medical professional or health care
institution against liabilities arising from the rendering of, or failure to
render, professional medical services. Under the typical medical professional
liability policy, the insurer also is obligated to defend the insured against
alleged claims.

In 1999, total medical professional liability direct premiums written in the
United States were approximately $6.0 billion, according to data compiled by
A.M. Best, an insurance rating agency, and in New Jersey were approximately
$285.2 million, according to data compiled by OneSource Information Services,
Inc. ("OneSource"), an online data service. The Company's market share of such
direct premiums written was 4.0% in the United States according to data compiled
by A.M. Best and 45% in New Jersey according to data compiled by OneSource. In
2000, medical malpractice insurance accounted for approximately 99% of the
Company's direct premiums written.

The Company had total revenues and net losses of $272.5 million and $36.5
million, respectively in 2000, total revenues and net income of $265.1 million
and $20.8 million, respectively, in 1999 and total revenues and net income of
$264.9 million and $29.7 million, respectively, in 1998. As of December 31,
2000, the Company had total assets of $1.9 billion and total equity of $289.4
million.

The Exchange was organized as a New Jersey reciprocal insurance exchange in
1977. A New Jersey reciprocal insurance exchange is an entity that may be formed
by persons seeking a particular type of insurance coverage. In the case of the
Exchange, medical and osteopathic physicians formed the Exchange to provide
medical malpractice insurance. The Exchange had been operated to generate
profits, and such profits were part of the Exchange's surplus account. Under New
Jersey law, the business of a reciprocal insurance exchange must be conducted by
a separate entity acting as the attorney-in-fact of such exchange. The
Underwriter, a corporation that, prior to the reorganization, had been wholly
owned by the Medical Society of New Jersey, served as attorney-in-fact for the
Exchange.

State laws regulate the process of soliciting insurance, the underwriting of
insurance, the rates charged, the nature of insurance products sold, the
financial accounting methods of the insurer, the amount of money required to be
maintained by the insurer to guard against insolvency and many other aspects of
the day-to-day operations of the Company. See "Business -- Regulation."

BUSINESS STRATEGY

The Company has adopted a strategy which it believes will allow it to compete
effectively and create long-term growth. To maximize the strategy's
effectiveness, the Company completed the Plan of Reorganization to convert from
a reciprocal insurer to a stock insurer, in order to provide the Company with
greater flexibility and access to capital. The Company's strategy is to:

     -    maintain the Company's historically close relationship with the
          medical community;

     -    maintain underwriting discipline with a strong clinical focus to seek
          to assure that profitability, rather than premium volume, is
          emphasized;

     -    enhance product offerings to meet the increasing business liabilities
          needs of our insureds;

     -    focus on key geographical markets;

     -    continue to expand distribution channels; and

     -    take advantage of strategic merger and acquisition opportunities.

This strategy is designed to capitalize on the Company's strengths that have
enabled it to achieve its current market position, including (i) its experience
with, commitment to and focus on medical professional liability insurance, (ii)
its history of providing a stable premium environment to its customers, (iii)
the high


                                                                               3
<PAGE>   5
level of service it delivers to insureds, including the aggressive defense of
claims on their behalf, (iv) its "A- (Excellent)" rating by A.M. Best, (v) its
capacity on a per insured basis, (vi) its ability to customize product features
and programs to fit the needs of different customers and (vii) its close
relationship with the medical community.

Maintain Close Relationship with the Medical Community. Since its founding in
1977, the Company has maintained a close relationship with the medical
community. In addition to the active involvement of practicing physicians on
several of the Company's advisory committees, the Company and the medical
professional liability insurance that it offers have the endorsements of
different medical associations. The Company will continue to utilize practicing
physicians on advisory committees to provide management with input on medical
practice patterns, claims, customer needs and other relevant matters. In
addition, the Company will endeavor to maintain the medical associations'
endorsements.

Maintain Underwriting Discipline. The Company undertook a major re-underwriting
of its book of business during 2000 with the objective of increasing the
profitability of the business. As a result of this effort, certain accounts were
either non-renewed or re-priced, premium rates were generally increased, and
available discounts were substantially reduced or eliminated. Overall premium
volume was lower in 2000 compared to 1999, in part due to these actions. The
Company expects that this re-underwriting project will be completed during 2001.

Enhance Product Offerings. During 2000, the Company introduced a new
plain-language "Essentials" policy for physicians, designed to communicate
coverage intent as clearly as possible. In addition to its core medical
professional liability insurance products, the Company has developed other
products and services for physicians and health care institutions. The Company
intends to continue to increase the number of products it offers to its customer
base in order to be able to provide them with a full range of business liability
coverages.

Geographical Focus. From its inception in 1977 through 1990, all of the
Company's business was written in New Jersey. In 1991, the Company began to
write business in Pennsylvania and in 1996 began its expansion into other
states. Since 1996, the Company has expanded its operations significantly and
currently writes policies in 24 states and the District of Columbia. As a result
of this expansion, the proportion of the Company's business written in states
other than New Jersey has grown from approximately 11% in 1996 to 49% in 2000.
The Company expects to focus its operation primarily on about 12 states as it
completes its major re-underwriting process. In addition, the Company has three
regional sales and customer support offices to assist its marketing efforts
outside of New Jersey.

Expand Distribution Channels. The Company has traditionally written insurance on
a direct basis in New Jersey. In connection with the Company's expansion outside
New Jersey, the Company has increasingly utilized brokers and agents. In 2000,
65% of the Company's direct premiums written were generated through independent
brokers and agents. By increasing its use of this distribution channel, the
Company will be better positioned to assure long-term profitability and growth.
In order to expand its distribution channels further, the Company intends to
develop additional relationships with selected brokers and agents who have
demonstrated expertise in the medical malpractice insurance market.

Take Advantage of Strategic Merger and Acquisition Opportunities. The Company
believes that the Reorganization has better positioned the Company in the long
term to make strategic mergers and acquisitions by providing greater access to
capital as a source of financing and creating an attractive stock acquisition
currency. The Company believes that consolidation in the medical professional
liability insurance industry will continue and that opportunities to effect
strategic mergers and acquisitions may arise, thus providing an effective way to
expand the Company's business, product offerings and geographic scope.


PRODUCT OFFERINGS

The Company has developed a variety of insurance products to cover the
professional liability exposure of individual and institutional health care
providers. The Company's core products include medical professional liability
insurance for individual providers, medical groups and health care institutions
on a claims made, "modified claims made" or occurrence basis.


                                                                               4
<PAGE>   6
In New Jersey, the Company offered physicians traditional occurrence coverage
from 1977 through 1986 and has offered a form of occurrence-like coverage,
"modified claims made," from 1987 to the present. The Company's modified claims
made policy is called the Permanent Protection Plan (the "PPP"). Under the PPP,
coverage is provided for claims reported to the Company during the policy period
arising from incidents since inception of the policy. The PPP includes "tail
coverage" for claims reported after the expiration of the policy for occurrences
during the policy period. The premium for tail coverage is included as part of
the annual premium, and the insured physician automatically receives tail
coverage when the policy is terminated for any reason. The automatic provision
for tail coverage in effect results in occurrence-like coverage provided under
the PPP.

In New Jersey, traditional claims made coverage is offered primarily to
institutions. In Pennsylvania traditional occurrence coverage is primarily
offered to physicians and traditional claims made coverage is primarily offered
to institutions. In other states, the Company issues policies primarily on a
claims made coverage basis to physicians and institutions. Tail coverage may be
offered as an endorsement to those accounts written on a pure claims made basis
to extend the period when losses could be reported to the Company. Additional
premium is collected at the time such endorsement is purchased by the insured.
The Company offers policy limits up to $10,000,000 per incident and $12,000,000
in the aggregate for individual physicians. Policy limits of up to $50,000,000
per incident and in the aggregate are offered to institutions and medical
groups.

In addition to its core medical professional liability insurance products, the
Company offers comprehensive liability coverage. Other related products and
services for health care providers are currently being developed.

Substantially all of the Company's policies are offered for periods of one year,
with renewal occurring on the anniversary date of the policy inception. Premiums
are recorded as earned over the life of the policy period. The PPP policy
provides occurrence-like coverage, and accordingly the premiums are earned in
the period the policy is written consistent with the recording of the expected
ultimate loss and LAE reserves on an occurrence basis. A profile of the
Company's direct premiums written is summarized in the table below.

<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                                        ------------------------------------------------------------------------
                                                2000                     1999                      1998
                                        ------------------------------------------------------------------------
                                                                     (In thousands)
                                                      % of                      % of                      % of
                                            $         total        $            total         $           total
                                        --------     -------    --------       -------     --------      -------
<S>                                     <C>          <C>        <C>            <C>         <C>           <C>
Professional Liability Products
   Occurrence/Occurrence-like           $126,323       60%      $152,520         62%       $141,437        61%

   Claims Made                            83,427       39%        89,253         37%         82,543        36%

Other Products                             2,404        1%         2,653          1%          6,334         3%
                                        --------     -------    --------       -------     --------      -------
Direct Premiums Written                 $212,154      100%      $244,426        100%       $230,314       100%
                                        ========     =======    ========       =======     ========      =======
</TABLE>

The Company expects that the majority of new policies issued in states other
than New Jersey and Pennsylvania will be on a claims made basis. As a result,
the Company expects the profile of its direct written premiums to be different
in the future. When claims made coverage is more significant as a percentage of
the Company's business, loss reserves may develop more rapidly. See "Business --
Loss and LAE Reserves."

MARKETING AND POLICYHOLDER SERVICES

The Company employs various strategies for marketing its products and providing
policyholder services. In New Jersey, the Company markets its products to
physicians and physician groups principally through medical associations,
referrals by existing policyholders, advertisements in medical journals,
seminars on health care topics for physicians and direct mail solicitation. The
Company's professional liability program has the endorsement of different
medical associations. In addition to these direct marketing channels, the
Company sells its products through independent brokers and agents who currently
produce approximately 33% of the Company's direct premiums written in New
Jersey. Health care institutions frequently prefer brokers over direct
solicitation when they purchase professional liability insurance, and the
Company believes that its broker relationships in New Jersey are important to
its ability to grow and sustain its business in that market segment. To provide
localized marketing and policyholder services in New Jersey and


                                                                               5
<PAGE>   7
nationally, the Company operates three regional offices. See "Business --
Business Strategy -- Maintain Close Relationship with the Medical Community."

Outside New Jersey, the Company markets its products exclusively through
independent brokers and agents. In 2000, 115 independent brokers and agents
actively marketed the Company's products in 24 states and the District of
Columbia and produced approximately 65% of the Company's direct premiums
written. No national broker or regional agency accounted for more than 11% of
the Company's year-end direct premiums written. The Company selects brokers and
agents that it believes have demonstrated growth and stability in the medical
malpractice insurance industry, strong sales and marketing capabilities, and a
focus on selling medical professional liability insurance. Brokers and agents
receive market rate commissions and other incentives based on the business they
produce. The Company strives to maintain relationships with those brokers and
agents who are committed to promoting the Company's products and are successful
in producing profitable business for the Company. See "Business -- Business
Strategy -- Expand Distribution Capabilities."

The Company also provides risk management services through its home office and
regional offices. In addition to supplementing the Company's marketing efforts,
these services are designed to reduce potential loss exposures by educating
policyholders on ways to improve medical practice and implement risk reduction
measures. The Company conducts surveys for hospitals and large medical groups to
review their practice procedures and to focus on specific areas in which
concerns arise. The Company prepares reports that identify areas of the
insured's medical practice that may need attention and provides recommendations
to the policyholder. The Company also presents periodic seminars for medical
societies and other groups to educate physicians on risk management techniques.
These educational programs are designed to increase risk awareness and to reduce
the risk of injury to patients and third parties.

UNDERWRITING

The Company maintains a dual underwriting function at its home office and at
each regional office. Underwriting authority by the regional office is limited.
The home office Underwriting Department is responsible for the underwriting and
servicing of all institutional accounts and individual providers that exceed the
regional office underwriting authority. In addition, the home office
Underwriting Department is responsible for the issuance, establishment and
implementation of underwriting standards for all of the coverages underwritten
by the Company.

The Company's regional office underwriting staff have the authority to evaluate,
approve and issue medical professional liability coverage for individual
providers and medical groups with annual premiums up to a threshold amount.

The Company follows consistent and strict procedures with respect to the
issuance of all professional liability insurance policies. Individual providers
are required to submit an application for coverage along with supporting claims
history and proof of licensure. The individual provider applications provide
information regarding the medical training, current practice and claims history
of the applicant. Institutions are required to submit an application for
coverage, hard copy loss runs, proof of accreditation, financial statements,
copies of contracts with medical providers, information on employed
professionals and other information. An account analysis form is completed for
each submission and, if coverage is approved, the coverage recommendation and
the pricing methodology is added.

Risk management surveys are generally performed prior to quoting a large account
to ascertain the insurability of the risk. All written accounts are referred to
the Risk Management Department to schedule risk management services.
Representatives from the Risk Management Department meet with the insured
institution to develop programs to control and reduce risk.

The Underwriting Department meets periodically with the Underwriting Committee
of the Company to review the guidelines for premium surcharges, cancellations
and non-renewals, any candidates for cancellation or non-renewal, and all large
accounts to be quoted. The Underwriting Committee is composed of senior officers
of the Company. The Company maintains quality control through periodic audits at
the underwriting and processing levels.


                                                                               6
<PAGE>   8
The Company undertook a major re-underwriting of its book of business during
2000 with the objective of increasing the profitability of the business. As a
result of this effort, certain accounts were either non-renewed or re-priced,
premium rates were generally increased, and available discounts were
substantially reduced or eliminated. Overall premium volume was lower in 2000
compared to 1999, in part due to these actions. The Company expects that this
re-underwriting project will be completed during 2001.

PRICING

The Company establishes, through its underwriting and actuarial staff, rates and
rating classifications for its insureds based on loss and loss adjustment
expense ("LAE") experience it has developed and on other relevant information.
The Company has various rating classifications based on practice location,
medical specialty and other factors. The Company has established its pricing for
hospitals and large groups using actuarially sound techniques to analyze the
experience of these insureds.

CLAIMS

The Company's Claims Department is responsible for claims investigation,
establishment of appropriate case reserves for loss and allocated loss
adjustment expenses ("ALAE"), defense planning and coordination, supervision of
attorneys engaged by the Company to defend a claim and negotiation of the
settlement or other disposition of a claim. All of the Company's primary
policies require it to defend its insureds. Medical malpractice claims often
involve the evaluation of highly technical medical issues, severe injuries and
conflicting medical opinions. In almost all cases, the person bringing the claim
against the insured is already represented by legal counsel when the claim is
reported to the Company.

Litigation defense is provided almost exclusively by private law firms with
lawyers whose primary focus is defending malpractice cases. The Company also
maintains two staff counsel offices located in New Jersey to defend malpractice
cases.

The claims representatives at the Company have on average more than 10 years of
experience handling medical professional liability cases. The Company limits the
average number of cases handled per claims representative to ensure personal
attention to each case.

The claims operation is assisted in its efforts by its technical unit, which is
responsible for training and educating the claims staff. The technical unit
manages the Company's relationship with defense counsel and helps control ALAE
associated with claims administration. The unit also is responsible for tracking
developments in case law and coordinating mass tort litigation.

A major resource for the Company's claims function is its database built over a
20-plus-year period. The database provides comprehensive details on each claim,
from incident to resolution, coupled with a document file relating to each
claim. The database enables the Company's claims professionals to analyze trends
in claims by specialty, type of injury, precipitating causes, frequency and
severity, plaintiffs' counsel, expert witnesses and other factors. The Company
also uses the data to identify and analyze trends and to develop seminars to
educate individual physicians, physician groups, hospital staff and other
insureds on risk management to control and reduce their exposure to claims.

LOSS AND LAE RESERVES

Loss reserves recorded by the Company include estimates of amounts owed for
losses and for LAE. LAE consists of two types of costs, allocated loss
adjustment expenses ("ALAE") and unallocated loss adjustment expenses ("ULAE").
ALAE are settlement costs that can be allocated to a specific claim such as
attorney fees and court costs. ULAE consists of costs that are general in nature
and cannot be allocated to any specific claim, primarily including salaries and
overhead associated with the Company's claim department. ULAE reserves recorded
by the Company represent management's best estimate of the internal costs
necessary to settle all incurred claims, including incurred but not reported
("IBNR") claims.

The determination of loss and LAE reserves involves the projection of ultimate
losses through an actuarial analysis of the claims history of the Company and
other professional liability insurers, subject to adjustments deemed appropriate
by the Company due to changing circumstances. Included in the Company's claims
history are


                                                                               7
<PAGE>   9
losses and LAE paid by the Company in prior periods, and case reserves for
anticipated losses and ALAE developed by the Company's claim department as
claims are reported and investigated. Management relies primarily on such
historical loss experience in determining reserve levels on the assumption that
historical loss experience provides a good indication of future loss experience
despite the uncertainties in loss trends and the delays in reporting and
settling claims. As additional information becomes available, the estimates
reflected in earlier loss reserves may be revised. Any increase in the amount of
aggregate reserves reported in the financial statements, including reserves for
insured events of prior years, could have an adverse effect on the Company's
results of operations for the period in which the adjustments are made.

There are significant inherent uncertainties in estimating ultimate losses in
the casualty insurance business. The uncertainties are even greater for
companies writing long-tail casualty insurance, such as medical malpractice
insurance, and in particular the occurrence or occurrence-like coverages that
substantially make up the Company's current reserves. These additional
uncertainties are due primarily to the longer period of time during which an
insured may seek coverage for a claim in respect of an occurrence or
occurrence-like policy as opposed to a claims made policy. With the longer claim
reporting and development period, reserves are more likely to be impacted by,
among other factors, changes in judicial liability standards and interpretation
of insurance contracts, changes in the rate of inflation and changes in the
propensities of individuals to file claims.

The Company offered traditional occurrence professional liability insurance
coverage from 1977 through 1986 and has offered a form of occurrence-like
coverage, "modified claims made," from 1987 to the present. The Company's
modified claims made policy is the PPP. See "Business-- Product Offerings."
Under the PPP, coverage is provided for claims reported to the Company during
the policy period arising from incidents since inception of the policy. The PPP
includes "tail coverage" for claims reported after expiration of the policy for
occurrences during the policy period and thus is reserved on an occurrence
basis. As displayed in the table below, loss and LAE reserves carried for PPP
policies and traditional occurrence professional liability policies constitute
approximately 74% of the gross loss and LAE reserves at December 31, 2000.

The following table provides a summary of gross loss and LAE reserves by policy
type.

         Gross Loss and Loss Adjustment Expense Reserves by Policy Type
                                 (In thousands)

<TABLE>
<CAPTION>
                                            Professional Liability
                              ---------------------------------------------------
                                Occurrence/        % of        Claims       % of                    % of       Total Gross
                              Occurrence-Like      Total        Made        Total       Other       Total        Reserves
                              ---------------      -----      --------      -----      -------      -----      -----------
<S>                           <C>                  <C>        <C>           <C>        <C>          <C>        <C>
Gross Reserves Held as of:
December 31, 1998                $825,636          86.8%      $104,759      11.0%      $21,264       2.2%      $  951,659
December 31, 1999                 837,724          79.5%       185,497      17.6%       30,376       2.9%       1,053,597
December 31, 2000                 850,040          74.4%       282,127      24.7%       10,363       0.9%       1,142,530
</TABLE>

As displayed in the above table, the proportion of the gross loss and LAE
reserves held on claims made professional liability policies has grown from
ll.0% of total gross loss and LAE reserves held at December 31, 1998 to 24.7% at
December 31, 2000. This is primarily the result of the Company's expansion into
new states since 1997. The majority of policies sold in these new states have
been claims made.

Since a significant portion of the Company's reserves are recorded on an
occurrence basis, and given the long time that typically elapses between the
coverage incident and the resolution of the claim, IBNR reserves have
consistently represented a majority of the gross reserves recorded by the
Company. The following table summarizes the components of gross loss and LAE
reserves including ULAE reserves and indicates that IBNR reserves constitute a
majority of gross reserves on a consistent basis:


                                                                               8
<PAGE>   10
          Components of Gross Loss and Loss Adjustment Expense Reserves
                                 (In thousands)

<TABLE>
<CAPTION>
                                Loss and                   Loss and                                             Total
                                ALAE Case      % of        ALAE IBNR      % of          ULAE        % of        Gross
                                Reserves       Total       Reserves       Total       Reserves      Total      Reserves
                                ---------      ------      ---------      ------      --------      -----     ----------
<S>                             <C>            <C>         <C>            <C>         <C>            <C>      <C>
Gross Reserves Held as of:
December 31, 1998                $299,178       31.4%       $623,842       65.6%      $28,639        3.0%     $  951,659
December 31, 1999                 381,564       36.2%        640,096       60.8%       31,937        3.0%      1,053,597
December 31, 2000                 411,939       36.1%        689,431       60.3%       41,160        3.6%      1,142,530
</TABLE>

The Company has issued occurrence policies since 1977 and occurrence-like
policies since 1987. There is a significant lag in reporting of incidents or
occurrences inherent in the medical malpractice insurance industry. As a result
the Company continues to experience reported claims that are alleged to have
occurred as far back as 1977.

The following table illustrates the amount and percentage of gross loss and LAE
reserves held by the Company at December 31, 2000 categorized by accident year.

        Gross Loss and Loss Adjustment Expense Reserves By Accident Year
                             As of December 31, 2000
                                 (In thousands)

<TABLE>
<CAPTION>
Accident Year                                      Gross Reserves      % of Total
----------------------------------------------     --------------      ----------
<S>                                                <C>                 <C>
1977-90.....................................              34,235           3.0%
1991........................................               8,531           0.7%
1992........................................              12,230           1.1%
1993........................................              16,661           1.5%
1994........................................              29,579           2.6%
1995........................................              52,871           4.6%
1996........................................              97,677           8.5%
1997........................................             141,180          12.4%
1998........................................             198,834          17.4%
1999........................................             279,006          24.4%
2000........................................             271,726          23.8%
                                                    ------------         ------
Total Gross Reserves held by the Company....        $  1,142,530         100.0%
                                                    ============         ======
</TABLE>

As shown in the above tables, at December 31, 2000: approximately 74% of gross
reserves are occurrence based; over 60% of gross reserves are IBNR reserves; and
over 86% of gross reserves relate to the most recent five accident years, which
are the most immature in terms of loss development.

The Company uses a disciplined approach to setting and adjusting financial
statement loss and LAE reserves that begins with the claims adjudication
process. Claims examiners establish case reserves by a process that includes
extensive development and use of statistical information that allows for
comparison of individual claim characteristics against historical patterns and
emerging trends. This process also provides critical information for use in
pricing of products and establishing the IBNR component of the financial
statement reserves.

Initially, the Company establishes its best estimate of loss and LAE reserves
using pricing assumptions. The reserves are evaluated every quarter and annually
and are adjusted thereafter as circumstances warrant. These periodic evaluations
include a variety of loss development techniques that incorporate various data
accumulated in the claims settlement process including paid and incurred loss
data, accident year development statistics and loss ratio analyses. Important in
these analyses are considerations of the amounts for which claims have settled
in comparison to case reserves held at settlement. Case reserves are eliminated
upon settlement of related claims. Actual settlement amounts above or below case
reserves are regularly evaluated to determine whether estimated ultimate losses
by accident year, including IBNR reserves, should be adjusted. Changes to
aggregate reserves reported in the financial statements are made based upon the
extent and nature of these variances over the long claim development period
together with changes in estimates of the total number of claims to be settled.
As a final test of management's determination as to whether it believes that
aggregate reserves reported in the financial statements are adequate and
appropriate, management


                                                                               9
<PAGE>   11
considers the detailed analysis performed by the actuarial staff of its
independent auditors in connection with the audit of the Company's financial
statements.

Recorded loss and LAE reserves represent management's best estimate of the
remaining costs of settling all incurred claims. While the Company believes that
its reserves for losses and LAE are adequate, there can be no assurance that the
Company's ultimate losses and LAE will not deviate, perhaps substantially, from
the estimates reflected in the Company's financial statements. If the Company's
reserves should prove inadequate, the Company will be required to increase
reserves, which could have a material adverse effect on the Company's financial
condition or results of operations.

Activity in the liability for unpaid losses and loss adjustment expenses gross
of reinsurance is summarized as follows:

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                   ----------------------------------------
                                                      2000           1999           1998
                                                   ----------     ----------     ----------
                                                                (In thousands)
<S>                                                <C>            <C>            <C>
Balance as of January 1, gross of reinsurance
  recoverable...................................   $1,053,597     $  951,659     $  876,721
Incurred related to:
     Current year...............................      276,261        254,570        214,413
     Prior years................................       47,212         16,514          3,822
                                                   ----------     ----------     ----------
Total incurred..................................      323,473        271,084        218,235
Paid related to:                                   ----------     ----------     ----------
     Current year...............................        4,535          4,622          1,343
     Prior years................................      230,005        164,524        141,954
                                                   ----------     ----------     ----------
Total paid......................................      234,540        169,146        143,297
                                                   ----------     ----------     ----------
Balance at end of period, gross of reinsurance
  recoverable...................................    1,142,530      1,053,597        951,659
Reinsurance recoverable.........................      432,046        406,409        325,795
                                                   ==========     ==========     ==========
Balance at end of period, net of reinsurance....   $  710,484     $  647,188     $  625,864
                                                   ==========     ==========     ==========
</TABLE>

The aggregate reserves reported in the financial statements represent
management's best estimate of the remaining costs of settling all incurred
claims. The Company increased prior year gross reserves by $47.2 million, $16.5
million and $3.8 million during 2000, 1999 and 1998, respectively.
Notwithstanding management's analysis and determination in setting its best
estimate of aggregate reserves reported in the financial statements, which may
or may not require adjustments to aggregate prior year reserves, management
regularly evaluates, and adjusts when appropriate, its estimates of accident
year ultimate losses and LAE (i) as part of its pricing analyses, (ii) as part
of its evaluation of the effectiveness of its reinsurance programs and (iii) for
reporting to regulatory authorities such as the Internal Revenue Service and the
state insurance departments. Accordingly, reserves established for losses and
LAE on individual accident years may experience greater volatility than
aggregate reserves reported in the Company's financial statements. Individual
accident year reserves cover a smaller amount of business over a shorter period
of time than do the aggregate reserves, which are an accumulation of reserves
pertaining to all accident years. Estimated ultimate losses and LAE associated
with individual accident years were adjusted in 2000, 1999 and 1998. The
following table presents the estimated ultimate losses and LAE gross of
reinsurance (including changes in such estimates) by accident year:


                                                                              10
<PAGE>   12
                            Accident Year Development
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                   Changes in Estimated
                                                                                                  Ultimate Losses and LAE
                                                      Estimated Ultimate                            for the Years Ended
                                              Losses and LAE as of December 31,                         December 31,
                                   ----------------------------------------------------     --------------------------------------
Accident Year                         1997          1998          1999          2000           1998          1999          2000
-------------                      ----------    ----------    ----------    ----------     ----------    ----------    ----------
<S>                                <C>           <C>           <C>           <C>            <C>           <C>           <C>
1990 and Prior                     $  984,341    $  985,590    $  982,610    $  996,836     $    1,249    $   (2,980)   $   14,226
1991                                  121,531       121,454       110,419       109,424            (77)      (11,035)         (995)
1992                                  113,610       112,404       112,488       114,955         (1,206)           84         2,467
1993                                  140,304       121,990       118,450       109,686        (18,314)       (3,540)       (8,764)
1994                                  150,613       154,063       144,513       143,651          3,450        (9,550)         (862)
1995                                  156,099       165,973       169,024       155,128          9,874         3,051       (13,896)
1996                                  172,141       174,681       178,048       179,902          2,540         3,367         1,854
1997                                  189,163       195,469       213,762       205,156          6,306        18,293        (8,606)
1998                                                214,413       233,237       242,349                       18,824         9,112
1999                                                              254,570       307,246                                     52,676
2000                                                                            276,261
                                   ----------    ----------    ----------    ----------     ----------    -----------    ---------
Total Estimated Ultimate Losses
and LAE                            $2,027,802    $2,246,037    $2,517,121    $2,840,594     $    3,822    $   16,514     $  47,212
                                   ----------    ----------    ----------    ----------     ==========    ===========    =========
Less:  Total Paid Loss and LAE     $1,151,081    $1,294,378    $1,463,524    $1,698,064
                                   ----------    ----------    ----------    ----------
Gross Loss and LAE Reserves as
of December 31                     $  876,721    $  951,659    $1,053,597    $1,142,530
                                   ==========   ===========    ==========    ==========
</TABLE>

The accident year reserve development detailed in the above table is indicative
of the potential volatility of accident year reserve estimates. Management
believes that the level of volatility experienced and reflected therein, which
ranged up to plus or minus 21% of estimated accident year ultimate losses at
December 31, 2000, is not unreasonable for the medical malpractice line of
business.

Specific factors noted in management's actuarial analyses that gave rise to the
accident year development in 2000 included the following. Reserves held on
accident years 1990 and prior were increased to reflect a longer development
period on New Jersey physician business than had previously been projected,
principally due to an eroding statute of limitations regarding late assertion of
claims. Reserves held on accident years 1991 through 1996 were adjusted to
reflect the net impact of a lengthened projected development period and
generally higher severities offset by lower than anticipated reported claim
development on New Jersey and Pennsylvania physician business and greater than
anticipated claim frequency and claim severities on Pennsylvania institution
business. Reserves held on accident year 1997 were adjusted to reflect the net
impact of the lengthened development period and lower than anticipated reported
claim development on New Jersey physician business, somewhat offset by higher
than anticipated claim frequency and severities associated with Pennsylvania
physician and institution business and business written in new states during
1997. Reserves held on accident years 1998 and 1999 were adjusted to reflect the
net impact of higher than anticipated claims frequency and severities associated
with, primarily, business written in new states since 1997, for which limited
loss data had previously existed, as well as on Pennsylvania physician and
institution business, and a lengthened development period and lower than
anticipated reported claim development on New Jersey physician business.

Specific factors noted in management's actuarial analyses that gave rise to
accident year development in 1999 included the following. Reserves held on
accident years 1990 and prior were decreased to reflect lower than anticipated
case reserve development during 1999. Reserves on accident years 1991, 1993 and
1994 were reduced to reflect lower than anticipated loss frequency and
severities. Reserves held on accident years 1995 and 1996 were increased to
reflect higher loss expectations for the Pennsylvania physician and institution
business. Additional reserves were recorded for accident year 1997 to reflect
higher than anticipated loss frequency and severities associated with
Pennsylvania physician and institution business and with physician business
written in new states in 1997. Reserves held on accident year 1998 were
increased to reflect, primarily, higher than anticipated claim frequency
associated with physician business written in new states.

Specific factors noted in management's actuarial analyses that gave rise to
accident year development in 1998 included the following. Reserves on 1990 and
prior accident years were increased to recognize slower than previously
projected development of reserves on New Jersey physician business; reserves for
accident years 1991 and 1992 were reduced, reflecting generally lower
frequencies and severities than previously projected; reserves for accident year
1993 were adjusted for the first time from initial pricing-based estimates in
1998; reserves held on


                                                                              11
<PAGE>   13
accident years 1994 through 1996 were increased, primarily relating to
Pennsylvania institution business; and reserves for accident year 1997 were
increased, primarily reflecting higher claim frequencies on physician business
written in new states in 1997.

As previously discussed, approximately 74% of the Company's December 31, 2000
gross professional liability loss and LAE reserves are related to occurrence or
occurrence-like policies, which is down from 80% at December 31, 1999 and 87% at
December 31, 1998. Management initially establishes its best estimate of
reserves based on the underlying pricing assumptions and adjusts those estimates
over time as significant developments in the legal environment or significant
changes in expected patterns of claim frequency and/or severity become apparent.

On a net of reinsurance basis, the activity in the liability for unpaid losses
and LAE is summarized as follows:

<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                     --------------------------------------------
                                                         2000             1999             1998
                                                     ----------       ----------       ----------
                                                                    (In thousands)
<S>                                                  <C>              <C>              <C>
Balance as of January 1, net of
  reinsurance recoverable..........................  $  647,188       $  625,864       $  605,990

Net reserves acquired in acquisition
 of the Underwriter................................           0            8,286                0

Incurred related to:
     Current year..................................     227,921          189,000          157,952
     Prior years...................................      51,303          (14,014)          (2,084)
                                                     ----------       ----------       ----------
Total incurred.....................................     279,224          174,986          155,868
                                                     ----------       ----------       ----------
Paid related to:
     Current year..................................       4,535            4,589            1,328
     Prior years...................................     211,393          157,359          134,666
                                                     ----------       ----------       ----------
Total paid.........................................     215,928          161,948          135,994
                                                     ----------       ----------       ----------
Balance at end of period, net of
  reinsurance recoverable..........................     710,484          647,188          625,864
Reinsurance recoverable............................     432,046          406,409          325,795
                                                     ----------       ----------       ----------
Balance at end of period, gross of reinsurance.....  $1,142,530       $1,053,597       $  951,659
                                                     ----------       ----------       ----------
</TABLE>

Net loss and LAE reserves reported in accordance with statutory accounting
principles were $103.3 million lower than the net loss and LAE reserves
displayed above at December 31, 1998. The difference relates to a 1992 contract
accounted for using deposit accounting for GAAP reporting. The Company commuted
this contract on September 30, 1999, and there was no difference at December 31,
1999 and 2000 between net loss and LAE reserves reported on a GAAP basis and
those reported in accordance with statutory accounting principles.

The following tables reflect the development of reserves for unpaid losses and
LAE, including reserves on assumed reinsurance, for the periods indicated at the
end of that year and each subsequent year. The first line shows the reserves as
originally reported at the end of the stated year. Reserves at each calendar
year-end include the estimated unpaid liabilities for that report or accident
year and for all prior report or accident years. The section under the caption
"Liability reestimated as of" shows the originally reported reserves as adjusted
as of the end of each subsequent year to reflect the cumulative amounts paid and
all other facts and circumstances discovered during each year. The line
"Cumulative redundancy (deficiency)" reflects the difference between the latest
reestimated reserves and the reserves as originally established. The section
under the caption "Cumulative amount of liability paid through" shows the
cumulative amounts paid through each subsequent year on those claims for which
reserves were carried as of each specific year end.

The tables reflect the effect of all changes in amounts of prior periods. For
example, if a loss determined in 1996 to be $100,000 was first reserved in 1990
at $150,000, the $50,000 redundancy (original estimate minus actual loss) would
be included in the cumulative redundancy in each of the years 1990 through 1995
shown below. The tables present development data by calendar year and do not
relate the data to the year in which the claim was reported or the incident
actually occurred.


                                                                              12
<PAGE>   14
Conditions and trends that have affected the development of these reserves in
the past will not necessarily recur in the future.

TABLE I. LOSS AND LAE RESERVES DEVELOPMENT - GROSS

<TABLE>
<CAPTION>
                             1990      1991     1992      1993      1994       1995       1996       1997       1998       1999
                             ----      ----     ----      ----      ----       ----       ----       ----       ----       ----
                                                                     (In thousands)
<S>                       <C>       <C>       <C>       <C>        <C>        <C>        <C>       <C>        <C>       <C>
LOSS AND LAE RESERVES     $554,076  $593,828  $629,064  $667,200   $688,455   $748,660   $795,449  $876,721   $951,659  $1,053,597

LIABILITY REESTIMATED AS
OF:
   One year later          541,778   583,133   616,042   623,988    688,455    748,660    795,654   880,543    968,173   1,100,809
   Two years later         529,531   570,108   572,831   623,986    688,450    744,130    793,170   878,233    962,709
   Three years later       516,501   532,877   572,831   623,989    689,122    739,106    772,567   863,657
   Four years later        487,918   532,878   572,871   624,567    674,224    715,136    766,597
   Five years later        487,921   540,067   570,424   606,219    647,203    707,312
   Six years later         490,398   538,126   570,390   588,748    653,275
   Seven years later       486,236   539,298   556,459   595,682
   Eight years later       487,485   525,283   572,157
   Nine years later        484,505   538,514
   Ten years later         498,731
CUMULATIVE REDUNDANCY
(DEFICIENCY)                55,345    55,314    56,907    71,518     35,180     41,348     28,852    13,064    (11,050)    (47,212)
</TABLE>

<TABLE>
<CAPTION>
                             1990      1991     1992      1993      1994       1995       1996       1997       1998       1999
                             ----      ----     ----      ----      ----       ----       ----       ----       ----       ----
                                                                     (In thousands)
<S>                       <C>       <C>       <C>       <C>        <C>        <C>        <C>       <C>        <C>       <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
   One year later         $ 67,483  $ 79,239  $ 83,837  $ 83,522   $ 98,053   $116,532   $101,217  $141,954   $164,524 $   230,005
   Two years later         144,987   161,532   165,737   179,714    212,284    214,484    231,755   298,785    370,911
   Three years later       221,931   238,998   256,860   284,828    293,323    332,920    373,232   470,693
   Four years later        288,463   318,934   348,868   343,563    407,357    452,055    514,813
   Five years later        339,121   389,638   395,242   436,921    492,388    553,205
   Six years later         390,991   413,413   462,920   486,861    552,039
   Seven years later       401,626   459,668   493,034   524,025
   Eight years later       437,768   479,717   517,161
   Nine years later        451,889   495,748
   Ten years later         464,496
</TABLE>

The Company experienced favorable development on gross reserves held at each
year-end in the table except 1998 and 1999, largely on reserves first recorded
in 1994 and prior years and associated with New Jersey physician business. The
Company has experienced adverse development on gross financial reserves held at
December 31, 1998 and 1999. The adverse development has largely consisted of
favorable adjustments to reserves held on New Jersey physician business offset
by adverse development on reserves held on Pennsylvania physician and
institution business and on business written in new states since 1997.

TABLE II. LOSS AND LAE RESERVES DEVELOPMENT - NET
<TABLE>
<CAPTION>
                               1990      1991       1992      1993      1994      1995      1996      1997      1998       1999
                               ----      ----       ----      ----      ----      ----      ----      ----      ----       ----
                                                                        (In thousands)
<S>                           <C>       <C>       <C>       <C>      <C>       <C>       <C>      <C>        <C>       <C>
LOSS AND LAE
RESERVES-GROSS                $554,076  $593,828  $629,064  $667,200  $688,455  $748,660  $795,449  $876,721  $951,659  $1,053,597
REINSURANCE RECOVERABLE ON
UNPAID LOSSES                    1,025     8,265     3,037    62,682   112,917   165,729   221,749   270,731   325,795     406,409
                              --------  --------  --------  --------  --------  --------  --------  --------  --------  ----------
                               553,051   585,563   626,027   604,518   575,538   582,931   573,700   605,990   625,864     647,188
LIABILITY REESTIMATED AS
OF:
   One year later              534,087   581,453   600,655   559,518   575,538   582,931   573,700   603,906   611,850     698,491
   Two year later              527,847   560,688   555,656   559,518   575,538   582,931   573,321   603,809   649,454
   Three years later           512,867   521,671   555,656   559,518   575,538   580,883   588,477   627,292
   Four years later            482,498   521,828   555,655   559,518   575,124   579,766   595,479
   Five years later            482,658   529,008   555,656   559,133   566,608   587,836
   Six years later             485,125   525,111   555,484   548,242   576,831
   Seven year later            479,007   524,574   541,142   561,953
   Eight years later           478,072   510,517   557,594
   Nine years later            475,050   524,772
   Ten years later             490,400
CUMULATIVE REDUNDANCY
(DEFICIENCY)                    62,651    60,791    68,433    42,565    (1,293)   (4,905)  (21,779)  (21,302)  (23,590)    (51,303)
</TABLE>

<TABLE>
<CAPTION>
                               1990      1991       1992      1993      1994      1995      1996      1997      1998       1999
                               ----      ----       ----      ----      ----      ----      ----      ----      ----       ----
                                                                        (In thousands)
<S>                           <C>       <C>       <C>       <C>      <C>       <C>       <C>      <C>       <C>       <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
   One year later             $ 67,479  $ 79,239  $ 83,212  $ 82,572  $ 97,496  $116,194  $ 84,276  $134,666  $157,359  $  211,393
   Two years later             144,983   161,532   164,469   178,357   211,426   197,370   214,404   284,887   345,305
   Three years later           221,927   238,998   255,586   283,370   278,571   315,743   365,517   439,372
   Four years later            288,459   318,928   347,493   328,836   392,522   437,779   492,617
   Five years later            339,111   389,579   381,408   422,194   478,731   524,447
   Six years later             390,928   401,000   449,086   473,702   523,901
   Seven years later           394,999   447,255   479,987   508,269
   Eight years later           431,141   468,091   503,373
   Nine years later            446,049   483,654
   Ten years later             458,287
</TABLE>

The aggregate excess reinsurance contracts, in place since 1993, provide
coverage above aggregate retentions for losses and ALAE occurring in 1993 and
after, other than losses and ALAE retained by Lawrenceville Property and
Casualty Company ("LP&C") and losses and ALAE retained by MIIX or reinsured
under other insignificant reinsurance contracts. LP&C's retention is $200,000
per loss. The

                                                                              13
<PAGE>   15
aggregate reinsurance contracts, therefore, have the effect of holding
underwriting year net incurred losses and ALAE, other than losses and ALAE
retained by LP&C and other losses and ALAE not subject to the aggregate excess
reinsurance contracts, at a constant level as long as such losses and ALAE ceded
under the aggregate excess reinsurance contracts remain within the coverage
limits. Ceded losses and ALAE have remained within coverage limits in each year
since 1993. The adjustment to net reserves in 2000 relates to losses and LAE not
covered by the aggregate reinsurance contracts, including, primarily, losses and
ALAE for accident years 1992 and prior, losses and ALAE for accident years since
1997 retained by LP&C and ULAE.

General liability incurred losses have been less than 3.0% of medical
malpractice incurred losses in the last five years. The Company does not have
material reserves for pollution claims and the Company's claims experience for
pollution coverage has been negligible.

While the Company believes that its reserves for losses and LAE are adequate,
there can be no assurance that the Company's ultimate losses and LAE will not
deviate, perhaps substantially, from the estimates reflected in the Company's
financial statements. If the Company's reserves should prove inadequate, the
Company will be required to increase reserves, which could have a material
adverse effect on the Company's financial condition or results of operations.

REINSURANCE

Reinsurance Ceded. The Company follows customary industry practice by reinsuring
some of its business. The Company typically cedes to reinsurers a portion of its
risks and pays a fee based upon premiums received on all policies so subject to
such reinsurance. Insurance is ceded principally to reduce net liability on
individual risks and to provide aggregate loss and LAE protection. Although
reinsurance does not legally discharge the ceding insurer from its primary
liability for the full extent of the policies reinsured, it does make the
reinsurer liable to the insurer to the extent of the reinsurance ceded. The
Company reviews its reinsurance needs annually and makes changes in its
reinsurance arrangements as necessary. The Company determines how much
reinsurance to purchase based upon its evaluation of the risks it has insured,
consultations with its reinsurance brokers, and market conditions, including the
availability and pricing of reinsurance.

The Company reinsures its risks primarily under two reinsurance contracts, the
Specific Contract and the Aggregate Contract. During 2000, the Company's
retention for casualty business under the Specific Contract was $10 million per
loss. For medical professional liability and commercial general liability
business, coverage was provided up to $25 million per loss above the retention.
For other casualty business, coverage was provided up to $15 million per loss
above the retention. Property coverage was also available under the Specific
Contract in the amount of $14.5 million in excess of a Company retention of
$500,000 per loss per policy. The Company retains a 10% co-participation in
covered losses. The Company has maintained specific excess of loss reinsurance
coverage generally similar to that just described for several years.

The Aggregate Contract in 2000 provided coverages on an aggregate excess of loss
and quota share basis. The primary coverage afforded under the Aggregate
Contract attaches above a Company retention measured on an underwriting year
basis as a 75% loss and ALAE ratio. Reinsurers provide coverage for an
additional 75% loss and ALAE ratio, with an aggregate annual limit of $200
million. The Company has maintained aggregate excess of loss coverage generally
similar to that just described since 1993. See "Business -- Loss and LAE
Reserves -- Table II -- Loss and LAE Reserves Development -- Net."

Each of the aggregate excess reinsurance contracts contains an adjustable
premium provision that may result in changes to ceded premium and related funds
held charges, based on loss experience under the contract. During 2000, combined
ceded losses under the aggregate excess reinsurance contracts were increased by
a net amount of $20.9 million, resulting in net additional premium charges of
$18.8 million and a net reduction in funds held charges of $13.0 million. During
1999, combined ceded losses under the aggregate excess reinsurance contracts
were increased by a net amount of $15.3 million, resulting in net additional
premium charges of $10.1 million and net additional funds held charges of $0.2
million. During 1998, combined ceded losses under the aggregate excess
reinsurance contracts were increased by a net amount of $0.3 million, resulting
in net additional premium charges of $3.3 million and net reduction in funds
held charges of $1.9 million. Each of the aggregate excess reinsurance contracts
also contains a profit sharing


                                                                              14
<PAGE>   16
provision whereby a significant portion of any favorable gross loss and ALAE
reserve development may ultimately be returned to the Company once all subject
losses and ALAE have been paid or the contract has been commuted. Profit sharing
would be recorded by the Company after the funds withheld balance related to an
aggregate excess reinsurance contract exceeds the related ceded reserves, after
any adjustments under the adjustable premium provisions. Profit sharing would
then be recorded as an offset to funds held charges and to the funds withheld
liability. There was no accrual of profit sharing at December 31, 2000, 1999 or
1998.

The major elements of ceded reinsurance activity are summarized in the following
table:

<TABLE>
<CAPTION>
                                               For the Years Ended December 31,
                                             ------------------------------------
                                               2000          1999          1998
                                             --------      --------      --------
                                                        (In thousands)
<S>                                          <C>           <C>           <C>
Ceded premiums earned......................   $46,463       $47,962       $36,105
Ceded Losses and LAE.......................    44,248        96,077        62,367
Funds held charges.........................     7,502        14,338        13,420
</TABLE>

Credit risk from reinsurance is controlled by placing the reinsurance with
large, highly rated reinsurers and by collateralizing amounts recoverable from
reinsurers. The following table identifies the Company's most significant
reinsurers, the total amount recoverable from them for unpaid losses, prepaid
reinsurance premiums and other amounts as of December 31, 2000, and collateral
held by the Company in the form of funds withheld and letters of credit as of
December 31, 2000. No other single reinsurer's percentage participation in 2000
exceeded 5% of the total reinsurance recoverable at December 31, 2000.

<TABLE>
<CAPTION>
                                                        At December 31, 2000
                                                 ---------------------------------
                                                 Total Amounts     Total Amount of
Reinsurer                                         Recoverable      Collateral Held
                                                 -------------     ---------------
                                                           (In thousands)
<S>                                              <C>               <C>
Hannover Reinsurance (Ireland) Ltd............      $203,832          $208,306
Eisen und Stahl Reinsurance (Ireland) Ltd.....        50,958            53,201
Scandinavian Reinsurance Company Ltd..........        43,075            43,803
London Life and Casualty Reinsurance
   Corporation................................        57,162            57,386
Underwriters Reinsurance Company (Barbados)...        72,143            72,738
</TABLE>

The Company analyzes the credit quality of its reinsurers and relies on its
brokers and intermediaries to assist it in such analysis. To date, the Company
has not experienced any material difficulties in collecting reinsurance
recoverables. No assurance can be given, however, regarding the future ability
of any of the Company's reinsurers to meet their obligations.

Reinsurance Assumed. The Company assumed reinsurance under various contracts
with assumed written premiums of $14.0 million, $12.7 million and $1.5 million
in 2000, 1999 and 1998, respectively. In 2000 and in 1999, $13.9 million and
$12.5 million of the assumed written premiums related to an excess of loss
contract providing medical professional liability coverage on an institutional
account. In 1998, the assumed written premiums primarily related to medical
professional liability coverage provided to AMM under a quota share contract and
two excess of loss contracts.

INVESTMENT PORTFOLIO

An important component of the operating results of the Company has been the
return on its invested assets. Such investments are made by investment managers
and internal management under policies established at the direction of the
Company's Board of Directors. The Company's current investment policy has placed
primary emphasis on investment grade, fixed maturity securities and maximization
of after-tax yields while minimizing credit risks of the portfolio. The Company
currently uses one outside investment manager for fixed maturity securities. At
December 31, 2000 and 1999, the average credit quality of the fixed income
portfolio was AA and AA-, respectively.


                                                                              15
<PAGE>   17
The following table sets forth the composition of the investment portfolio of
the Company at the dates indicated. All of the fixed maturity investments are
held as available-for-sale.

<TABLE>
<CAPTION>
                                                     December 31, 2000               December 31, 1999
                                                --------------------------      --------------------------
                                                  Cost or                         Cost or
                                                 Amortized         Fair          Amortized         Fair
                                                    Cost           Value            Cost           Value
                                                ----------      ----------      ----------      ----------
<S>                                             <C>             <C>             <C>             <C>
U.S. Treasury securities and obligations
  of U.S. government corporations and
  agencies..................................    $  141,781      $  144,709      $  107,044      $  101,493
Obligations of states and political
  subdivisions..............................       158,749         164,928         162,078         155,193
Foreign securities - U.S. dollar
  denominated...............................        45,757          44,611          35,619          34,145
Corporate securities........................       418,737         396,553         350,897         332,141
Mortgage-backed and other asset-backed
  securities................................       419,033         420,383         476,293         454,834
                                                ----------      ----------      ----------       ---------
Total fixed maturity investments............     1,184,057       1,171,184       1,131,931       1,077,806
Equity investments..........................         6,880           5,837          13,169          12,394
Short-term..................................        82,291          82,291          92,743          92,743
                                                ----------      ----------      ----------      ----------
   Total investments........................    $1,273,228      $1,259,312      $1,237,843      $1,182,943
                                                ==========      ==========      ==========      ==========
</TABLE>

The investment portfolio of fixed maturity investments consists primarily of
intermediate-term, investment-grade securities along with a modest allocation to
below investment-grade (i.e. high yield) fixed maturity investments not to
exceed 7.5% of invested assets. The Company's investment policy provides that
all security purchases be limited to rated securities or unrated securities
approved by the Executive Committee.

The table below contains additional information concerning the investment
ratings of the fixed maturity investments at December 31, 2000:

<TABLE>
<CAPTION>
                                                                                     Percentage of
S&P Rating of Investment (1)                          Amortized Cost    Fair Value    Fair Value
---------------------------------------------------   --------------    ----------   -------------
                                                            (In thousands)
<S>                                                   <C>               <C>            <C>
AAA (including U.S. Government and Agencies).......     $  615,603      $  625,572       53.4%
AA.................................................        103,712         103,043        8.8%
A..................................................        236,042         229,618       19.6%
BBB................................................        144,946         139,666       11.9%
Other Ratings (below investment grade).............         76,254          65,785        5.6%
Not Rated..........................................          7,500           7,500        0.7%
                                                        ----------      ----------      ------
   Total...........................................     $1,184,057      $1,171,184      100.0%
                                                        ==========      ==========      ======
</TABLE>

(1)  The ratings set forth above are based on the ratings, if any, assigned by
     Standard & Poor's Rating Services ("S&P"). If S&P's ratings were
     unavailable, the equivalent ratings supplied by another nationally
     recognized ratings agency were used.

The following table sets forth certain information concerning the maturities of
fixed maturity investments in the investment portfolio as of December 31, 2000
by contractual maturity:


                                                                              16
<PAGE>   18
<TABLE>
<CAPTION>
                                                         Amortized        Fair         Percentage of
Maturity of Investment                                     Cost           Value          Fair Value
---------------------------------------------------    --------------   ----------     -------------
                                                              (In thousands)
<S>                                                    <C>              <C>            <C>
Due one year or less...............................     $   13,614      $   13,628           1.2%
Due after one year through five years..............        146,640         144,660          12.4%
Due after five years through ten years.............        300,831         289,716          24.7%
Due after ten years................................        303,939         302,797          25.8%
Mortgage-backed and other asset-backed securities..        419,033         420,383          35.9%
                                                        ----------      ----------         ------
   Total ..........................................     $1,184,057      $1,171,184         100.0%
                                                        ==========      ==========         ======
</TABLE>

The average effective maturity and the effective duration of the securities in
the fixed maturity portfolio (excluding short-term investments) as of December
31, 2000, was 7.55 years and 5.10 years, respectively.

The mortgage-backed portfolio represents approximately 27% of the total fixed
income portfolio and is allocated equally across "standard" and "more complex"
securities, while the asset-backed portfolio represents approximately 9% of the
total fixed income portfolio.

Standard mortgage-backed securities are issued on and collateralized by an
underlying pool of single-family home mortgages. Principal and interest payments
from the underlying pool are distributed pro rata to the security holders. More
complex mortgage-backed security structures prioritize the distribution of
interest and principal payments to different classes of securities which are
backed by the same underlying collateral mortgages.

COMPETITION

The physician professional liability insurance market in the United States is
highly competitive. According to A.M. Best, in 1999 there were 336 companies
nationally that wrote medical professional liability insurance. In New Jersey,
where approximately 51% of the Company's 2000 premiums were written for the year
ended December 31, 2000, the Company's principal competitors include the
Princeton Insurance Companies, ProMutual Group, ProNational Insurance Group,
Medical Protective Company, Clarendon Insurance Group and Pennsylvania Medical
Society Liability Insurance Company. In New Jersey and other states, the
Company's principal competitors include CNA Insurance Group, PHICO Insurance
Company and St. Paul Companies. Substantially all of these companies rank among
the top 20 medical malpractice insurers nationally and are actively engaged in
soliciting insureds in the states in which the Company writes insurance. Many of
the Company's current and potential competitors have greater financial resources
than the Company and may seek to acquire market share by decreasing pricing for
their products below prevailing market rates, thereby reducing profitability.
The Company believes that several insurance companies possessing greater
financial resources than the Company are writing medical malpractice insurance
that provides the same coverage as the Company's products at prices lower than
the Company's prices. This price competition could result in a loss of business
and have a material adverse effect on the Company's financial condition and
results of operations. The Company believes that the principal competitive
factors, in addition to pricing, include financial stability and A.M. Best
ratings, breadth and flexibility of coverage, and the quality and level of
services provided.

The hospital professional liability insurance market is also extremely
competitive. Most of the Company's principal insurance company competitors for
physicians and medical groups also now actively compete in the hospital
professional liability insurance market. Moreover, the Company's primary
competitor in New Jersey was founded to provide professional liability coverage
to hospitals, while the Company traditionally served the individual physician
market.

The Company plans to compete by, among other things, maintaining a close
relationship with the medical community, maintaining underwriting discipline
with a strong clinical focus and differentiating itself through superior claims,
risk management and customer services. All markets in which the Company now
writes insurance and in which it expects to enter have certain competitors with
substantially greater financial and operating resources than the Company.


                                                                              17
<PAGE>   19
REGULATION

MIIX, LP&C and MIIX New York are each subject to supervisory regulation by their
respective states of incorporation, commonly called the state of domicile.
Lawrenceville Re, Ltd. (Lawrenceville Re) is subject to laws governed by the
Bermuda Registrar of Companies. MIIX is domiciled in New Jersey, LP&C is
domiciled in Virginia, MIIX New York is domiciled in New York and Lawrenceville
Re is domiciled in Bermuda. Therefore, the laws and regulations of these states,
and those of Bermuda, including the tort liability laws and the laws relating to
professional liability exposures and reports, have the most significant impact
on the operations of the combined company.

Holding Company Regulation. As part of a holding company system, MIIX, LP&C and
MIIX New York are subject to the Insurance Holding Company Systems Acts (the
"Holding Company Act") of their domiciliary states. The Holding Company Act
requires the domestic company to file information periodically with the state
insurance department and other state regulatory authorities, including
information relating to its capital structure, ownership , financial condition
and general business operations. Material changes or additions to this
information must be reported to the domiciliary regulatory agency within fifteen
days after the end of the month in which the change or addition occurred.
Certain transactions between an insurance company and its affiliates, including
sales, loans or investments may not be entered into unless the insurer has
provided written notice to the domiciliary regulatory agency at least thirty
days prior to entering into the transaction, and the regulatory agency has
either approved or has not disapproved the transaction within that 30-day
period. In New Jersey, transactions with affiliates involving (i) loans, sales,
purchases, exchanges, extensions of credit, investments, guarantees, or other
contingent obligations which within any 12 month period aggregate at least 3% of
the insurance company's admitted assets or 25% of its surplus as regards
policyholders, whichever is lesser, (ii) reinsurance agreements or modifications
in which the reinsurance premium or a change in the insurer's liabilities equals
or exceeds 5% of the insurer's surplus as regards policyholders, and (iii) all
management agreements, service contracts and all cost-sharing arrangements are
subject to the 30-day prior notice and non-disapproval requirement. In Virginia,
similar affiliated transactions may not be entered into unless the insurer has
provided prior written notice to the Virginia Bureau of Insurance and the Bureau
has either approved the transaction or has not disapproved the transaction
within sixty days after the insurer provides notice of the transaction to the
Bureau. In New York, (i) sales, purchases, exchanges, loans or extensions of
credit, or investments which within any twelve month period aggregate to more
than 0.5% but less than 5% of the insurance company's admitted assets as of the
end of the company's last fiscal year, (ii) reinsurance treaties or agreements,
(iii) the rendering of services on a regular or systematic basis, and (iv)
certain material transaction may not be entered into unless the insurer has
notified the New York Insurance Department in writing at least thirty days prior
to entering the transaction and the Department has not disapproved of such
transaction within the thirty-day period.

Certain other material transactions, not involving affiliates, must be reported
to the domiciliary regulatory agency within 15 days after the end of the
calendar month in which the transaction occurred (in contrast to prior
approval). These transactions include acquisitions and dispositions of assets
that are nonrecurring, are not in the ordinary course of business and exceed 5%
of the Company's admitted assets. Similarly, nonrenewals, cancellations, or
revisions of ceded reinsurance agreements, which affect established percentages
by regulation of the Company's business, are also subject to disclosure.

The Holding Company Act also provides that the acquisition or change of
"control" of a domestic insurance company or of any person or entity that
controls such an insurance company cannot be consummated without prior
regulatory approval. In general, a presumption of "control" arises from the
ownership of voting securities and securities that are convertible into voting
securities, which in the aggregate constitute 10% or more of the voting
securities of the insurance company or of a person or entity that controls the
insurance company, such as The MIIX Group. A person or entity seeking to acquire
"control," directly or indirectly, of the Company would generally be required to
file an application for change of control containing certain information
required by statute and published regulations and provide a copy of the
application to the Company. The Holding Company Act also effectively restricts
the Company from consummating certain reorganizations or mergers without prior
regulatory approval.


                                                                              18
<PAGE>   20
Regulation of Dividends from Insurance Subsidiaries. The Holding Company Act of
the State of New Jersey limits the ability of MIIX to pay dividends to The MIIX
Group. MIIX may not pay an extraordinary dividend or distribution until 30 days
after providing notice of the declaration of such dividend or distribution to
the New Jersey Insurance Commissioner and the Commissioner has not disapproved
the payment within such 30-day period. An extraordinary dividend or distribution
is defined as any dividend or distribution of cash or other property whose fair
market value together with other dividends or distributions made within the
preceding 12 months exceeds the greater of such subsidiary's statutory net
income, excluding realized capital gains, of the preceding calendar year or 10%
of statutory surplus as of the preceding December 31. The law further requires
that an insurer's statutory surplus following a dividend or other distribution
be reasonable in relation to its outstanding liabilities and adequate to meet
its financial needs. New Jersey permits the payment of dividends only out of
statutory earned (unassigned) surplus unless the payment of the dividend is
approved or not disapproved as an extraordinary dividend or distribution. In
addition, a New Jersey insurance company is required to give the New Jersey
Department notice of any dividend after declaration, but prior to payment.

The other United States domiciled Insurance Subsidiaries are subject to similar
provisions and restrictions under the Holding Company Acts of other states.
Lawrenceville Re is subject to restrictions imposed by the Bermuda Registrar of
Companies.

Insurance Company Regulation. The Company is subject to the insurance laws and
regulations in each state in which it is licensed to do business. The Company is
licensed in 32 states and the District of Columbia. The extent of regulation
varies by state, but such regulation usually includes: (i) regulating premium
rates and policy forms; (ii) setting minimum capital and surplus requirements;
(iii) regulating guaranty fund assessments; (iv) licensing companies and agents;
(v) approving accounting methods and methods of setting statutory loss and
expense reserves; (vi) setting requirements for and limiting the types and
amounts of investments; (vii) establishing requirements for the filing of annual
statements and other financial reports; (viii) conducting periodic statutory
examinations of the affairs of insurance companies; (ix) approving proposed
changes of control; and (x) limiting the amounts of dividends that may be paid
without prior regulatory approval. Such regulation and supervision are primarily
for the benefit and protection of policyholders and not for the benefit of
investors.

Insurance Guaranty Associations. Most states, including New Jersey, Virginia and
New York require admitted property and casualty insurers to become members of
insolvency funds or associations that 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.
Maximum contributions required by law in any one year vary by state and are
usually between 1% and 2% of annual premiums written by a member in that state
during the preceding year. New Jersey and Virginia, the states in which MIIX and
LP&C are respectively domiciled, and Texas, Pennsylvania, Maryland and Kentucky,
states in which the Company has significant business, permit a maximum
assessment of 2%. Ohio permits a maximum assessment of 1.5%. New York requires
contributions of 1/2 of 1% of annual premiums written during the preceding year
until such time that the fund reaches a minimum amount set by New York.
Contributions can be increased if the fund falls below the minimum. New York law
does not establish a maximum assessment amount. New Jersey permits recoupment of
guaranty fund payments through future policy surcharges. Virginia and Texas
permit premium tax reductions as a means of recouping guaranty fund payments.

Examination of Insurance Companies. Every insurance company is subject to a
periodic financial examination under the authority of the insurance commissioner
of its state of domicile. Any other state interested in participating in a
periodic examination may do so. The last completed periodic financial
examination of the Exchange, based on December 31, 1996 financial statements,
was completed on November 24, 1999, and a report was issued on December 1, 1999.
MIIX is currently scheduled to commence its latest periodic examination in 2001.
The last periodic financial examination of LP&C, based on December 31, 1999
financial statements, was completed on May 5, 2000, and a report was issued on
October 20, 2000. The issued report included an examination adjustment to loss
and LAE reserves of $29.3 million, the amount derived from the Company's loss
reserve study at June 30, 2000, and was recorded by the Company at June 30,
2000. Various states also conduct "market conduct examinations" which are
unscheduled examinations designed to monitor the compliance with state laws and
regulations concerning the filing of


                                                                              19
<PAGE>   21
rates and forms and company operations in general. The Company has not undergone
a market conduct examination.

Risk-Based Capital. In addition to state-imposed insurance laws and
regulations, insurers are subject to the general statutory accounting practices
and the reporting format of the National Association of Insurance Commissioners
(the "NAIC"). The NAIC's methodology for assessing the adequacy of statutory
surplus of property and casualty insurers includes a risk-based capital ("RBC")
formula that attempts to measure statutory capital and surplus needs based on
the risks in a company's mix of products and investment portfolio. The formula
is designed to allow state insurance regulators to identify potentially
under-capitalized companies. Under the formula, a company determines its RBC by
taking into account certain risks related to the insurer's assets (including
risks related to its investment portfolio and ceded reinsurance) and the
insurer's liabilities (including underwriting risks related to the nature and
experience of its insurance business). The RBC rules provide for different
levels of regulatory attention depending on the ratio of an insurance company's
total adjusted capital to its "authorized control level" of RBC. At December
31, 2000, the RBC for both MIIX and LP&C exceeded the threshold requiring the
least regulatory attention. MIIX New York did not write any premium during
2000, and therefore the RBC ratio is not meaningful for that period.

NAIC-IRIS Ratios. The NAIC Insurance Regulatory Information System ("IRIS") 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 insurance companies operating in their
respective states. IRIS identifies 12 ratios for the property and casualty
insurance industry and specifies a range of "usual values" for each ratio.
Departure from the "usual value" range on four or more ratios may lead to
increased regulatory oversight from individual state insurance commissioners. At
December 31, 2000 MIIX had one ratio (change in policyholders' surplus) outside
the usual range, as a result of the loss reserve strengthening in 2000. At
December 31, 1999 MIIX's ratios were all within the usual range. In 1998 the
Exchange had one ratio (change in net writings) outside the usual range as a
result of growth in business that year. At December 31, 2000 LP&C had three
ratios (two-year overall, change in surplus and two-year reserve development to
policyholders' surplus) outside the usual range. In 1999, LP&C had two ratios
(two-year overall operating ratio and change in policyholders' surplus) outside
the usual range and at December 31, 1998 LP&C had two ratios (change in net
writings and two-year overall operating ratio) outside the usual range. These
ratios outside the usual range reflect the loss reserve strengthening in 2000,
the increase in premiums written during the early years of operation, capital
contributions by MIIX and the high cost of expanding LP&C's business, as LP&C
was acquired in 1996 and had no business at that time. IRIS ratio results for
MIIX New York are not meaningful due to no business written by this company in
2000.

Regulation of Investments. The Insurance Subsidiaries are subject to state laws
and regulations that require diversification of their investment portfolios and
limit the amount of investments in certain investment categories such as below
investment grade fixed income securities, real estate and equity investments.
Failure to comply with these laws and regulations would cause investments
exceeding regulatory limitations to be treated as non-admitted assets for
purposes of measuring statutory surplus and, in some instances, would require
divestiture of such non-qualifying investments over specified time periods
unless otherwise permitted by the state insurance authority under certain
conditions. The Company did not have any non-qualifying investments in 2000.

Rates and Policies Subject to Regulation. Pursuant to the New Jersey Insurance
Code, a domestic insurer must submit policy forms and endorsements to the
Commissioner 30 days prior to the policies becoming effective. If not
disapproved by the Commissioner within 30 days, such policy forms are deemed
approved. Rates and rating plans must be filed with the New Jersey Commissioner
30 days after becoming effective. In Virginia, an insurer must file policy forms
and endorsements with The Bureau of Insurance thirty days prior to the policy
forms and endorsements becoming effective, and generally such policy forms and
endorsements may be used if not disapproved by The Bureau within the thirty-day
period. An insurer must also file rates and rating plans with the Bureau. Rates
and rating plans are not effective unless approved by the Bureau, but rates and
rate plans are generally deemed approved if 60 days has lapsed since filing and
the Bureau has not disapproved of the filing. The possibility exists that the
Company may be unable to


                                                                              20
<PAGE>   22
implement desired rates, policies, endorsements, forms, or manuals if such items
are disapproved by the applicable regulatory authorities. In the past,
substantially all of the Company's rate applications have been approved in the
normal course of review. In other states, policy forms usually are subject to
prior approval by the regulatory agency while rates usually are "file and use."
The New York Insurance Department sets the rates for medical malpractice
coverage on an annual basis.

Medical Malpractice Tort Reform. Revisions to certain of New Jersey's statutes
governing medical malpractice took effect in 1995. These revisions included
raising joint and several liability standards, requiring affidavits of merit,
restricting strict liability of health care providers due to defective products
used in their practices, and capping punitive damages at the greater of five
times compensatory damages or $350,000. The Company believes that these changes
are bringing stability to the medical malpractice insurance business in New
Jersey by making it more feasible for insurers to assess certain risks.
Legislation passed in 1996 in Pennsylvania provides, among other things, that
plaintiffs in informed consent cases must prove receiving information necessary
to form an informed consent would have been a substantial factor in the
patient's decision whether to undergo certain procedures, that except for cases
alleging intentional misconduct, punitive damages assessed against individual
defendants be capped at twice the compensatory damages, and that courts have in
certain instances pronounced the Pennsylvania Medical Professional Liability
Catastrophe Loss Fund (the "Cat Fund") be responsible for delay damages. Texas
tort reform applicable to cases accruing on or after September 1, 1996, bars
plaintiffs from recovery if their own negligence is more than 50% responsible
for their injuries, while defendants shall generally be jointly and severally
liable only if found to be more than 50% responsible. Exemplary damages shall
not exceed the greater of $200,000, or two times the economic damage plus the
non-economic damage, not to exceed $750,000.

Medical Malpractice Reports. The Company principally writes medical malpractice
insurance and additional requirements are placed upon them to report detailed
information with regard to settlements or judgments against their insureds. In
addition, the Company is required to report to state regulatory agencies and/or
the National Practitioner Data Bank, payments, claims closed without payments,
and actions by the Company, such as terminations or surcharges, with respect to
its insureds. Penalties may attach if the Company fails to report to either the
state agency or the National Practitioner Data Bank.

Catastrophe Funds. Some states in which the Company writes insurance have
established catastrophe fund laws that effectively limit the Company's liability
to a level below the Company's typical policyholder limits of coverage. By way
of example, for policies issued or renewed after January 1, 2001, Pennsylvania's
Catastrophe ("Cat") Fund provides coverage for medical malpractice claims
exceeding $500,000 per claim for physicians and hospitals and $1.5 million and
$2.5 million aggregate per year for physicians and hospitals, respectively. For
calendar year 2001 and each year thereafter, the Cat Fund coverage is limited to
$700,000 per claim and $2.1 million in the aggregate.

A.M. BEST RATINGS

In 2000, A.M. Best, which rates insurance companies based on factors of concern
to policyholders, rated the Company "A- (Excellent)." This is the fourth highest
rating of 16 ratings that A.M. Best assigns.

A.M. Best publications indicate that the "A-" rating is assigned to those
companies that in A.M. Best's opinion have a strong ability to meet their
obligations to policyholders over a long period of time. In evaluating a
company's financial and operating performance, A.M. Best reviews the company's
profitability, leverage and liquidity; its book of business; the adequacy and
soundness of its reinsurance; the quality and estimated market value of its
assets; the adequacy of its loss reserves and surplus; its capital structure;
the experience and competence of its management; and its market presence.

EMPLOYEES

The Company employed approximately 220 persons at December 31, 2000. None of the
Company's employees are covered by a collective bargaining agreement. The
Company believes that its relations with its employees are good.


                                                                              21
<PAGE>   23
ITEM 2. PROPERTIES

The Company leases 49,000 square feet of space from the Medical Society of New
Jersey in Lawrenceville, New Jersey, where its home office and Mid-Atlantic
Region office are located. The Company also leases 28,000 square feet of space
in a second Lawrenceville office building, where its claim department and a
subsidiary are based. The Company's regional office facilities are located in
rented office space in Indianapolis (5,000 square feet) and Dallas (5,000 square
feet). The Company believes that its office space is adequate for its present
needs and that it will be able to secure additional office space in the future
if necessary.

ITEM 3. LEGAL PROCEEDINGS

ACTIONS OPPOSING THE PLAN OF REORGANIZATION

Prior to the reorganization of the Company, three physician members of the
Exchange (the "appellants") filed an appeal in the New Jersey Superior Court,
Appellate Division, challenging the Commissioner of Banking and Insurance's
Order approving the Plan of Reorganization. The principal arguments raised by
the appellants were that: (1) the pro rata, three-year look-back allocation of
stock was unfair to long-time members; (2) the Commissioner lacked statutory
authority to approve the reorganization because there is no statute specifically
authorizing the conversion of a reciprocal exchange to a stock company; and (3)
there was insufficient advance notice of the public hearing on the Plan. During
the pendency of the appeal, the appellants made a total of six applications to
the New Jersey Department of Banking and Insurance, the New Jersey Superior
Court, Appellate Division and the New Jersey Supreme Court seeking to stay the
reorganization and/or the initial public offering of MIIX Group stock. All of
these applications were denied. On February 14, 2000, the New Jersey Superior
Court, Appellate Division issued an Opinion that rejected the appellants'
challenge to the Commissioner's Order approving the Plan of Reorganization. On
September 19, 2000, the appellants' petition for review of the Appellate
Division decision by the New Jersey Supreme Court was denied. The matter has now
been finally concluded in the Company's favor.

In January 1999, five physician members of the Exchange filed a putative class
action against the Exchange, Underwriter, MIIX Group, certain of their officers
and the board of the Exchange. Other parties were subsequently added as
defendants in the action. Among other things, plaintiffs sought to force the
Exchange to declare a dividend from surplus and reserves, challenge various
components of the reorganization including, but not limited to, the stock
allocation formula contained in the Plan of Reorganization and the valuation of
Underwriter, challenge the composition of the Board of Directors of MIIX Group
as excessive, challenge key executive compensation and benefit packages as
excessive, challenge the proposed IPO share price of MIIX Group stock as
inadequate, challenge the MIIX Prospectus as misleading and to recover
unspecified monetary damages. While the action was pending, the plaintiffs also
sought on numerous occasions to stay the members' vote on the Plan of
Reorganization and the IPO of MIIX Group stock. All of those applications were
denied. In August 1999, the trial court dismissed all of plaintiffs' claims on
the grounds that the court lacked jurisdiction to hear them because they were
part of the appeal of the Commissioner's Order and/or because they failed to
state a legal claim. Plaintiffs have filed a Notice of Appeal with the New
Jersey Superior Court, Appellate Division seeking review of the trial court's
orders dismissing the Complaint and denying plaintiffs' applications for
injunctive relief. The Company plans to vigorously oppose the appeal.

The Company may be a party to litigation from time to time in the ordinary
course of business. Management believes that the Company is not currently a
party to any litigation which may have a material adverse effect on the Company.

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

Not Applicable.

                                                                              22
<PAGE>   24
PART II

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

PRICE RANGE OF COMMON STOCK

The Company's Common Stock became publicly tradeable on the NYSE on July 30,
1999 under the symbol of "MHU." The following table shows the price ranges per
share in each quarter since that date:

<TABLE>
<CAPTION>
                                                                 Common Stock
                                                              -------------------
                                                               High         Low
                                                              ------       ------
<S>                                                           <C>          <C>
          2000
          ----
          First Quarter                                       $14.31       $10.75
          Second Quarter                                      $13.94       $ 9.88
          Third Quarter                                       $13.00       $ 7.31
          Fourth Quarter                                      $ 8.44       $ 6.13

          1999
          ----
          Third Quarter (since July 31)                       $18.31       $14.19
          Fourth Quarter                                      $17.00       $11.69
</TABLE>

On March 21, 2001, the closing price of the Company's stock was $7.95.

SHAREHOLDERS OF RECORD

The number of shareholders of record of the Company's Common Stock as of March
21, 2001 was 6,663. That number excludes the beneficial owners of shares held
"in street" names or held through participants in depositories.

DIVIDENDS

The MIIX Group, Incorporated's Board of Director's (the "Board") declared a cash
dividend of $0.05 per share on its common stock each quarter of 2000 and 1999,
since July 30, 1999. On February 21, 2001, the Board declared a $0.05 quarterly
dividend payable on March 30, 2001 to shareholders of record on March 16, 2001.
The Company expects to continue the payment of quarterly dividends to its
shareholders. The continued payment and amount of cash dividends will depend
upon, among other factors, the Company's operating results, overall financial
condition, capital requirements and general business conditions.

The MIIX Group, Incorporated is a holding company largely dependent upon
dividends from its subsidiaries to pay dividends to its shareholders. The
insurance company subsidiaries are subject to state laws and regulations that
restrict their ability to pay dividends. MIIX Insurance Company, The MIIX
Group's principal insurance subsidiary, may pay dividends to The MIIX Group in
any year, without regulatory approval, to the extent such dividends do not
exceed the greater of statutory net income (excluding realized capital gains) of
the preceding calendar year or 10% of statutory surplus at the end of the
preceding year. Applicable regulations further require that an insurer's
statutory surplus following a dividend or other distribution be reasonable in
relation to its outstanding liabilities and adequate to meet its financial
needs. New Jersey permits the payment of dividends only out of statutory earned
(unassigned) surplus unless the payment out of other funds is approved by the
Commissioner. In 2001, MIIX may pay dividends to The MIIX Group of approximately
$22.5 million without the prior approval of the New Jersey Insurance
Commissioner. See Note 9 of the Notes to Consolidated Financial Statements and
"Business Regulation - Regulation of Dividends from Insurance Subsidiaries."

ITEM 6. SELECTED FINANCIAL DATA

SUMMARY FINANCIAL AND OPERATING DATA

The following table sets forth selected consolidated financial and operating
data for the Company. The income statement data set forth below for each of the
five years in the period ended December 31, 2000 and the balance sheet data as
of December 31, 2000, 1999, 1998, 1997 and 1996 are derived from the
consolidated financial statements of the Company audited by Ernst & Young LLP,
independent auditors. All selected financial data are presented in accordance
with GAAP, except for the item entitled "statutory surplus," which is presented
in accordance with Statutory Accounting Principles ("SAP"). The statutory
surplus amounts are derived


                                                                              23
<PAGE>   25
from the statutory financial statements of the Company and, in the opinion of
management, fairly reflect the specified data for the periods presented. The
information set forth below should be read in conjunction with, and is qualified
by reference to, the Company's financial statements and related notes thereto
included elsewhere herein.

<TABLE>
<CAPTION>
                                                           (In thousands, except per share amounts)
                                                               For the Years Ended December 31,
                                          ------------------------------------------------------------------------------
                                             2000             1999              1998            1997             1996
                                          ----------       ----------        ----------      ----------       ----------
<S>                                       <C>              <C>               <C>             <C>              <C>
INCOME STATEMENT DATA:
Total premiums written.............       $  226,126       $  257,100        $  231,858      $  177,908       $  146,768
                                          ==========       ==========        ==========      ==========       ==========
Net premiums earned................       $  184,062       $  187,845        $  162,501      $  123,330       $  107,887
Net investment income..............           85,158           75,661            65,107          53,892           49,135
Realized investment gains/
   (losses)........................           (4,156)          (6,770)           36,390          10,296            5,832
Other revenue......................            7,452            8,323               891           2,884            3,164
                                          ----------       ----------        ----------      ----------       ----------
       Total revenues..............          272,516          265,059           264,889         190,402          166,018
                                          ----------       ----------        ----------      ----------       ----------
Losses and loss adjustment
   expenses........................          279,224          174,986           155,868         120,496          110,593
Underwriting expenses..............           38,560           42,618            42,063          25,415           17,553
Funds held charges.................            7,502           14,338            13,420          13,361           10,273
Other expenses.....................            5,828            3,333                 0               0                0
Restructuring charge...............                0            2,409                 0               0                0
Impairment of capitalized
   system development costs........                0                0            12,656               0                0
                                          ----------       ----------        ----------      ----------       ----------
       Total expenses..............          331,114          237,684           224,007         159,272          138,419
                                          ----------       ----------        ----------      ----------       ----------
Income/(loss) before income
   taxes...........................          (58,598)          27,375            40,882          31,130           27,599
Income tax expense/(benefit).......          (22,140)           6,617            11,154           2,006           10,004
                                          ----------       ----------        ----------      ----------       ----------
       Net income/(loss)...........       $  (36,458)      $   20,758        $   29,728      $   29,124       $   17,595
                                          ==========       ==========        ==========      ==========       ==========

BALANCE SHEET DATA (AT END OF
PERIOD):
   Total investments...............       $1,259,312       $1,182,943        $1,165,698      $1,026,971       $  916,330
   Total assets....................        1,896,548        1,837,158         1,674,262       1,446,559        1,295,441
   Total liabilities...............        1,607,107        1,518,454         1,351,419       1,136,585        1,033,129
   Total shareholders' equity......          289,441          318,704           322,843         309,974          262,312
ADDITIONAL DATA:
GAAP ratios:
   Loss ratio......................          151.7%            93.1%             95.9%           97.7%           102.5%
   Expense ratio...................           21.0%            22.7%             25.9%           20.6%            16.3%
                                          ----------       ----------        ----------      ----------       ----------
   Combined ratio..................          172.7%           115.8%            121.8%          118.3%           118.8%
                                          ==========       ==========        ==========      ==========       ==========

Statutory surplus..................       $  231,498       $  268,445        $  253,166      $  242,395       $  208,478
                                          ==========       ==========        ==========      ==========       ==========

Basic earnings/(loss) per
   share (1).......................         $(2.59)          $ 1.54            $ 2.47           $ 2.42           $ 1.46
                                            ======           ======            ======           ======           ======
Diluted earnings/(loss) per
   share (1).......................         $(2.58)          $ 1.53            $ 2.47           $ 2.42           $ 1.46
                                            ======           ======            ======           ======           ======
Dividend per share.................         $ 0.20           $ 0.10            $ 0.00           $ 0.00           $ 0.00
                                            ======           ======            ======           ======           ======
Book value per share ..............         $21.34           $20.94            $26.90           $25.78           $21.81
                                            ======           ======            ======           ======           ======
</TABLE>

(1)  Basic loss per share of common stock for the year ended December 31, 2000
     is computed using the weighted average number of common shares outstanding
     during the year of 14,100,043. Diluted loss per share of common stock for
     the year ended December 31, 2000 is computed using the weighted average
     number of common shares outstanding during the year of 14,116,770.

     Basic earnings per share of common stock for the year ended December 31,
     1999 is computed using the weighted average number of common shares
     outstanding during the year of 13,497,110. Diluted earnings per share of
     common stock for the year ended December 31, 1999 is computed using the
     weighted average number of common shares outstanding during the year of
     13,534,052. Basic and diluted earnings per share for the years ended
     December 31, 1998 and prior gives effect to the issuance of approximately
     12,025,000 shares of Common Stock to Distributees in the Company's
     reorganization consummated on August 4, 1999.

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

The following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto appearing elsewhere in this
Annual Report. The consolidated financial statements for 2000 include the
accounts and operations of The MIIX Group, Incorporated ("The MIIX Group") and
its wholly-


                                                                              24
<PAGE>   26
owned subsidiaries, including, since August 4, 1999, New Jersey State Medical
Underwriters, Inc. and its wholly-owned subsidiaries ("the Underwriter"). The
consolidated financial statements for 1999 prior to August 4, 1999, and for
1998, 1997 and 1996, include the accounts and operations of the former parent
company Medical Inter-Insurance Exchange (the "Exchange") and its wholly-owned
subsidiaries.

OVERVIEW

REORGANIZATION AND INITIAL PUBLIC OFFERING

On August 4, 1999, the reorganization of the Exchange was consummated. The
reorganization was conducted according to a Plan of Reorganization adopted by
the Board of Governors of the Exchange on October 15, 1997 and approved by
members of the Exchange at a special meeting held on March 17, 1999 and by the
Commissioner of the New Jersey Department of Banking and Insurance ("the
Commissioner"). The Plan of Reorganization included several key components,
including: formation of The MIIX Group to be the ultimate parent company for the
Company; the transfer of assets and liabilities held by the Exchange to an
affiliated stock insurance company, MIIX Insurance Company, formed for that
purpose; acquisition of the Underwriter; distribution of shares of The MIIX
Group common stock and/or cash to current and former members of the Exchange
("Distributees") as defined in the Plan of Reorganization; and dissolution of
the Exchange. In connection with the reorganization, 11,854,033 shares of The
MIIX Group common stock were issued to Distributees and 814,815 shares were
issued to the Medical Society of New Jersey, plus $100,000 in cash, in exchange
for all common stock of the Underwriter.

The Plan has been challenged in two court actions. On February 14, 2000, the
Appellate Division of the Superior Court of New Jersey affirmed the
Commissioner's order approving the Plan of Reorganization, rejecting all of
appellants' contentions, in response to an appeal filed by three individual
insureds challenging the Commissioner's order. On September 19, 2000, the
appellants' petition for review of the Appellate Division decision by the New
Jersey Supreme Court was denied. The matter has now been finally concluded in
the Company's favor. A second court action challenging certain aspects of the
Plan of Reorganization and seeking damages and injunctive relief that was filed
by five individual insureds in January 1999 was dismissed by the trial court in
August 1999 and is now on appeal. The Company intends to vigorously oppose the
appeal.

The MIIX Group sold three million shares of its common stock in an underwritten
public offering ("the Offering") that closed on August 4, 1999. On August 11,
1999 an additional 450,000 shares were sold to underwriters of the Offering
pursuant to an over-allotment option in the Offering underwriting agreement. The
net proceeds of the Offering of approximately $37.3 million consisted of gross
proceeds of $46.5 million less reorganization and offering costs of $9.2 million
and have been used for general corporate purposes, including payment of
dividends and the repurchase of shares under a stock buyback program. During
August 1999, the Company approved a stock repurchase program authorizing the
purchase of up to one million shares of common stock in the open market. During
November 1999, the program was amended, authorizing the purchase of up to an
additional two million shares. Through December 31, 2000, 3,000,000 shares had
been repurchased at a total cost of $39.3 million and 25,933 shares have been
issued from treasury at a value of $0.4 million.


GENERAL

The medical malpractice industry is cyclical in nature. Many factors influence
the financial results of the medical malpractice industry, several of which are
beyond the control of the Company. These factors include, among other things,
changes in severity and frequency of claims; changes in applicable law;
regulatory reform; and changes in inflation, interest rates and general economic
conditions.

The availability of medical malpractice insurance, or the industry's
underwriting capacity, is determined principally by the industry's level of
capitalization, historical underwriting results, returns on investments and
perceived premium rate adequacy.

Management periodically reviews the Company's guidelines for premiums,
surcharges, discounts, cancellations and non-renewals and other related matters.
As part of this review, rates and rating classifications for its physicians,
medical groups


                                                                              25
<PAGE>   27
and other insureds are evaluated based on current and historical losses, LAE
(defined below) and other actuarially significant data. The process may result
in changes in rates for certain exposure classes.

LOSS AND LAE RESERVES

The determination of loss and loss adjustment expense ("LAE") reserves involves
the projection of ultimate losses through an actuarial analysis of the claims
history of the Company and other professional liability insurers, subject to
adjustments deemed appropriate by the Company due to changing circumstances.
Management relies primarily on such historical experience in determining reserve
levels on the assumption that historical loss experience provides a good
indication of future loss experience despite the uncertainties in loss trends
and the delays in reporting and settling claims. As additional information
becomes available, the estimates reflected in earlier loss reserves have been
and may continue to be revised. The Company increased prior year gross reserves
by $47.2 million and $16.5 million in 2000 and 1999, respectively.

The Company offered traditional occurrence coverage from 1977 through 1986 and
has offered a form of occurrence-like coverage, "modified claims made," from
1987 to the present. Occurrence and modified claims made coverages have
constituted the majority of the Company's business throughout its history. In
recent years, however, the Company has increased its claims made business.
Development of losses and LAE is longer and slower for occurrence business than
claims made business.

Reserves for incurred but not reported claims ("IBNR reserves") have
consistently represented the majority of total loss and LAE reserves held by the
Company. At December 31, 2000 and 1999, gross IBNR reserves composed 60.3% and
60.8%, respectively, of total gross loss and LAE reserves. The decrease in the
proportion of IBNR in 2000 is primarily the result of additional claims made
basis reserves, which develop more quickly from IBNR reserves into reported case
reserves than the Company's occurrence basis loss and LAE reserves. Gross loss
and LAE reserves on claims made medical malpractice policies amounted to $282.1
million, or 24.7% of total gross loss and LAE reserves at December 31, 2000,
compared to gross loss and LAE reserves on claims made policies of $185.5
million, or 17.6% of total gross loss and LAE reserves at December 31, 1999.

REINSURANCE

The Company reinsures its risks primarily under two reinsurance contracts, a
specific excess of loss contract ("Specific Contract") and an aggregate excess
of loss contract ("Aggregate Contract"). During 2000, the Company's retention
for casualty business under the Specific Contract was $10 million per loss. For
medical professional liability and commercial general liability business,
coverage was provided up to $25 million per loss above the retention. For other
casualty business, coverage was provided up to $15 million per loss above the
retention. The Company retains a 10% co-participation in covered losses. The
Company has maintained specific excess of loss reinsurance coverage generally
similar to that described for several years.

The Aggregate Contract in 2000 provided several coverages on an aggregate excess
of loss, specific excess of loss and quota share basis. The primary coverage
afforded under the Aggregate Contract attaches above a Company retention
measured as a 75% loss and allocated loss adjustment expense ratio ("loss and
ALAE ratio"). Reinsurers provide coverage for an additional 75% loss and ALAE
ratio, with an aggregate annual limit of $200 million. The Company has
maintained aggregate excess of loss coverage generally similar to that described
since 1993.

The Company's aggregate reinsurance contracts are maintained on a funds withheld
basis whereby the Company holds the ceded premiums in a funds withheld account
for the purpose of paying losses and related loss adjustment expenses. Interest
charges are credited on funds withheld at predetermined contractual rates.

UNDERWRITING EXPENSES

The Company's continued focus on expense controls resulted in lower underwriting
expenses in 2000. However, a greater proportion of the Company's business is
written by the broker and agent distribution channels, resulting in increased
marketing expenses. The Company believes that these relationships will reduce
the need to make other significant distribution and administrative expenditures.
Commissions for policies sold through brokers and agents typically range from
2.0%


                                                                              26
<PAGE>   28
to 12.5% of premiums, whereas the Company does not incur commissions on products
it sells directly. To the extent that brokered business represents an increased
percentage of the Company's business in the future, expense ratios may increase.

CAUTIONARY STATEMENT

Statements in this Annual Report that are not strictly historical constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
uncertainties and other factors that could cause actual results to differ
materially from such statements. In addition to specific uncertainties and other
factors mentioned elsewhere in this report, these uncertainties and other
factors include, but are not limited to: (i) the Company having sufficient
liquidity and working capital; (ii) the Company's ability to achieve consistent
profitable growth; (iii) the Company's ability to diversify its product lines;
(iv) the continued adequacy of the Company's loss and loss adjustment expense
reserves; (v) the Company's avoidance of any material loss on collection of
reinsurance recoverables; (vi) increased competitive pressure; (vii) the loss of
significant customers; (viii) general economic conditions, including changing
interest rates, rates of inflation and the performance of the financial markets;
(ix) judicial decisions and rulings; (x) changes in domestic and foreign laws,
regulations and taxes; and (xi) effects of acquisitions and divestitures. The
words "believe," "expect," "anticipate," "project," and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates.

RESULTS OF OPERATIONS

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

NET PREMIUMS EARNED. Net premiums earned were $184.1 million in 2000 compared to
$187.8 million in 1999, a decrease of approximately $3.7 million or 2.0%. This
net decrease is composed of decreased direct and ceded premiums earned offset
somewhat by an increase in assumed premiums earned. Direct premiums earned
decreased $6.3 million, or 2.8%, to $216.6 million in 2000 from $222.9 million
in 1999 and resulted from reduced direct premiums written in 2000 compared to
1999. Ceded premiums earned declined by $1.5 million, or 3.1%, to $46.5 million
in 2000 from $48.0 million in 1999 primarily due to reduced ceded losses under
aggregate reinsurance contracts during 2000 as compared to 1999. Assumed
premiums earned increased $1.0 million, or 7.9%, to $13.9 million in 2000 from
$12.9 million in 1999 and primarily represented activity associated with one
large assumed excess of loss reinsurance contract on an institutional account
first written in 1999.

NET INVESTMENT INCOME. Net investment income increased $9.5 million, or 12.6%,
to $85.2 million in 2000 from $75.7 million in 1999. Average invested assets
increased to approximately $1.27 billion in 2000 from $1.24 billion in 1999. The
average pre-tax yield on the investment portfolio increased to 6.69% in 2000
from 6.22% in 1999 primarily as the result of ongoing changes in asset
allocation due to a changing market yield environment.

REALIZED INVESTMENT GAINS AND LOSSES. Net realized investment losses decreased
approximately $2.6 million, or 38.6%, to $4.2 million in 2000 compared to net
realized investment losses of $6.8 million in 1999. In 2000, the net losses
resulted from the recognition of $1.1 million of other than temporary declines
in investments primarily associated with certain high yield securities and net
losses of $3.1 million from sales of fixed maturity investments to reposition
the investment portfolio in a changing market yield environment. In 1999, the
net losses were primarily due to sales of fixed maturity investments to
reposition the investment portfolio in an increasing market yield environment.

OTHER REVENUE. Other revenue decreased $0.8 million, or 10.5%, to $7.5 million
in 2000 compared to $8.3 million in 1999. In 2000 other revenue was primarily
composed of $8.0 million associated with the Company's leasing, brokerage and
other businesses, offset by a $0.5 million loss on the sale of substantially all
of the assets of the Company's reinsurance intermediary, Pegasus Advisors, Inc.,
effective July 1, 2000. The sale transaction resulted in a write-off of $1.7
million of goodwill and deferral of $1.2 million of gain in consideration of
price adjustments features contained in the sale agreement. In 1999 other
revenue consisted primarily of $3.4 million of revenues associated with the
Company's leasing, brokerage and other businesses, acquired by the Company in
the acquisition of the Underwriter on August 4, 1999, a gain of $3.5 million
resulting from common stock received during


                                                                              27
<PAGE>   29
1999 in the demutualization of Manulife Financial Corp. and a $1.0 million death
benefit received during 1999 from a corporate owned life insurance policy.

LOSS AND LOSS ADJUSTMENT EXPENSES (LAE). Losses and LAE increased $104.2
million, or 59.6%, to $279.2 million in 2000 from $175.0 million in 1999. Losses
and LAE were net of ceded losses and LAE of $44.2 million in 2000 and $96.1
million in 1999. The ratio of net losses and LAE to net premiums earned
increased to 151.7% in 2000 from 93.1% in 1999. This significant increase in
loss and loss adjustment expense is principally attributable to loss reserve
strengthening that resulted from a loss and LAE study conducted by the Company
at June 30, 2000. The reserve study was undertaken as a result of management's
concern with changes in emerging loss and LAE data in a very difficult market
environment. The increase in loss and loss adjustment expense reserves resulted
from three primary factors: increased loss severity combined with a lengthened
loss development period on the New Jersey physician book; greater than expected
loss frequency and severity on the Pennsylvania physician and institutional
book; and greater than anticipated loss frequency and, particularly, severity in
the Company's book of physician and institutional business outside of New Jersey
and Pennsylvania. During 2000, gross loss and LAE reserves held on prior
accident years were increased by $47.2 million, ceded loss and LAE reserves held
on prior accident years were reduced by $4.1 million, and ceded premiums earned
associated with the adjustments to ceded loss and LAE reserves were increased by
$18.8 million. During 1999, gross loss and LAE reserves held on prior accident
years were increased by $16.5 million, ceded loss and LAE reserves held on prior
accident years were increased by $30.5 million, and ceded premiums earned
associated with the adjustments to ceded loss and LAE reserves were increased by
$10.6 million.

UNDERWRITING EXPENSES. Underwriting expenses decreased $4.0 million, or 9.5%, to
$38.6 million in 2000 from $42.6 million in 1999. The ratio of underwriting
expenses to net premiums earned also improved to 21.0% in 2000 from 22.7% in
1999. This decrease was primarily the combined result of the Company's
continuing focus on expense controls as well as a $0.8 million premium tax
offset granted by Pennsylvania in the fourth quarter of 2000 following
significant guarantee fund assessments by Pennsylvania over the last few years.

FUNDS HELD CHARGES. Funds held charges decreased $6.8 million, or 47.7%, to $7.5
million in 2000 from $14.3 million in 1999. Funds held charges relate to the
Company's ceded aggregate reinsurance contracts, for which balances due to
reinsurers are withheld as collateral for losses and loss adjustment expenses
ceded under the contracts. The net decrease in funds held charges resulted from
an increase of $6.4 million resulting from growth in the funds held under
reinsurance treaties during 2000 compared to 1999 offset by a decrease of $13.2
million in funds held charges associated with adjustments to loss reserves,
ceded losses and ceded premiums during 2000.

OTHER EXPENSES. Other expenses increased $2.5 million, or 74.9%, to $5.8 million
in 2000 from $3.3 million in 1999. In 2000, other expenses consisted of the
costs associated with the leasing, brokerage and other businesses acquired by
the Company in the acquisition of the Underwriter on August 4, 1999. The
increase in other expenses in 2000 was primarily due to twelve months of
activity for the acquired businesses in 2000 as compared to slightly less than
five months of activity in 1999.

RESTRUCTURING CHARGE. The Company undertook a restructuring during the second
quarter of 1999 and on June 23, 1999 announced the reduction of regional and
home office staff and the closing of the regional offices in Boston and Atlanta
to centralize their functions at the Company's home office. The Company
recognized a pre-tax charge of $2.4 million related to this restructuring. All
actions contemplated by the charge were taken in June 1999 and no adjustments to
the restructuring charge reserve were recorded during the balance of 1999. No
similar event occurred during 2000.

INCOME TAXES. An income tax benefit of $22.1 million was recorded in 2000,
resulting in an effective tax benefit rate of 37.8% as compared to income tax
expense of $6.6 million and an effective tax rate of 24.2% in 1999. The decrease
of $28.7 million in income tax expense in 2000 is primarily the result of a
decrease in pre-tax income of $86.0 million resulting in reduced tax of $30.1
million at a 35% tax rate and a net increase in taxes of $1.4 million related to
other items including a write-off of $1.7 million of non-deductible goodwill
expense in conjunction with the sale of substantially all of the assets of the
Company's reinsurance subsidiary as of July 1, 2000.


                                                                              28
<PAGE>   30
YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998

NET PREMIUMS EARNED Net premiums earned increased $25.3 million, or 15.6%, to
$187.8 million in 1999 from $162.5 million in 1998, composed of increased direct
and assumed premiums earned, offset somewhat by an increase in ceded earned
premiums. Direct and assumed premiums earned increased $37.2 million, or 18.7%,
to $235.8 million in 1999 from $198.6 million in 1998. This increase was
composed of an increase in direct premiums earned of $27.3 million resulting
from an increase in direct premiums written during the second half of 1998 and
during 1999 and an increase in assumed premiums earned of $9.9 million,
principally due to a large assumed excess of loss reinsurance contract written
on an institutional account. Ceded earned premiums increased $11.9 million, or
32.8%, to $48.0 million in 1999 from $36.1 million in 1998, primarily resulting
from additional ceded losses under aggregate reinsurance contracts during 1999.

NET INVESTMENT INCOME Net investment income increased $10.6 million, or 16.2%,
to $75.7 million in 1999 from $65.1 million in 1998. Average invested assets
during 1999 increased to approximately $1.2 billion in 1999 from $1.1 billion in
1998. The average pre-tax yield on the investment portfolio increased to 6.22%
in 1999 from 5.88% in 1998 primarily as the result of changes in asset
allocation with an increased concentration in higher pre-tax yielding
securities, including disposition of the Company's equity portfolio with
reinvestment of the proceeds in fixed maturity securities, in an increasing
market yield environment.

REALIZED INVESTMENT GAINS AND LOSSES Net realized investment losses were $6.8
million in 1999 compared to net realized investment gains of $36.4 million in
1998. In 1999, the net losses were primarily due to sales of fixed maturity
investments to reposition the investment portfolio in an increasing market yield
portfolio. In 1998 the net gains were primarily composed of $38.4 million on the
disposition of the Company's equity portfolio, partially offset by a $14.0
million loss realized on the expiration of an equity collar position on July 13,
1998. The remaining net realized gains in 1998 of $12.0 million resulted from
sale of fixed maturity investments in a generally falling market yield
environment.

OTHER REVENUE Other revenue increased $7.4 million to $8.3 million in 1999 from
$0.9 million in 1998. The increase in 1999 consists primarily of $3.4 million of
revenues associated with the leasing, brokerage and other businesses acquired by
the Company in the acquisition of the Underwriter on August 4, 1999, a gain of
$3.5 million resulting from common stock received during 1999 in the
demutualization of Manulife Financial Corp. and a $1.0 million death benefit
received during 1999 from a corporate owned life insurance policy.

LOSS AND LOSS ADJUSTMENT EXPENSES (LAE) Losses and LAE increased $19.1 million,
or 12.3%, to $175.0 million in 1999 from $155.9 million in 1998. Losses and LAE
were net of ceded losses and LAE of $96.1 million in 1999 and $62.4 million in
1998. The ratio of net losses and LAE to net premiums earned improved to 93.1%
in 1999 from 95.9% in 1998. This improvement is principally attributable to a
reduction in the gross loss and LAE ratio on the Company's physician occurrence
business written in 1999, combined with an increasing portion of the Company's
business being written on a claims made basis which is expected to result in a
lower ultimate loss and LAE ratio. Changes in loss and LAE reserves held on
prior accident years also impacted the ratio of net losses and LAE to net
premiums earned in 1999 and 1998. During 1999, gross loss and LAE reserves were
increased by $16.5 million, ceded loss and LAE reserves were increased by $30.5
million, and ceded earned premiums associated with the adjustments to ceded loss
and LAE reserves were increased by $10.6 million. During 1998, gross loss and
LAE reserves were increased by $3.8 million, ceded loss and LAE reserves were
increased by $5.9 million, and ceded earned premiums associated with the
adjustments to ceded loss and LAE reserves were increased by $3.3 million.

UNDERWRITING EXPENSES Underwriting expenses increased $0.5 million, or 1.3%, to
$42.6 million in 1999 from $42.1 million in 1998. The increase in expenses was
attributable to the costs of acquiring new business, primarily through a broker
distribution network, and to the increased infrastructure costs necessary to
service the increased volume of business activity in 1999. The ratio of
underwriting expenses to net premiums earned, however, declined to 22.7% in 1999
from 25.9% in 1998. This improvement was primarily the result of greater
economies of scale present with the larger premium in 1999 combined with the
impact of the Company's cost reduction efforts, including the restructuring
undertaken in June 1999.


                                                                              29
<PAGE>   31
FUNDS HELD CHARGES Funds held charges increased $0.9 million, or 6.8%, to $14.3
million in 1999 from $13.4 million in 1998. Funds held charges relate to the
Company's ceded aggregate reinsurance contracts, for which balances due to
reinsurers are withheld as collateral for losses and loss adjustment expenses
ceded under the contracts. The increase in funds held charges in 1999 was
primarily due to the increase in reinsurance recoverable on unpaid losses ceded
under the contracts during 1999.

OTHER EXPENSES Other expenses amounted to $3.3 million in 1999 and primarily
consisted of the costs associated with the leasing, brokerage and other
businesses acquired by the Company in the acquisition of the Underwriter on
August 4, 1999.

RESTRUCTURING CHARGE The Company undertook a restructuring during the second
quarter of 1999 and on June 23, 1999 announced the reduction of regional and
home office staff and the closing of the regional offices in Boston and Atlanta
to centralize their functions at the Company's home office. The Company
recognized a pre-tax charge of $2.4 million related to this restructuring. All
actions contemplated by the charge were taken in June 1999 and no adjustments to
the restructuring charge reserve were recorded during the balance of 1999.

IMPAIRMENT OF CAPITALIZED SYSTEM DEVELOPMENT COSTS During 1998, management
replaced its policy administration system and accordingly recognized a $12.7
million pre-tax charge representing the net book value of capitalized costs
associated with the old computer system which is no longer being used for the
Company's operations.

INCOME TAXES Income taxes decreased $4.5 million, or 40.7%, to $6.6 million in
1999 from $11.1 million in 1998. The effective tax rate decreased to 24.2% in
1999 from 27.3% in 1998, due primarily to the significant realized investment
gains in 1998.

LIQUIDITY AND CAPITAL RESOURCES

The MIIX Group is a holding company whose assets primarily consist of all of the
capital stock of its subsidiaries. Its principal sources of funds are dividends
and other permissible payments from its subsidiaries and the issuance of debt
and equity securities. The insurance company subsidiaries are restricted by
state regulation in the amount of dividends they can pay in relation to surplus
and net income without the consent of the applicable state regulatory authority,
principally the New Jersey Department of Banking and Insurance. MIIX Insurance
Company, The MIIX Group's principal insurance subsidiary, may pay dividends to
The MIIX Group in any year, without regulatory approval, to the extent such
dividends do not exceed the greater of statutory net income (excluding realized
capital gains) of the preceding calendar year or 10% of statutory surplus at the
end of the preceding year. Applicable regulations further require that an
insurer's statutory surplus following a dividend or other distribution be
reasonable in relation to its outstanding liabilities and adequate to meet its
financial needs. New Jersey permits the payment of dividends only out of
statutory earned (unassigned) surplus unless the payment out of other funds is
approved by the Commissioner. In 2001, MIIX may pay dividends to The MIIX Group
of approximately $22.5 million without the prior approval of the New Jersey
Insurance Commissioner. The MIIX Group expects that these current limitations
imposed on MIIX Insurance Company should not affect its ability to declare and
pay dividends sufficient to support The MIIX Group's initial dividend policy and
other obligations. The other insurance subsidiaries are subject to similar
provisions and restrictions. No significant amounts are currently available for
payment of dividends by insurance subsidiaries other than MIIX Insurance Company
without prior approval of the applicable state insurance department or Bermuda
Registrar of Companies.

On May 24, 2000, the Company obtained a $20.0 million revolving credit facility
with Amboy National Bank to meet certain non-operating cash needs as they may
arise. The credit facility terminates April 7, 2002 and bears a fixed interest
rate of 8.0% per annum. The Company has pledged 100% of The MIIX Insurance
Company stock as collateral under the credit facility. As of December 31, 2000
the Company had borrowed approximately $7.5 million against the credit facility,
which is included in notes payable and other borrowings on the consolidated
balance sheet. During the period ended December 31, 2000 the Company incurred
interest expense on the loan of approximately $247,222. At December 31, 2000,
the Company had fixed maturity investments in Amboy National Bank of
approximately $7.5 million earning a fixed interest rate of 6% per annum. The
Company's CEO is a brother of the Senior Vice President and CFO of Amboy
National Bank. The Company believes that the terms of


                                                                              30
<PAGE>   32
the credit facility described above are as fair to the Company as could have
been obtained from an unaffiliated third party.

The primary sources of the Company's liquidity are insurance and assumed
reinsurance premiums collected, net investment income, proceeds from the
maturity or sale of invested assets, recoveries from reinsurance and revenues
from non-insurance operations. Funds are used to pay losses and LAE, operating
expenses, reinsurance premiums and taxes. The Company's net cash flow from
operating activities was $59.4 million in 2000 compared to $107.4 million in
1999 and $92.7 million in 1998. The decrease in positive cash flow during this
period resulted from increases in paid losses and LAE offset, in part, by
decreases in paid underwriting expenses and federal income taxes. Because of the
inherent unpredictability related to the timing of the payment of claims, it is
not unusual for cash flow from operations for a medical malpractice insurance
company to vary, perhaps substantially, from year to year.

The Company invests its positive cash flow from operating activities primarily
in fixed maturity securities. The Company's current investment strategy seeks to
maximize after-tax income through a high quality, diversified,
duration-sensitive, taxable bond and tax-preferred municipal bond portfolio,
while maintaining an adequate level of liquidity. The Company currently plans to
continue this strategy.

At December 31, 2000 and 1999, the Company held collateral of $306.7 million and
$271.6 million, respectively, in the form of funds held, and $173.2 million and
$178.7 million, respectively, in the form of letters of credit, for recoverable
amounts on ceded unpaid losses and LAE under certain reinsurance contracts.
Under the contracts, reinsurers may require that a trust fund be established to
hold the collateral should one or more triggering events occur, such as a
downgrade in the Company's A.M. Best rating below B+, a reduction in statutory
capital and surplus to less than $60 million, or a change in control. Otherwise
no restrictions are placed on investments held in support of the funds held. In
accordance with the provisions of the reinsurance contracts, the funds held are
credited with interest at contractual rates ranging from 7.5% to 8.6%, which is
recorded as an expense in the year incurred.

Cash dividends paid to shareholders were $0.20 per share in 2000. The Company
expects to pay dividends in the future. However, payment of dividends is subject
to approval by the Board of Directors, earnings and the financial condition of
the Company.

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

During August 1999, the Company approved a stock repurchase program authorizing
the purchase of up to 1,000,000 shares of its common stock in the open market.
During November 1999, the program was amended, authorizing the purchase of up to
an additional 2,000,000 shares. Through December 31, 2000, 3,000,000 shares had
been repurchased at a total cost of $39.3 million and 25,933 shares have been
issued from treasury at a value of $0.4 million.


MARKET RISK OF FINANCIAL INSTRUMENTS

Market risk represents the potential for loss due to adverse changes in the fair
value of financial instruments. The market risk associated with the financial
instruments of the Company relates to the investment portfolio, which exposes
the Company to risks related to unforeseen changes in interest rates, credit
quality, prepayments and valuations. Analytical tools and monitoring systems are
in place to continually assess and react to each of these elements of market
risk.

Interest rate risk is considered by management to be the most significant market
risk element currently facing the Company. Interest rate risk is the price
sensitivity of a fixed maturity security to changes in interest rates. The
Company views these potential changes in price within the overall context of
assets and liability management. To reduce the Company's interest rate risk,
duration targets are set for the fixed income portfolio after consideration of
the duration of associated liabilities, primarily losses and LAE reserves and
other factors.


                                                                              31
<PAGE>   33
The tables below provide, as of December 31, 2000 and 1999, information about
the Company's fixed maturity investments, which are sensitive to changes in
interest rates, showing principal amounts and the average yield applicable
thereto by expected maturity date and type of investment. The expected
maturities displayed have been compiled based upon the earlier of the investment
call date or the maturity date or, for mortgage-backed securities, expected
payment patterns based on statistical analysis and management's judgment. Actual
cash flows could differ, perhaps significantly, from the expected amounts.

At December 31, 2000:

<TABLE>
<CAPTION>
                                                   Expected Maturity Date
                     ----------------------------------------------------------------------------------      Total
                                                       (In thousands)                                      Principal
                         2001          2002           2003          2004          2005       Thereafter     Amounts      Fair Value
                     -----------   -----------    -----------   -----------   -----------    ----------    ----------    ----------
<S>                  <C>           <C>            <C>           <C>           <C>            <C>           <C>           <C>
Government & Agency  $     1,151   $     8,130    $     4,115   $       470   $         0    $  141,149    $  155,015    $  153,857
- Average Yield ...         5.67%         5.45%          5.25%         5.24%         0.00%         5.91%         5.86%
Corporate .........  $    17,700   $    36,716    $    39,355   $    79,611   $    40,600    $  235,734    $  449,716    $  432,016
- Average Yield ...         7.14%         6.74%          7.32%         9.27%         8.03%         8.74%         8.41%
Mortgage-Backed ...  $    11,012   $     7,154    $    12,250   $    23,242   $    36,637    $  228,826    $  319,121    $  314,081
- Average Yield ...         8.44%         6.29%          6.56%         6.42%         6.62%         6.85%         6.53%
Asset-Backed ......  $    14,349   $    22,872    $    15,300   $    29,364   $     6,764    $   19,100    $  107,749    $  106,302
 Average Yield ....        11.12%         7.42%          7.51%         6.79%         7.56%         7.75%         7.81%
Municipal .........  $     4,080   $         0    $         0   $         0   $         0    $  158,460    $  162,540    $  164,928
- Average Yield ...         4.43%         0.00%          0.00%         0.00%         0.00%         4.87%         4.86%
                     -----------   -----------     ----------   -----------   -----------    ----------    ----------    ----------
TOTALS ............  $    48,292   $    74,872    $    71,020   $   132,687   $    84,001    $  783,269    $1,194,141    $1,171,184
</TABLE>

At December 31, 1999:

<TABLE>
<CAPTION>
                                                   Expected Maturity Date
                     ----------------------------------------------------------------------------------      Total
                                                       (In thousands)                                      Principal
                         2000          2001           2002          2003          2004       Thereafter     Amounts      Fair Value
                     -----------   -----------    -----------   -----------   -----------    ----------    ----------    ----------
<S>                  <C>           <C>            <C>           <C>           <C>            <C>           <C>           <C>
Government & Agency  $     5,010   $     3,651    $     3,220   $     5,915   $       415    $  109,284    $  127,495    $  116,175
- Average Yield ...         4.68%         6.07%          5.67%         6.27%         6.71%         6.22%         6.22%
Corporate .........  $    17,402   $    19,451    $    30,125   $    30,725   $    48,145    $  231,037    $  376,885    $  351,603
- Average Yield ...         6.39%         6.40%          6.67%         7.19%         6.99%         7.36%         7.15%
Mortgage-Backed ...  $     9,234   $    10,198    $    20,738   $    12,943   $    20,067    $  247,582    $  320,762    $  302,470
- Average Yield ...         7.33%         6.48%          6.76%         6.74%         6.75%         6.80%         6.80%
Asset-Backed ......  $     5,069   $    13,383    $    11,930   $    15,578   $    29,090    $   84,611    $  159,661    $  152,365
 Average Yield ....         7.20%         6.90%          6.06%         7.39%         4.65%         7.88%         7.01%
Municipal .........  $         0   $     4,080    $         0   $         0   $         0    $  160,420    $  164,500    $  155,193
- Average Yield ...         0.00%         5.17%          0.00%         0.00%         0.00%         5.24%         5.24%
                     -----------   -----------    -----------   -----------   -----------    ----------    ----------    ----------
TOTALS ............  $    36,715   $    50,763    $    66,013   $    65,161   $    97,717    $  832,934    $1,149,303    $1,077,806
</TABLE>

At December 31, 2000, the Company had net after-tax unrealized losses on its
fixed maturity investment portfolio of $8.6 million, which included a deferred
tax valuation allowance of $0.6 million. The net after-tax unrealized losses of
$8.6 million on the fixed maturity portfolio represented 2.9% of total
shareholders' equity gross of net after-tax unrealized losses on investments.
The net unrealized losses were the result of the rise in market interest rates
during 1999 offset, in part, by unrealized gains during 2000. The unrealized
losses at December 31, 2000 do not significantly impact the Company's ability to
meet all regulatory capital requirements.

Management does not expect that significant unrealized losses will be realized
on the fixed maturity portfolio given the credit quality of the portfolio at
December 31, 2000, the Company's positive operating cash flows and the Company's
policy of matching asset and liability maturities. Asset and liability matching
is an important part of the Company's portfolio management process. The Company
utilizes financial modeling and scenario analysis to closely monitor the
effective modified duration of both assets and liabilities in order to minimize
mismatching. The goal of effective asset/liability management is to allow
payment of claims and operating expenses from operating funds without disrupting
the Company's long-term investment strategy.

In addition to interest rate risk, fixed maturity securities like those
comprising the Company's investment portfolio involve other risks such as
default or credit risk. The Company manages this risk by limiting the amount of
higher risk corporate obligations (determined by credit rating assigned by
private rating agencies) in which it invests.

Mortgage-backed and asset-backed securities involve similar risks associated
with fixed maturity investments: interest rate risk, reinvestment rate risk and
default or credit risk. In addition, mortgage-backed and asset-backed securities
also possess prepayment risk, which is the risk that a security's originally
scheduled interest and principal payments will differ considerably due to
changes in the level of interest rates. The Company purchases mortgage-backed
and asset-backed securities structured to enhance credit quality and/or provide
prepayment stability.


                                                                              32
<PAGE>   34
Short term investments are composed of highly rated money market instruments.

The Company also holds a portfolio of equity investments. At December 31, 2000,
the cost and fair value of equity investments was $6.9 million and $5.8 million
respectively. At December 31, 1999, the cost and fair value of equity
investments was $13.2 million and $12.4 million, respectively. A 10% decline in
value of the equity investments at December 31, 2000 would result in after-tax
accumulated unrealized losses on equity investments of $0.6 million, or 0.2% of
total shareholders' equity gross of net after-tax unrealized losses on
investments.

EFFECTS OF INFLATION

The Company considers the effects of inflation in pricing insurance coverages
provided and in reserving for losses and LAE. There may be long periods between
the sale of insurance coverage and the reporting of losses, particularly with
respect to coverage provided by the Company on occurrence-basis policies.
Further, there are typically significant periods of time between reporting and
settlement of losses. The actual effects of inflation on the Company's operating
results cannot be accurately known until losses are reported and ultimately
settled. Management believes that the Company's pricing and loss and LAE
reserving processes adequately incorporate the effects of inflation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk are included in Item
7 under "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and schedules listed in the accompanying Index to
Financial Statements and Schedule on page F-1 are filed as part of this report.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information concerning the individuals who
currently serve as directors and executive officers of The MIIX Group. The MIIX
Group has six executive officers, Mr. Koreyva, Ms. Costante, Mr. Grab, Mr.
Hudson, Mr. Redman and Mr. Smereck.

<TABLE>
<CAPTION>
Name                             Position                                                      Class
----                             --------                                                      -----
<S>                              <C>                                                           <C>
Kenneth Koreyva                  President, Chief Executive Officer and Director               I

Patricia A. Costante             Senior Vice President                                         N/A

Edward M. Grab                   Senior Vice President                                         N/A

Joseph J. Hudson                 Executive Vice President                                      N/A

Thomas M. Redman                 Senior Vice President, Chief Financial Officer                N/A
                                 and Treasurer

Daniel G. Smereck                Senior Vice President                                         N/A

Angelo S. Agro, M.D.             Director                                                      I
Harry M. Carnes, M.D.            Director                                                      II
Paul J. Hirsch, M.D.             Director                                                      III
Vincent A. Maressa, Esq.         Director                                                      II
A. Richard Miskoff, D.O.         Director                                                      III
Eileen Marie Moynihan, M.D.      Director                                                      III
Carl Restivo, Jr., M.D.          Director                                                      I
Gabriel F. Sciallis, M.D.        Director                                                      III
Martin L. Sorger, M.D.           Director                                                      III
Bessie M. Sullivan, M.D.         Director                                                      II
</TABLE>


                                                                              33
<PAGE>   35
The MIIX Group's Certificate of Incorporation provides for a Board of Directors
consisting of at least nine but not more than thirty-five directors. The Board
of Directors currently consists of eleven members divided into three classes,
with the members of each class elected for a term of three years. Consistent
with the Company's desire to reduce the size of the Board of Directors,
effective the date of this year's annual meeting the Board of Directors will be
reduced to ten members. The terms of the Class III, Class I and Class II
Directors are scheduled to expire in 2001, 2002 and 2003, respectively.

Information regarding Directors of the Company is incorporated by reference to
the section entitled "Election of Directors" in the Company's definitive proxy
statement to be filed with the SEC in connection with the Annual Meeting of
Shareholders to be held May 3, 2001 (the "Proxy Statement"). Information
regarding Executive Officers is set forth below.

Kenneth Koreyva, (45) Director since 2000. Mr. Koreyva became President and
Chief Executive Officer of The MIIX Group in 1999. He served as Executive Vice
President and Chief Financial Officer from 1998 to 1999 and as Vice President
from 1991 to 1998. He is a member of the American Institute of Certified Public
Accountants.

Patricia A. Costante, (44) became Senior Vice President in 2000 and has been
Executive Vice President of MIIX Healthcare Group, Inc. since 1996. Ms. Costante
was President of Costante Associates, Inc. from 1993 to 1996. Ms. Costante is an
adjunct faculty member at the Graduate School of Social Work, Rutgers--The State
University of New Jersey.

Edward M. Grab, (45) became Senior Vice President in 2000. He joined The MIIX
Group as Vice President of Underwriting and Chief Actuary in 1999. Prior to
joining the Company, Mr. Grab was Vice President and Actuary for Zurich
Financial Services Group from 1996 to 1999. He was Assistant Vice President for
Selective Insurance Group from 1986 to 1996. Mr. Grab is a Fellow of the
Casualty Actuarial Society.

Joseph J. Hudson, (60) became Executive Vice President in 1998. Mr. Hudson
served as Vice President of Marketing and Business Development from 1994 to
1998. He is a member of the American Society of Hospital Risk Managers, the
Professional Liability Underwriting Society and the Society of Chartered
Property and Casualty Underwriters.

Thomas M. Redman, (43) became Senior Vice President and Chief Financial Officer
in 1999. Mr. Redman has served in several capacities with the Company, including
Vice President Finance of MIIX Insurance Company, since 1997. He is a Certified
Public Accountant and Chartered Property and Casualty Underwriter. Before
joining MIIX, Mr. Redman held a number of corporate finance positions with John
Hancock Property and Casualty Insurance Companies from 1985 to 1993 culminating
in the positions of Senior Vice President and Chief Financial Officer of John
Hancock Management Company and President of John Hancock Insurance Company of
Bermuda, Ltd. From 1993 to 1996, Mr. Redman attended Harvard Law School and
received a J.D. degree in 1996.

Daniel G. Smereck, (31) became Senior Vice President in 1999. Mr. Smereck has
served in various capacities with the Company, including President of MIIX
Insurance Company and Vice President of Asset Management from October 1996 to
1999. Prior to joining the Company, he completed his Masters Degree in Finance
from Boston College from 1995 to 1996 and worked as an Investment Consultant
with Fidelity Financial Group from 1994 to 1995. He is a member of the American
Management Association and is an adjunct faculty member for The College of New
Jersey's Finance Department.

Information regarding Meetings and Committees of the Board of Directors is
incorporated by reference to the Proxy Statement under the heading "Meetings and
Committees of the Board of Directors."

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Information required by this section is incorporated by reference to the Proxy
Statement under the heading "Beneficial Ownership Reporting Compliance."

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Executive Compensation."


                                                                              34
<PAGE>   36
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Stock Ownership of Directors, Executive Officers
and Certain Beneficial Owners."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Certain Relationships and Related Transactions."

PART IV

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

(a)(1) and (2) and (d)

         The required schedules as identified on the Index to Financial
         Statements on page F-1 of the 10-K are incorporated herein by
         reference. All other schedules for which provision is made in the
         applicable accounting regulation of the Securities and Exchange
         Commission are not required under the related instructions or are
         inapplicable and therefore have been omitted.

(a) (3) and (c) The following exhibits are filed herewith unless otherwise
indicated:

<TABLE>
<CAPTION>
Exhibit
Number                               Description
------                               -----------
<S>      <C>
2.1      Plan of Reorganization of Medical Inter-Insurance Exchange
         (incorporated by reference to the exhibit filed with the registrant's
         registration statement on Form S-1 (Reg. No. 333-59371)).

2.2      Stock Purchase Agreement between The Medical Society of New Jersey and
         The MIIX Group, Incorporated (incorporated by reference to the exhibit
         filed with the registrant's registration statement on Form S-1 (Reg.
         No. 333-59371)).

2.3      Amendment No. 1 to Stock Purchase Agreement between The Medical Society
         of New Jersey and The MIIX Group, Incorporated, dated as of September
         20, 1998 (incorporated by reference to the exhibit filed with the
         registrant's registration statement on Form S-1 (Reg. No. 333-59371)).

2.4      Amendment No. 2 to Stock Purchase Agreement between The Medical Society
         of New Jersey and The MIIX Group, Incorporated, dated as of December
         21, 1998 (incorporated by reference to the exhibit filed with the
         registrant's registration statement on Form S-1 (Reg. No. 333-59371)).

2.5      Resolution of the Medical Inter-Insurance Exchange of New Jersey Board
         of Governors amending the Plan of Reorganization (incorporated by
         reference to the exhibit filed with the registrant's registration
         statement on Form S-1 (Reg. No. 333-59371)).

3.1      Restated Certificate of Incorporation of The MIIX Group, Incorporated
         (incorporated by reference to the exhibit filed with the registrant's
         registration statement on Form S-1 (Reg. No. 333-59371)).

3.2      Amended and Restated By-Laws of The MIIX Group, Incorporated.

10.1*    Lease Between the Medical Society of New Jersey and New Jersey State
         Medical Underwriters, Inc. dated June 29, 1981 (incorporated by
         reference to the exhibit filed with the registrant's registration
         statement on Form S-1 (Reg. No. 333-59371)).

10.2     Extension of Lease between the Medical Society of New Jersey and New
         Jersey State Medical Underwriters, dated July 7, 1999 (incorporated by
         reference to the exhibit filed with the registrant's Annual Report on
         Form 10-K for the year ended December 31, 1999 as filed with the
         Securities and Exchange Commission on March 30, 2000 (file no.
         001-14593)).
</TABLE>

                                                                              35
<PAGE>   37
10.3     Lease Between Princeton Pike Corporate Center Associates IV and
         Physician Healthcare Plan of New Jersey Inc. dated May 24, 1991 and
         assigned to New Jersey State Medical Underwriters, Inc. on February 11,
         1997 (incorporated by reference to the exhibit filed with the
         registrant's registration statement on Form S-1 (Reg. No. 333-59371)).

10.4     Specific Excess Reinsurance Contract, effective January 1, 1997, among
         Medical Inter-Insurance Exchange of New Jersey and Swiss Reinsurance
         Company; Hannover Ruckversicherungs; Underwriters Reinsurance Company;
         Kemper Reinsurance Company; and London Life and Casualty Reinsurance
         Corporation (incorporated by reference to the exhibit filed with the
         registrant's registration statement on Form S-1 (Reg. No. 333-59371)).

10.5     Specific Excess Reinsurance Contract, effective January 1, 1997,
         between Medical Inter-Insurance Exchange of New Jersey and American
         Re-Insurance Company (incorporated by reference to the exhibit filed
         with the registrant's registration statement on Form S-1 (Reg. No.
         333-59371)).

10.6     Combined Quota Share, Aggregate and Specific Excess of Loss Reinsurance
         Treaty, effective November 1, 1996, among Medical Inter-Insurance
         Exchange of New Jersey and Hannover Reinsurance (Ireland) Ltd.,; E&S
         Reinsurance (Ireland) Ltd.; Underwriters Reinsurance Company (Barbados)
         Inc.; London Life and Reinsurance Corporation; and Lawrenceville Re,
         Ltd. (incorporated by reference to the exhibit filed with the
         registrant's registration statement on Form S-1 (Reg. No. 333-59371)).

10.7     Specific Excess Reinsurance Contract, effective January 1, 1996 and
         terminated December 31, 1996, among Medical Inter-Insurance Exchange of
         New Jersey and Swiss Reinsurance Company; Hannover Ruckversicherungs;
         Underwriters Reinsurance Company; American Re-Insurance Company; Kemper
         Reinsurance Company; and London Life and Casualty Reinsurance
         Corporation (incorporated by reference to the exhibit filed with the
         registrant's registration statement on Form S-1 (Reg. No. 333-59371)).

10.8     Combined Aggregate and Casualty Catastrophe Excess of Loss Reinsurance
         Treaty, effective January 1, 1996 among Medical Inter-Insurance
         Exchange of New Jersey and Hannover Reinsurance (Ireland) Ltd.; Eisen
         und Stahl Reinsurance (Ireland) Ltd.; London Life and Casualty
         Reinsurance Corporation; and Scandinavian Reinsurance Company, Ltd.;
         and Lawrenceville Re, Ltd. (incorporated by reference to the exhibit
         filed with the registrant's registration statement on Form S-1 (Reg.
         No. 333-59371)).

10.9     Specific Excess Reinsurance Contract, effective January 1, 1995 and
         terminated December 31, 1995 among Medical Inter-Insurance Exchange of
         New Jersey and Swiss Reinsurance Company; Hannover Ruckversicherungs;
         Underwriters Reinsurance Company; and PMA Reinsurance Corporation
         (incorporated by reference to the exhibit filed with the registrant's
         registration statement on Form S-1 (Reg. No. 333-59371)).

10.10    Combined Aggregate and Casualty Catastrophe Excess of Loss Reinsurance
         Treaty, effective January 1, 1995 among Medical Inter-Insurance
         Exchange of New Jersey and Hanover Reinsurance (Ireland) Ltd.; Eisen
         und Stahl Reinsurance (Ireland) Ltd.; London Life and Casualty
         Reinsurance Corporation; and Scandinavian Reinsurance Company Ltd.
         (incorporated by reference to the exhibit filed with the registrant's
         registration statement on Form S-1 (Reg. No. 333-59371)).

10.11    Combined Aggregate and Casualty Catastrophe Excess of Loss Reinsurance
         Treaty, effective January 1, 1994 among Medical Inter-Insurance
         Exchange of New Jersey and Scandinavian Reinsurance Company Ltd.;
         Hannover Reinsurance (Ireland) Ltd.; and Eisen und Stahl Reinsurance
         (Ireland) Ltd. (incorporated by reference to the exhibit filed with the
         registrant's registration statement on Form S-1 (Reg. No. 333-59371)).

10.12    Combined Aggregate and Casualty Catastrophe Excess of Loss Reinsurance
         Treaty, effective January 1, 1993 among Medical Inter-Insurance
         Exchange of New Jersey and Scandinavian Reinsurance Company Ltd.;
         Hannover Reinsurance (Ireland) Ltd.; and Eisen und Stahl Reinsurance
         (Ireland) Ltd. (incorporated by reference to the exhibit filed with the
         registrant's registration statement on Form S-1 (Reg. No. 333-59371)).


                                                                              36
<PAGE>   38
10.13    Combined Aggregate and Casualty Catastrophe Excess of Loss Reinsurance
         Treaty, effective December 15, 1992 among Medical Inter-Insurance
         Exchange of New Jersey and Hannover Reinsurance (Ireland) Ltd.; and
         Eisen und Stahl Reinsurance (Ireland) Ltd. (incorporated by reference
         to the exhibit filed with the registrant's registration statement on
         Form S-1 (Reg. No. 333-59371)).

10.14*   Amended and Restated 1998 Long Term Incentive Equity Plan of The MIIX
         Group, Incorporated (incorporated by reference to the exhibit filed
         with the registrant's Annual Report on Form 10-K for the year ended
         December 31, 1999 as filed with the Securities and Exchange Commission
         on March 30, 2000 (file no. 001-14593)).

10.15*   Employment Agreement among The MIIX Group, Incorporated, New Jersey
         State Medical Underwriters, Inc. and Kenneth Koreyva (incorporated by
         reference to the exhibit filed with the registrant's Annual Report on
         Form 10-K for the year ended December 31, 1999 as filed with the
         Securities and Exchange Commission on March 30, 2000 (file no.
         001-14593)).

10.16*   Employment Agreement among The MIIX Group, Incorporated, New Jersey
         State Medical Underwriters, Inc. and Patricia A. Costante (incorporated
         by reference to the exhibit filed with the registrant's Annual Report
         on Form 10-K for the year ended December 31, 1999 as filed with the
         Securities and Exchange Commission on March 30, 2000 (file no.
         001-14593)).

10.17*   Employment Agreement among The MIIX Group, Incorporated, New Jersey
         State Medical Underwriters, Inc. and Edward M. Grab (incorporated by
         reference to the exhibit filed with the registrant's Annual Report on
         Form 10-K for the year ended December 31, 1999 as filed with the
         Securities and Exchange Commission on March 30, 2000 (file no.
         001-14593)).

10.18*   Employment Agreement among The MIIX Group, Incorporated, New Jersey
         State Medical Underwriters, Inc. and Joseph J. Hudson (incorporated by
         reference to the exhibit filed with the registrant's Annual Report on
         Form 10-K for the year ended December 31, 1999 as filed with the
         Securities and Exchange Commission on March 30, 2000 (file no.
         001-14593)).

10.20*   Employment Agreement among The MIIX Group, Incorporated, New Jersey
         State Medical Underwriters, Inc. and Thomas M. Redman (incorporated by
         reference to the exhibit filed with the registrant's Annual Report on
         Form 10-K for the year ended December 31, 1999 as filed with the
         Securities and Exchange Commission on March 30, 2000 (file no.
         001-14593)).

10.21*   Employment Agreement among The MIIX Group, Incorporated, New Jersey
         State Medical Underwriters, Inc. and Daniel G. Smereck (incorporated by
         reference to the exhibit filed with the registrant's Annual Report on
         Form 10-K for the year ended December 31, 1999 as filed with the
         Securities and Exchange Commission on March 30, 2000 (file no.
         001-14593)).

10.22*   Form of Stock Purchase and Loan Agreement by and between The MIIX
         Group, Incorporated and Daniel Goldberg (incorporated by reference to
         the exhibit filed with the registrant's registration statement on Form
         S-1 (Reg. No. 333-59371)).

10.23*   Form of Stock Purchase and Loan Agreement by and between The MIIX
         Group, Incorporated and Kenneth Koreyva (incorporated by reference to
         the exhibit filed with the registrant's Annual Report on Form 10-K for
         the year ended December 31, 1999 as filed with the Securities and
         Exchange Commission on March 30, 2000 (file no. 001-14593)).

10.24*   Form of Stock Purchase and Loan Agreement by and between The MIIX
         Group, Incorporated and Patricia A. Costante (incorporated by reference
         to the exhibit filed with the registrant's Annual Report on Form 10-K
         for the year ended December 31, 1999 as filed with the Securities and
         Exchange Commission on March 30, 2000 (file no. 001-14593)).

10.25*   Form of Stock Purchase and Loan Agreement by and between The MIIX
         Group, Incorporated and Edward M. Grab (incorporated by reference to
         the exhibit filed with the registrant's Annual Report on Form 10-K for
         the year ended


                                                                              37
<PAGE>   39
         December 31, 1999 as filed with the Securities and Exchange Commission
         on March 30, 2000 (file no. 001-14593)).

10.26*   Form of Stock Purchase and Loan Agreement by and between The MIIX
         Group, Incorporated and Joseph Hudson (incorporated by reference to the
         exhibit filed with the registrant's registration statement on Form S-1
         (Reg. No. 333-59371)).

10.27*   Form of Stock Purchase and Loan Agreement by and between The MIIX
         Group, Incorporated and Lisa Kramer (incorporated by reference to the
         exhibit filed with the registrant's Annual Report on Form 10-K for the
         year ended December 31, 1999 as filed with the Securities and Exchange
         Commission on March 30, 2000 (file no. 001-14593)).

10.28*   Form of Stock Purchase and Loan Agreement by and between The MIIX
         Group, Incorporated and Thomas M. Redman (incorporated by reference to
         the exhibit filed with the registrant's Annual Report on Form 10-K for
         the year ended December 31, 1999 as filed with the Securities and
         Exchange Commission on March 30, 2000 (file no. 001-14593)).

10.29*   Form of Stock Purchase and Loan Agreement by and between The MIIX
         Group, Incorporated and Daniel G. Smereck (incorporated by reference to
         the exhibit filed with the registrant's registration statement on Form
         S-1 (Reg. No. 333-59371)).

10.30*   Non-Qualified Deferred Compensation Agreement entered into and
         effective December 15, 1999 by and between New Jersey State Medical
         Underwriters, Inc. and Kenneth M. Koreyva (incorporated by reference to
         the exhibit filed with the registrant's Annual Report on Form 10-K for
         the year ended December 31, 1999 as filed with the Securities and
         Exchange Commission on March 30, 2000 (file no. 001-14593)).

10.31*   Non-Qualified Deferred Compensation Agreement entered into and
         effective March 1, 2000, by and between The MIIX Group, Incorporated,
         New Jersey State Medical Underwriters, Inc. and Patricia A. Costante
         (incorporated by reference to the exhibit filed with the registrant's
         Annual Report on Form 10-K for the year ended December 31, 1999 as
         filed with the Securities and Exchange Commission on March 30, 2000
         (file no. 001-14593)).

10.32*   Non-Qualified Deferred Compensation Agreement entered into and
         effective March 1, 2000, by and between The MIIX Group, Incorporated,
         New Jersey State Medical Underwriters, Inc. and Edward M. Grab
         (incorporated by reference to the exhibit filed with the registrant's
         Annual Report on Form 10-K for the year ended December 31, 1999 as
         filed with the Securities and Exchange Commission on March 30, 2000
         (file no. 001-14593)).

10.33*   Non-Qualified Deferred Compensation Agreement entered into and
         effective December 15, 1999, by and between The MIIX Group,
         Incorporated, New Jersey State Medical Underwriters, Inc. and Joseph J.
         Hudson (incorporated by reference to the exhibit filed with the
         registrant's Annual Report on Form 10-K for the year ended December 31,
         1999 as filed with the Securities and Exchange Commission on March 30,
         2000 (file no. 001-14593)).

10.35*   Non-Qualified Deferred Compensation Agreement entered into and
         effective December 15, 1999, by and between The MIIX Group,
         Incorporated, New Jersey State Medical Underwriters, Inc. and Thomas M.
         Redman (incorporated by reference to the exhibit filed with the
         registrant's Annual Report on Form 10-K for the year ended December 31,
         1999 as filed with the Securities and Exchange Commission on March 30,
         2000 (file no. 001-14593)).

10.36*   Non-Qualified Deferred Compensation Agreement entered into and
         effective December 15, 1999, by and between The MIIX Group,
         Incorporated, New Jersey State Medical Underwriters, Inc. and Daniel G.
         Smereck (incorporated by reference to the exhibit filed with the
         registrant's Annual Report on Form 10-K for the year ended December 31,
         1999 as filed with the Securities and Exchange Commission on March 30,
         2000 (file no. 001-14593)).

10.41    Addendum No. 2 to the Combined Quota Share, Aggregate and Specific
         Excess of Loss Reinsurance Treaty, effective November 1, 1998, among
         Medical Inter-Insurance Exchange of New Jersey and Hannover Reinsurance
         (Ireland) Ltd.; E&S Reinsurance (Ireland) Ltd.; Underwriters
         Reinsurance Company (Barbados)


                                                                              38
<PAGE>   40
         Inc.; London Life and Casualty Reinsurance Corporation; Lawrenceville
         Re, Ltd.; and European Reinsurance Company of Zurich (incorporated by
         reference to the exhibit filed with the registrant's Quarterly Report
         on Form 10-Q for the quarter ended September 30, 1999 as filed with the
         Securities and Exchange Commission on November 15, 1999 (file no.
         001-14593)).

10.42    Addendum No. 3 to the Combined Quota Share, Aggregate and Specific
         Excess of Loss Reinsurance Treaty, effective January 1, 1999, among
         Medical Inter-Insurance Exchange of New Jersey and Hannover Reinsurance
         (Ireland) Ltd; E&S Reinsurance (Ireland) Ltd.; Underwriters Reinsurance
         Company (Barbados) Inc.; and European Reinsurance Company of
         Zurich(incorporated by reference to the exhibit filed with the
         registrant's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1999 as filed with the Securities and Exchange Commission
         on November 15, 1999 (file no. 001-14593)).

10.43    Addendum No. 4 to the Combined Quota Share, Aggregate and Specific
         Excess of Loss Reinsurance Treaty, effective January 1, 1999, among
         Medical Inter-Insurance Exchange of New Jersey and Hannover Reinsurance
         (Ireland) Ltd; E&S Reinsurance (Ireland) Ltd.; Underwriters Reinsurance
         Company (Barbados) Inc.; and European Reinsurance Company of
         Zurich(incorporated by reference to the exhibit filed with the
         registrant's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1999 as filed with the Securities and Exchange Commission
         on November 15, 1999 (file no. 001-14593)).

10.44    Excess Cession and Event Reinsurance Contract, effective January 1,
         1999, among Medical Inter-Insurance Exchange and Hannover
         Ruckversicherungs-Aktiengesellschaft; and Swiss Reinsurance Company
         (incorporated by reference to the exhibit filed with the registrant's
         Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
         as filed with the Securities and Exchange Commission on November 15,
         1999 (file no. 001-14593)).

10.45    Excess Cession and Event Reinsurance Contract, effective January 1,
         1999, between Medical Inter-Insurance Exchange and American
         Re-Insurance Company (incorporated by reference to the exhibit filed
         with the registrant's Quarterly Report on Form 10-Q for the quarter
         ended September 30, 1999 as filed with the Securities and Exchange
         Commission on November 15, 1999 (file no. 001-14593)).

10.46    Endorsement No. 1, effective January 1, 2000, to the Excess Cession and
         Event Reinsurance Contract between Medical Inter-Insurance Exchange and
         Hannover Ruckversicherungs-Aktiengesellschaft.

10.47    Endorsement No. 1, effective January 1, 2000, to the Excess Cession and
         Event Reinsurance Contract between Medical Inter-Insurance Exchange and
         Swiss Reinsurance Company.

10.48    Endorsement No. 1, effective January 1, 2000, to the Excess Cession and
         Event Reinsurance Contract between Medical Inter-Insurance Exchange and
         American Re-insurance Company.

10.49    Combined Quota Share and Aggregate Reinsurance Treaty, effective
         November 1, 1999 between MIIX Insurance Company and Hannover
         Reinsurance (Ireland) Ltd.

10.50    Combined Quota Share and Aggregate Reinsurance Treaty, effective
         November 1, 1999 between MIIX Insurance Company and E+S Reinsurance
         (Ireland) Ltd.

10.51    Combined Quota Share and Aggregate Reinsurance Treaty, effective
         November 1, 1999 between MIIX Insurance Company and Swiss Reinsurance
         Company.

10.52    Revolving Line of Credit Loan Agreement and Promissory Note, effective
         May 24, 2000, between The MIIX Group, Incorporated, and Amboy National
         Bank.

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.

21.1     Subsidiaries of The MIIX Group, Incorporated (incorporated by reference
         to the exhibit filed with the registrant's registration statement on
         Form S-1 (Reg. No. 333-59371)).

23.1     Consent of Independent Auditors.


                                                                              39
<PAGE>   41
* Represents a management contract or compensatory plan or arrangement.

(b)      Reports on Form 8-K

         During the quarter ended December 31, 2000, a Current Report on Form
8-K dated December 19, 2000 was filed by the Company.


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                        THE MIIX GROUP, INCORPORATED

                                   By:  /s/ KENNETH KOREYVA
                                        ------------------------------------
                                                  Kenneth Koreyva
                                        President and Chief Executive Officer

                                                  March 21, 2001


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>
                  Name                               Title                                       Date
                  ----                               -----                                       ----
<S>                                         <C>                                            <C>
/s/ KENNETH KOREYVA                         President, Chief Executive
---------------------------                 Officer and Director
Kenneth Koreyva                             (principal executive officer)                  March 21, 2001


/s/ THOMAS REDMAN                           Senior Vice President and
----------------------------                Chief Financial Officer
Thomas Redman                               (principal financial and
                                            accounting officer)                            March 21, 2001


/s/ ANGELO S. AGRO                          Director
----------------------------
Angelo S. Agro, M.D.                                                                       March 21, 2001


/s/ HARRY M. CARNES                         Director
----------------------------
Harry M. Carnes, M.D.                                                                      March 21, 2001



/s/ PAUL J. HIRSCH                          Director
----------------------------
Paul J. Hirsch, M.D.                                                                       March 21, 2001


/s/ VINCENT A. MARESSA                      Director
----------------------------
Vincent A. Maressa, Esq.                                                                   March 21, 2001


/s/ A. RICHARD MISKOFF                      Director
----------------------------
A. Richard Miskoff, D.O.                                                                   March 21, 2001


/s/ EILEEN MARIE MOYNIHAN                   Director
----------------------------
Eileen Marie Moynihan, M.D.                                                                March 21, 2001
</TABLE>


                                                                              40
<PAGE>   42
<TABLE>
<S>                                         <C>                                            <C>
/s/ CARL RESTIVO, JR.                       Director
----------------------------
Carl Restivo, Jr., M.D.                                                                    March 21, 2001


/s/ MARTIN L. SORGER                        Director
----------------------------
Martin L. Sorger, M.D.                                                                     March 21, 2001


/s/ BESSIE M. SULLIVAN                      Director
----------------------------
Bessie M. Sullivan, M.D.                                                                   March 21, 2001
</TABLE>


                                                                              41
<PAGE>   43
                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----

<S>                                                                        <C>
Report of Independent Auditors.............................................F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999...............F-3
Consolidated Statements of Income for the years ended
  December 31, 2000, 1999 and 1998.........................................F-4
Consolidated Statements of Stockholders' Equity for the three years
  ended December 31, 2000..................................................F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998.........................................F-6
Notes to Consolidated Financial Statements.................................F-7
Schedule I -- Summary of Investments -- Other than
  Investments in Related Parties...........................................F-24
Schedule II  - - Condensed Financial Information of Registrant.............F-25
</TABLE>

(ALL OTHER SCHEDULES FOR WHICH PROVISION IS MADE IN THE APPLICABLE ACCOUNTING
REGULATION OF THE SECURITIES AND EXCHANGE COMMISSION ARE OMITTED FOR THE REASON
THAT THEY ARE NOT APPLICABLE OR THE INFORMATION IS OTHERWISE CONTAINED IN THE
FINANCIAL STATEMENTS).


                                                                             F-1
<PAGE>   44
                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
The MIIX Group, Incorporated

We have audited the accompanying consolidated balance sheets of The MIIX Group,
Incorporated and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedules referred to at Item 14(a). These
consolidated financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards 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. 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 audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
MIIX Group, Incorporated and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.

                                            ERNST & YOUNG LLP

New York, New York
February 21, 2001


                                                                             F-2
<PAGE>   45
                          THE MIIX GROUP, INCORPORATED

                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 2000          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
                                        ASSETS
Securities available-for-sale:
  Fixed maturity investments, at fair value (amortized cost:
     2000 - $1,184,057; 1999 - $1,131,931)..................  $1,171,184    $1,077,806
  Equity investments, at fair value (cost: 2000 - $6,880;
     1999 - $13,169)........................................       5,837        12,394
  Short-term investments, at cost which approximates fair
     value..................................................      82,291        92,743
                                                              ----------    ----------
      Total investments.....................................   1,259,312     1,182,943
Cash........................................................       2,191         2,574
Accrued investment income...................................      16,074        14,319
Premium receivable, net.....................................       9,765        18,374
Reinsurance recoverable on unpaid losses....................     432,046       406,409
Prepaid reinsurance premiums................................      14,560        27,646
Reinsurance recoverable on paid losses, net.................      13,820           236
Deferred policy acquisition costs...........................       3,026         3,165
Deferred income taxes.......................................      58,896        69,733
Net investment in direct financing leases...................      26,997        25,068
Other assets................................................      59,861        86,691
                                                              ----------    ----------
      Total assets..........................................  $1,896,548    $1,837,158
                                                              ==========    ==========

                                LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses..................  $1,142,530    $1,053,597
Unearned premiums...........................................      71,033        75,433
Premium deposits............................................      15,618        27,913
Funds held under reinsurance treaties.......................     306,693       271,637
Payable for securities......................................           0           205
Notes payable and other borrowings..........................      14,732        16,461
Other liabilities...........................................      56,501        73,208
                                                              ----------    ----------
      Total liabilities.....................................  $1,607,107    $1,518,454
                                                              ----------    ----------


STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 50,000,000 shares
   authorized, no shares issued and outstanding.............  $        0    $        0
Common stock, $0.01 par value, 100,000,000 shares
   authorized, 16,538,005 shares issued,(2000 - 13,563,938
   shares outstanding; 1999 - 15,258,567 shares outstanding)         166           165
Additional paid-in capital..................................      53,716        52,942
Retained earnings...........................................     289,655       328,897
Treasury stock, at cost (2000 - 2,974,067 shares;
    1999 - 1,236,809 shares)................................     (38,897)      (19,249)
Stock purchase loans and unearned stock compensation........      (5,929)       (4,934)
Accumulated other comprehensive loss........................      (9,270)      (39,117)
                                                              ----------    ----------
      Total stockholders' equity............................  $  289,441    $  318,704
                                                              ----------    ----------
      Total liabilities and stockholders' equity............  $1,896,548    $1,837,158
                                                              ==========    ==========
</TABLE>

                             See accompanying notes


                                                                             F-3
<PAGE>   46
                          THE MIIX GROUP, INCORPORATED

                        CONSOLIDATED STATEMENTS OF INCOME
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                                             ---------------------------------------------
                                                               2000              1999              1998
                                                             ---------         ---------         ---------
<S>                                                          <C>               <C>               <C>
REVENUES
Net premiums earned .................................        $ 184,062         $ 187,845         $ 162,501
Net investment income ...............................           85,158            75,661            65,107
Realized investment gains/(losses) ..................           (4,156)           (6,770)           36,390
Other revenue .......................................            7,452             8,323               891
                                                             ---------         ---------         ---------
          Total revenues ............................          272,516           265,059           264,889
EXPENSES
Losses and loss adjustment expenses .................          279,224           174,986           155,868
Underwriting expenses ...............................           38,560            42,618            42,063
Funds held charges ..................................            7,502            14,338            13,420
Other expenses ......................................            5,828             3,333                 0
Restructuring charge ................................                0             2,409                 0
Impairment of capitalized system development costs ..                0                 0            12,656
                                                             ---------         ---------         ---------
          Total expenses ............................          331,114           237,684           224,007
Income/(loss)before income taxes ....................          (58,598)           27,375            40,882
Income tax provision/(benefit) ......................          (22,140)            6,617            11,154
                                                             ---------         ---------         ---------
          Net income/(loss) .........................        $ (36,458)        $  20,758         $  29,728
                                                             =========         =========         =========
Basic earnings/(loss) per share of common stock (1) .        $   (2.59)        $    1.54         $    2.47
                                                             =========         =========         =========

Diluted earnings/(loss) per share of common stock (1)        $   (2.58)        $    1.53         $    2.47
                                                             =========         =========         =========

Dividend per share of common stock ..................        $    0.20         $    0.10         $    0.00
                                                             =========         =========         =========
</TABLE>

(1) 1999 and 1998 figures pro forma; see Note 16

                             See accompanying notes


                                                                             F-4
<PAGE>   47
                          THE MIIX GROUP, INCORPORATED

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                   For the Three Years Ended December 31, 2000
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                                  Stock         Accumu-
                                                                                                 Purchase       lated
                                       Number                                                      Loans        Other
                                         of                                                         and         Compre-    Total
                                       Shares                Additional              Treasury     Unearned      hensive    Stock-
                                        Out-        Common    Paid-In     Retained   Stock, at      Stock       Income/    holders'
                                      standing      Stock     Capital     Earnings      Cost    Compensation    (Loss)     Equity
                                      ----------   -------    -------     --------    --------     -------     --------   --------
<S>                                    <C>         <C>        <C>         <C>         <C>          <C>         <C>        <C>
Balance at January 1, 1998........             0   $     0    $     0     $282,359    $      0     $     0     $ 27,615   $309,974
  Net income......................                                          29,728                                          29,728
  Other comprehensive income/(loss),
     net of tax:
     Unrealized depreciation on
       securities available-for-
       sale, net of deferred taxes                                                                              (16,859)   (16,859)
                                      ----------   -------    -------     --------    --------     -------     --------   --------
Balance at December 31, 1998......             0         0          0      312,087           0           0       10,756    322,843
  Net income......................                                          20,758                                          20,758
  Other comprehensive income/(loss),
     net of tax:
     Unrealized depreciation on
       securities available-for-
       sale, net of deferred taxes                                                                              (49,873)   (49,873)
  Shares issued to Distributees...    11,854,033       119                    (119)                                              0
  Proceeds from initial public
     offering, net of offering and
     reorganization costs.........     3,450,000        35     37,315                                                       37,350
  Acquisition of NJSMU............       814,815         8     10,992                                                       11,000
  Stock purchase and loan
     agreements activities........       351,091         3      4,635                               (4,728)                    (90)
  Purchase of treasury stock, net.    (1,236,809)                                      (19,249)                            (19,249)
  Cash dividends to stockholders..                                          (1,560)                                         (1,560)
  Cash issued to Distributees, in
     lieu of common stock.........                                          (2,269)                                         (2,269)
  Restricted stock grants and
     unearned stock compensation..        25,437                                                      (206)                   (206)
                                      ----------   -------    -------     --------    --------     -------     --------   --------
Balance at December 31, 1999......    15,258,567       165     52,942      328,897     (19,249)     (4,934)     (39,117)   318,704


  Net loss........................                                         (36,458)                                        (36,458)
  Other comprehensive income/(loss),
     net of tax:
     Unrealized appreciation on
       securities available-for-
       sale, net of deferred taxes                                                                               29,847     29,847
  Stock purchase and loan
     agreements activities........        68,066         1        769                               (1,064)                   (294)
  Stock compensation..............                                  5                                   69                      74
  Purchase of treasury stock, net.    (1,762,695)                                      (19,648)                            (19,648)
  Cash dividends to stockholders..                                          (2,784)                                         (2,784)
                                      ----------   -------    -------     --------    --------     -------     --------   --------
Balance at December 31, 2000......    13,563,938   $   166    $53,716     $289,655    $(38,897)    $(5,929)    $ (9,270)  $289,441
                                      ==========   =======    =======     ========    ========     =======     ========   ========
</TABLE>

                             See accompanying notes


                                                                             F-5
<PAGE>   48
                          THE MIIX GROUP, INCORPORATED

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                         -------------------------------------
                                                            2000          1999         1998
                                                         ----------   -----------    ---------
<S>                                                      <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)......................................  $  (36,458)  $    20,758    $  29,728
Adjustments to reconcile net income/(loss) to net cash
  provided by operating activities (net of balances
  acquired):
    Unpaid losses and loss adjustment expenses.........      88,933        73,653       74,938
    Unearned premiums..................................      (4,400)       21,272       33,253
    Premium deposits...................................     (12,295)         (479)       7,368
    Premium receivable, net............................       8,609         5,956      (19,059)
    Reinsurance balances, net..........................       8,921       (37,362)     (14,645)
    Deferred policy acquisition costs..................         139          (355)      (2,710)
    Realized investment (gains)/losses.................       4,156         6,770      (36,390)
    Depreciation, accretion and amortization...........      (3,948)       (2,699)        (980)
    Deferred income taxes..............................        (486)      (10,073)      (7,957)
    Due from New Jersey State Medical Underwriters.....           0          (594)      (3,258)
    Impairment of capitalized system development costs.           0             0       12,656
    Accrued investment income..........................      (1,755)         (708)      (3,239)
    Net investment in direct financing leases..........      (1,929)          961            0
    Other assets.......................................      26,830        25,582        3,158
    Other liabilities..................................     (16,924)        4,743       19,831
                                                          ---------    ----------    ---------
Net cash provided by operating activities..............      59,393       107,425       92,694
                                                          ---------    ----------    ---------


CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed maturity investment sales..........      72,476       856,302      664,988
Proceeds from fixed maturity investments matured,
  called, or prepaid...................................      85,755        97,278      112,473
Proceeds from equity investment sales..................       6,578         1,553      105,789
Cost of investments acquired...........................    (210,669)   (1,055,237)    (976,889)
Purchase of NJSMU (net of cash acquired)...............           0          (198)           0
Realized loss on equity collar termination.............           0             0      (14,000)
Change in short-term investments, net..................      10,453        13,079      (19,655)
Net receivable/(payable) for securities................        (205)      (30,496)      31,131
                                                          ---------    ----------    ---------
Net cash used in investing activities..................     (35,612)     (117,719)     (96,163)
                                                          ---------    ----------    ---------


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering, net of
  offering and reorganization costs....................           0        37,350            0
Proceeds from notes payable and other borrowings.......      18,476        16,461            0
Repayment of notes payable and other borrowings........     (20,205)      (19,265)           0
Purchase of treasury stock.............................     (19,648)      (19,249)           0
Cash dividends to stockholders.........................      (2,784)       (1,560)           0
Cash in lieu of stock paid to Distributees.............           0        (2,269)           0
Subordinated loan certificates redeemed................          (3)           (8)           0
                                                         ----------    ----------    ---------
Net cash provided/(used) by financing activities.......     (24,164)       11,460            0
                                                         ----------    ----------    ---------

Net change in cash.....................................        (383)        1,166       (3,469)
Cash at beginning of year..............................       2,574         1,408        4,877
                                                         ----------   -----------    ---------
Cash at end of year....................................  $    2,191   $     2,574    $   1,408
                                                         ==========   ===========    =========
</TABLE>

                             See accompanying notes


                                                                             F-6
<PAGE>   49
                          THE MIIX GROUP, INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       ORGANIZATION AND RELATED MATTERS

The accompanying consolidated financial statements include the accounts and
operations of The MIIX Group, Incorporated ("The MIIX Group") and its
wholly-owned subsidiaries, MIIX Insurance Company ("MIIX"), which assumed all of
the residual assets and liabilities and ongoing business of Medical
Inter-Insurance Exchange of New Jersey (the "Exchange") in the reorganization of
the Exchange, Lawrenceville Holdings, Inc. ("LHI"), Lawrenceville Property and
Casualty Company ("LP&C"), MIIX Insurance Company of New York ("MIIX New York")
and, from August 4, 1999, New Jersey State Medical Underwriters, Inc. and its
wholly-owned subsidiaries (the "Underwriter"), collectively (the "Company").

On August 4, 1999, the reorganization of the Exchange was consummated according
to a Plan of Reorganization adopted by the Board of Governors of the Exchange on
October 15, 1997 and approved by members of the Exchange at a special meeting
held on March 17, 1999 and by the Commissioner of the New Jersey Department of
Banking and Insurance ("the Commissioner"). The Plan of Reorganization included
several key components, including: formation of The MIIX Group to be the
ultimate parent company for the Company; the transfer of assets and liabilities
held by the Exchange to MIIX, formed for that purpose; acquisition of the
Underwriter; distribution of shares of The MIIX Group common stock and/or cash
to current and former members of the Exchange ("Distributees") as defined in the
Plan of Reorganization; and dissolution of the Exchange. In connection with the
reorganization, 11,854,033 shares of The MIIX Group common stock were issued to
Distributees and 814,815 shares were issued to the Medical Society of New Jersey
plus $100,000 in cash in exchange for all common stock of the Underwriter. The
reorganization was accounted for at historical cost as the transfers of assets
and liabilities described above were between entities under common control. The
acquisition of the Underwriter was accounted for using the purchase method and
gave rise to $7.8 million of goodwill.

The MIIX Group sold three million shares of its common stock in an underwritten
public offering ("the Offering") that closed on August 4, 1999. Of the offered
shares, 90,000 were reserved for sale and subsequently sold at the Offering
Price ($13.50 per share), to officers and employees of the Company. On August
11, 1999, an additional 450,000 shares were sold to underwriters of the Offering
pursuant to an over-allotment option contained in the Offering underwriting
agreement. The net proceeds of the Offering were approximately $37.3 million,
consisting of gross proceeds of $46.5 million less reorganization and offering
costs of $9.2 million.

During August 1999, The MIIX Group approved a stock repurchase program
authorizing the purchase of up to one million shares of its common stock in the
open market. During November 1999, the program was amended, authorizing the
purchase of up to an additional two million shares. Through December 31, 2000,
3,000,000 shares had been repurchased at a total cost of $39.3 million and
25,933 shares have been issued from treasury at a value of $0.4 million.

The Company provides a wide range of insurance products to the medical
profession and health care institutions. The primary business of the Company is
medical professional liability insurance and it issues claims made, modified
claims made with prepaid extended reporting endorsements and occurrence basis
policies. Seventy percent and seventy-four percent of the Company's direct
premiums during 2000 and 1999, respectively, were written in two states.

2.       SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
("GAAP") which differs from statutory accounting practices prescribed or
permitted by regulatory authorities (see Note 9). The significant accounting
policies followed by the Company that materially affect financial reporting are
summarized below:


                                                                             F-7
<PAGE>   50
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


Principles of Consolidation

The accompanying consolidated financial statements include the accounts and
operations of The MIIX Group and its wholly-owned subsidiaries, MIIX and, from
August 4, 1999, the Underwriter. MIIX owns 100% of LHI, a property and casualty
insurance holding company, which owns 100% of LP&C and MIIX New York. The
Underwriter's principal wholly-owned subsidiaries include Medical Brokers, Inc.,
an insurance agency, Reinsurance Services, Inc. (formerly Pegasus Advisors,
Inc.), a reinsurance intermediary, Hamilton National Leasing Corporation, a
leasing company, MIIX Healthcare Group, a healthcare consulting firm, and
Lawrenceville Re, Ltd., a Bermuda-domiciled reinsurance company. All significant
intercompany transactions and balances have been eliminated in the
consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known which could impact
the amounts reported and disclosed herein.

Investments

The Company has designated its entire investment portfolio as
available-for-sale. As such, all investments are carried at their fair values.
The Company has no securities classified as "trading" or "held-to-maturity."
Investments are recorded at the trade date.

Temporary changes in fair values of available-for-sale securities, after
adjustment of deferred income taxes, are reported as unrealized appreciation or
depreciation directly in equity as a component of other comprehensive income.

For the loan-backed bonds, the Company recognizes income using a constant
effective yield based on anticipated prepayments and the estimated economic life
of securities. Prepayment assumptions are obtained from both proprietary and
broker/dealer estimates and are consistent with the current interest rate and
economic environment. When actual prepayments differ significantly from
anticipated prepayments, which are assessed periodically, the effective yield is
recalculated to reflect actual payments to date and anticipated future payments.
The net investment in the security is adjusted through net investment income to
the amount that would have existed had the new effective yield been applied
since the acquisition of the security.

Premiums and discounts on investments (other than loan-backed bonds) are
amortized/accreted to investment income using the interest method over the
contractual lives of the investments. Realized investment gains and losses are
included as a component of revenues based on a specific identification of the
investment sold.

Short-term investments include investments maturing within one-year and other
cash and cash equivalent balances earning interest.

The Company regularly evaluates the carrying value of its investments based on
current economic conditions, past credit loss experience and other
circumstances. A decline in carrying value that is other than temporary is
recognized by an adjustment to fair value treated as a realized investment loss
and a reduction in the cost basis of the investment in the period when such a
determination is made.

Premium Receivable

Premium receivable is net of an allowance for doubtful accounts as of December
31, 2000 and 1999 of $57,681 and $327,377, respectively. Amounts
(recovered)/charged to expense in 2000, 1999 and 1998 were $(269,696),
$(127,527) and $(172,000), respectively.


                                                                             F-8
<PAGE>   51
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reinsurance Recoverable on Paid Losses

Reinsurance recoverable on paid losses at both December 31, 2000 and 1999 is net
of an allowance of $1,300,000.

Deferred Policy Acquisition Costs

Policy acquisition costs, (primarily commissions, premium taxes and other
selling expenses) which vary with and are directly related to the production of
business, are capitalized and amortized over the effective period of the related
policies. Anticipated investment income is considered in determining if premium
deficiencies exist.

Net Investment in Direct Financing Leases

Net investment in direct financing leases is net of an allowance for doubtful
accounts as of December 31, 2000 and 1999 of $520,789 and $453,829,
respectively. Amounts charged to expense in 2000 and since August 4, 1999 were
$356,000 and $145,000, respectively.

Intangible Assets

Intangible assets consist primarily of goodwill, resulting from the acquisition
of subsidiaries. Goodwill is amortized over periods ranging from 10 to 15 years.

Software Development Costs

Costs incurred in the development of software used for Company operations are
capitalized and amortized over a useful life ranging from three to five years.

Losses and Loss Adjustment Expenses

Estimates for unpaid losses and loss adjustment expenses are based on the
Company's evaluation of reported claims and actuarial analyses of the Company's
operations since its inception, including assumptions regarding expected
ultimate losses and reporting patterns, and estimates of future trends in claim
severity and frequency. The Company's philosophy is to have a disciplined
process consistently applied in setting and adjusting loss and LAE reserves.
Although variability is inherent in such estimates, recorded loss and LAE
reserves represent management's best estimate of the remaining costs of settling
all incurred claims. Changes in the Company's estimate of ultimate claim costs
are recognized in the period in which the Company's estimate of those ultimate
costs is changed. These estimates are reviewed regularly and any adjustments to
prior year reserves are reflected in current year operating results.

The Company offered pure occurrence coverage from 1977 through 1986 and a form
of occurrence coverage, "modified claims made" from 1987 to the present through
its Permanent Protection Plan ("PPP") policy. The PPP policy provides coverage
for claims reported during the policy period as well as, under the extended
reporting endorsement, claims reported after the termination of the policy (for
any reason), and thus is reserved on an occurrence basis. The Company also
offers traditional claims-made and occurrence coverages, which are reserved on a
claims-made or occurrence basis, as appropriate.

Premiums

Premiums are recorded as earned over the period the policies to which they apply
are in force. Premium deposits represent amounts received prior to the effective
date of the new or renewal policy period. The reserve for unearned premiums is
determined on a monthly pro-rata basis. Gross premiums include both direct and
assumed premiums earned.

Reinsurance

Reinsurance premiums, losses and loss adjustment expenses are accounted for on a
basis consistent with the accounting for the original policies issued and the
terms of the reinsurance contracts. Premium deposits, unearned premiums and
unpaid losses and loss adjustment expenses are reported gross of reinsurance
amounts.


                                                                             F-9
<PAGE>   52
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All reinsurance contracts are accounted for in accordance with the provisions of
SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts," which provides the criteria for determining whether
the contracts should be accounted for utilizing reinsurance accounting or
deposit accounting. Reinsurance contracts that do not satisfy certain
requirements of SFAS No. 113 are accounted for using the deposit method.
Recorded deposits are initially established based on the consideration paid less
any fees which are expensed in accordance with the contract terms. Subsequent
adjustments to the deposit are measured based on the present value of the
expected future cash flows arising from the contract.

Income Taxes

The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred income taxes arise as a result of applying
enacted statutory tax rates to the temporary differences between the financial
statement carrying value and the tax basis of assets and liabilities. A
valuation allowance is established for any portion of a deferred tax asset that
management believes will not be realized.

Reclassification

Certain prior year amounts have been reclassified to be comparable to the 2000
presentation.

Cash Flow Reporting

For purposes of reporting cash flows, cash consists of amounts held at banks,
cash in money market accounts and time deposits with original maturities of
three months or less.

Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees and
board members with an exercise price equal to the fair value of the shares at
the date of grant. The Company accounts for stock option grants in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations because the Company believes the
alternative fair value accounting provided for under SFAS Statement No. 123,
"Accounting for Stock-Based Compensation," requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the dates of grant, no
compensation expense is recognized.

Earnings/(Loss) Per Share

Basic and diluted earnings/(loss) per share are calculated in accordance with
SFAS No. 128. Earnings per share through August 4, 1999 and for the period ended
December 31, 1998 gives effect to the reorganization and allocation of
approximately 12,025,000 shares of common stock distributed to the Exchange's
members on August 4, 1999.

Segment Information

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

Recent Accounting Pronouncements

The Financial Accounting Standard Board (FASB) issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which is effective for
fiscal years beginning after June 15, 2000 (as amended by SFAS No. 137). SFAS
133 requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value are recorded each period in current
earnings or other


                                                                            F-10
<PAGE>   53
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

comprehensive income. Adoption of SFAS No. 133 is not expected to have a
significant impact on the Company's financial position or results of operations.

3.       LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Activity in the liability for unpaid losses and loss adjustment expenses is
summarized as follows:

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                               --------------------------------------------------
                                                                  2000               1999                 1998
                                                               -----------        -----------         -----------
                                                                                 (In thousands)
<S>                                                            <C>                <C>                 <C>
Balance as of January 1, net of reinsurance recoverable
  of $406.4 million, $325.8 million and $270.7 million,
  respectively ........................................        $   647,188        $   625,864         $   605,990

Net reserves acquired in acquisition of the Underwriter                  0              8,286                   0

Incurred related to:
  Current year ........................................            227,921            189,000             157,952
  Prior years .........................................             51,303            (14,014)             (2,084)
                                                               -----------        -----------         -----------
Total incurred ........................................            279,224            174,986             155,868
Paid related to:
  Current year ........................................              4,535              4,589               1,328
  Prior years .........................................            211,393            157,359             134,666
                                                               -----------        -----------         -----------
Total paid ............................................            215,928            161,948             135,994
                                                               -----------        -----------         -----------
Balance as of December 31, net of reinsurance
  recoverable .........................................            710,484            647,188             625,864
Reinsurance recoverable ...............................            432,046            406,409             325,795
                                                               -----------        -----------         -----------
Balance, gross of reinsurance .........................        $ 1,142,530        $ 1,053,597         $   951,659
                                                               ===========        ===========         ===========
</TABLE>

The Company increased prior year gross reserves in the amounts of $47.2 million,
$16.5 million and $3.8 million during 2000, 1999 and 1998, respectively. At
December 31, 2000, 1999 and 1998 reserves for gross losses and loss adjustment
expenses on incurred but not reported claims amounted to $689.4 million, $640.1
million and $623.8 million, respectively, of which $458.2 million, $444.7
million and $436.3 million related to prior years.

Loss and loss adjustment expense reserve estimates have been reviewed regularly
and adjusted where judged prudent to do so. Medical malpractice business,
particularly occurrence or occurrence-like coverage, has a very long development
period. Cases may take years to be reported, and, as a rule, take several years
to adjust, settle or litigate. In addition, general long term trends impacting
ultimate reserve values such as changes in liability standards and expanding
views of contract interpretation increase the uncertainty. During 2000, loss and
loss adjustment expense reserves were adjusted to reflect, primarily, higher
than anticipated loss severity and a longer than expected loss development
period on occurrence and occurrence-like policies and higher than expected loss
frequency and severity on claims made policies. The increase in severity on
occurrence and occurrence-like policies was principally due to higher court
awards over the past few years on claims associated with the Company's New
Jersey physician business, with a similar resulting impact on settlement values.
The longer than expected loss development period occurred on the Company's New
Jersey physician business and was principally due to an eroding statute of
limitations regarding late assertion of claims in New Jersey. The higher than
expected loss frequency and severity on claims made policies chiefly related to
business written by the Company in new markets since 1997 for which limited loss
data had previously existed. Adjustments to loss and loss adjustment expense
reserves in 1999 and 1998 principally reflected reductions to reserves held on
occurrence and occurrence-like policies, largely due to declining loss
frequency, somewhat offset by increases to reserves held on claims made policies
primarily associated with the Company's business in new markets and with the
Company's institutional business.

The Company maintains aggregate excess reinsurance contracts that provide
coverage, above aggregate retentions for most losses and allocated loss
adjustment expenses


                                                                            F-11
<PAGE>   54
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

associated with accident years 1993 to 1999 and for most losses and loss
adjustment expenses on occurrence and occurrence-like policies associated with
accident year 2000. The aggregate excess reinsurance contracts, therefore, have
the effect of holding net incurred losses and allocated loss adjustment expenses
on subject business at a constant level as long as losses and allocated loss
adjustment expenses remain within the coverage limits, which occurred for the
years ended December 31, 2000, 1999 and 1998. The adjustments to net reserves in
2000 generally resulted from adverse development of reserves held on accident
years prior to 1993, adverse development of reserves held for business written
in certain new markets since 1997 not subject to the aggregate excess
reinsurance contracts, and an associated increase in unallocated loss adjustment
expense reserves which are also not subject to the aggregate excess reinsurance
contracts. The adjustments in net reserves in 1999 and 1998 generally resulted
from favorable development on accident years prior to 1993.

4.       RELATED PARTY TRANSACTIONS

The Company leases 49,000 square feet for its home office and Mid-Atlantic
Region office from the Medical Society of New Jersey pursuant to a lease
agreement dated June 29, 1981 and extended on July 7, 1999. Annual lease
payments were $772,173 in 2000, 1999 and 1998. The Company held a note
receivable of $2.3 million and $2.6 million, included in other assets, at
December 31, 2000 and 1999, respectively, from the Medical Society of New Jersey
collateralized by the building in which the Company maintains its home office.
The note provides for monthly payments of $40,000, which includes interest at
9.05% until September 1, 2004 and reduced payments thereafter until June 1,
2009.

Management services agreements between the Company's insurance subsidiaries and
the Underwriter provided, among other things, that the Underwriter was
responsible for the administration and management of the Company's insurance
operations. In exchange for the services provided, fees were paid to the
Underwriter, which equaled the actual direct expenses incurred by the
Underwriter in performing the services. Expenses incurred by the Underwriter and
reimbursed by the Company's insurance subsidiaries through August 4, 1999, the
date the Company purchased the Underwriter, amounted to $18.7 million in 1999,
and $30.6 million in 1998.

On May 24, 2000, the Company obtained a $20.0 million revolving credit facility
with Amboy National Bank to meet certain non-operating cash needs as they may
arise. The credit facility terminates April 7, 2002 and bears a fixed interest
rate of 8.0% per annum. The Company has pledged 100% of The MIIX Insurance
Company stock as collateral under the credit facility. As of December 31, 2000
the Company had borrowed approximately $7.5 million against the credit facility
which is included in notes payable and other borrowings on the consolidated
balance sheet. During the year ended December 31, 2000 the Company incurred
interest expense on the loan of approximately $247,222. At December 31, 2000,
the Company had fixed maturity investments in Amboy National Bank of
approximately $7.5 million earning a fixed interest rate of 6% per annum. The
Company's CEO is a brother of the Senior Vice President and CFO of Amboy
National Bank.

The Company believes that the terms of the transactions described above are as
fair to the Company as could have been obtained from unaffiliated third parties.

In addition, the Company made annual contributions to the Medical Society of New
Jersey in 2000, 1999 and 1998. Vincent A. Maressa, Esq., Executive Director and
General Counsel of the Medical Society, is Chairman of the Board of the Company.
Eileen Marie Moynihan, M.D. and Bessie M. Sullivan, M.D. are the Treasurer and
Secretary, respectively of the Medical Society and both serve on the Board of
the Company.

A majority of the members of the Company's Board are also policyholders of the
Company and acquired shares in connection with the Plan of Reorganization. Such
directors may experience claims requiring coverage under their respective
policies with the Company.


                                                                            F-12
<PAGE>   55
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INVESTMENTS

The Company's investment strategy focuses primarily on the purchase of
intermediate-term, investment-grade securities along with a modest allocation to
below investment-grade (i.e., high yield) fixed maturity investments not to
exceed 7.5% of invested assets. At December 31, 2000 and 1999, the average
credit quality of the fixed income portfolio was AA and AA-, respectively. The
portfolio does not include any investments in real estate.

The actual or amortized cost and estimated market value of the Company's
available-for-sale securities as of December 31, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                                                GROSS UNREALIZED     ESTIMATED
                                                  AMORTIZED     -----------------      MARKET
                                                     COST        GAINS     LOSSES      VALUE
                                                  ----------    -------    ------    ----------
                                                                  (In thousands)
<S>                                               <C>           <C>       <C>        <C>
2000
U.S. Treasury securities and obligations of
  U.S. government corporations and agencies.....  $  141,781    $ 3,584   $   656    $  144,709
Obligations of states and political
  subdivisions..................................     158,749      6,554       375       164,928
Foreign securities - U.S. dollar denominated....      45,757        871     2,017        44,611
Corporate securities............................     418,737      2,857    25,041       396,553
Mortgage-backed and other asset-backed
  securities....................................     419,033      4,613     3,263       420,383
                                                  ----------    -------   -------    ----------
Total fixed maturity investments................   1,184,057     18,479    31,352     1,171,184
Equity investments..............................       6,880          3     1,046         5,837
                                                  ----------    -------   -------    ----------
          Total investments (excluding
             short-term)........................  $1,190,937    $18,482   $32,398    $1,177,021
                                                  ==========    =======   =======    ==========
1999
U.S. Treasury securities and obligations of
  U.S. government corporations and agencies.....  $  107,044    $    98   $ 5,649    $  101,493
Obligations of states and political
  subdivisions..................................     162,078        102     6,987       155,193
Foreign securities - U.S. dollar denominated....      35,619        547     2,021        34,145
Corporate securities............................     350,897        752    19,508       332,141
Mortgage-backed and other asset-backed
  securities....................................     476,293        111    21,570       454,834
                                                  ----------    -------   -------    ----------
Total fixed maturity investments................   1,131,931      1,610    55,735     1,077,806
Equity investments..............................      13,169        259     1,034        12,394
                                                  ----------    -------   -------    ----------
          Total investments (excluding
             short-term)........................  $1,145,100    $ 1,869   $56,769    $1,090,200
                                                  ==========    =======   =======    ==========
</TABLE>

The fair values for fixed maturity investments are based on quoted market
prices, where available. For fixed maturity investments not actively traded,
fair values are estimated using values obtained from independent pricing
services. The fair values for equity securities are based on quoted market
prices and quantitative estimates of management for non-traded securities.

The amortized cost and estimated fair value of fixed maturity investments at
December 31, 2000 by contractual maturity are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                            ESTIMATED
                                                              AMORTIZED        FAIR
                                                                 COST         VALUE
                                                              ----------    ---------
                                                                   (In thousands)
<S>                                                           <C>          <C>
Due in one year or less.....................................  $   13,614   $   13,628
Due after one year through five years.......................     146,640      144,660
Due after five years through ten years......................     300,831      289,716
Due after ten years.........................................     303,939      302,797
Mortgage-backed and other asset-backed securities...........     419,033      420,383
                                                              ----------   ----------
          Total fixed maturity investments..................  $1,184,057   $1,171,184
                                                              ==========   ==========
</TABLE>


                                                                            F-13
<PAGE>   56
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Major categories of the Company's net investment income are summarized as
follows:

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         2000        1999       1998
                                                        -------    -------    -------
                                                               (In thousands)
<S>                                                     <C>        <C>        <C>
Fixed maturity investments............................  $78,410    $70,025    $59,037
Equity investments....................................      258        256        878
Short-term investments................................    7,584      6,472      7,376
Other.................................................      644        503        361
                                                        -------    -------    -------
          Subtotal....................................   86,896     77,256     67,652
Investment expenses...................................    1,738      1,595      2,545
                                                        -------    -------    -------
Net investment income.................................  $85,158    $75,661    $65,107
                                                        =======    =======    =======
</TABLE>

Realized gains and losses from sales of investments are summarized as follows:

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         2000        1999       1998
                                                        -------    -------    -------
                                                               (In thousands)
<S>                                                     <C>        <C>        <C>
Fixed maturity investments
  Gross realized gains................................  $   490    $ 4,950    $13,084
  Gross realized losses...............................   (4,214)   (11,358)    (1,052)
                                                        -------    -------    -------
Net realized gains/(losses) on fixed maturity
  investments.........................................   (3,724)    (6,408)    12,032
Equity investments
  Gross realized gains................................      241        138     38,823
  Gross realized losses...............................     (673)      (500)      (465)
                                                        -------    -------    -------
Net realized gains/(losses) on equity investments.....     (432)      (362)    38,358
Net realized losses on equity collar investments......        0          0    (14,000)
                                                        -------    -------    -------
Net realized gains/(losses) on investments............  $(4,156)   $(6,770)   $36,390
                                                        =======    =======    =======
</TABLE>

The net realized gains on equity investments for the year ended December 31,
1998 resulted from the Company's decision to liquidate substantially all of its
equity investments during the third quarter of 1998.

The change in the Company's unrealized appreciation/(depreciation) on fixed
maturity investments was $41,252, $(70,672) and $(3,377) for the years ended
December 31, 2000, 1999 and 1998, respectively. The corresponding amounts for
equity investments were $(268), $(775) and $(22,560).

At December 31, 2000 and 1999, investments in fixed maturity investments with a
carrying amount of approximately $8.0 million and $10.4 million, respectively,
were on deposit with state insurance departments to satisfy regulatory
requirements.

6.       REINSURANCE

Certain premiums, losses and loss adjustment expenses are ceded to other
insurance companies under various reinsurance agreements in-force during 2000,
1999 and 1998. These reinsurance agreements protect the underwriting and
operating results from unexpected increases in frequency, severity, and
acceleration of the payments of losses and loss adjustment expenses, and contain
the following significant terms:


                                                                            F-14
<PAGE>   57
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                               COVERAGE                       COVERAGE
              CONTRACT           TYPE         RETENTION        LIMIT                 OTHER
              --------           ----         ---------        -----                 -----
<S>      <C>                  <C>          <C>               <C>             <C>
2000     Specific Excess      Per loss     $10 million       $25 million     No aggregate deductible

2000     Aggregate Excess     Aggregate    75% loss and      75% loss and    Aggregate limit
                                           ALAE ratio        ALAE ratio

1999     Specific Excess      Per loss     $10 million       $65 million     No aggregate deductible

1999     Aggregate Excess     Aggregate    75% loss and      75% loss and    Aggregate limit
                                           ALAE ratio        ALAE ratio

1998     Specific Excess      Per loss     $2-$3 million     $48 million     Aggregate deductible

1998     Aggregate Excess     Aggregate    75% loss and      75% loss and    Aggregate limit
                                           ALAE ratio        ALAE ratio
</TABLE>

In addition, in 1992, the Company entered into a combined aggregate and specific
excess of loss contract covering losses and ALAE which occurred on or before
December 31, 1992. This contract was accounted for using deposit accounting on a
GAAP basis. On September 30, 1999 the Company commuted this contract at no gain
or loss. At December 31, 1998 the net deposit related to this contract was $0.

The effect of assumed and ceded reinsurance on premiums is summarized in the
following table (in thousands):

<TABLE>
<CAPTION>
                               2000                    1999                    1998
                       --------------------    --------------------    --------------------
                       WRITTEN      EARNED     WRITTEN      EARNED     WRITTEN      EARNED
                       --------    --------    --------    --------    --------    --------
<S>                    <C>         <C>         <C>         <C>         <C>         <C>
Direct...............  $212,154    $216,595    $244,426    $222,898    $230,314    $195,591
Assumed..............    13,971      13,930      12,674      12,909       1,543       3,015
Ceded................   (38,043)    (46,463)    (53,682)    (47,962)    (37,685)    (36,105)
                       --------    --------    --------    --------    --------    --------
Net premiums.........  $188,082    $184,062    $203,418    $187,845    $194,172    $162,501
                       ========    ========    ========    ========    ========    ========
</TABLE>

During 2000, 1999 and 1998, approximately $44.2 million, $96.1 million and $62.4
million, respectively, of losses and loss adjustment expenses were ceded to
reinsurers.

The Company remains liable in the event that amounts recoverable from reinsurers
are uncollectible. To minimize its exposure to losses from reinsurer
insolvencies, the Company enters into reinsurance arrangements with carriers
rated "A" or better by A.M. Best. At December 31, 2000 and 1999, the Company
held collateral under related reinsurance agreements for all unpaid losses and
loss adjustment expenses ceded in the form of funds withheld of $306.7 million
and $271.6 million and letters of credit of $173.2 million and $178.7 million,
respectively.

In accordance with the provisions of the reinsurance contracts, the funds
withheld are credited with interest at contractual rates ranging from 7.5% to
8.6%, which is recorded as a period expense in the year incurred. There are
currently no restrictions on investments held in support of funds withheld.

7.       RETIREMENT PLANS

Costs associated with the Company's retirement plans in 1998 through August 4,
1999 were charged to the Company by the Underwriter as part of its management
fee.

The Company has a contributory 401(k) Retirement Savings Plan which covers
substantially all employees. The Company currently contributes 50% of the first
6% of compensation contributed by participants. Employer contributions for the
years ended December 31, 2000, 1999 and 1998 totaled $395,094, $344,852 and
$278,359, respectively.

The Company also provides a noncontributory defined benefit pension plan
covering substantially all its employees. The plan was amended effective April
1, 2000, subject to approval by the Internal Revenue Service and provides each
covered employee with a notional account balance.


                                                                            F-15
<PAGE>   58
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The net periodic pension expense consists of the following components:

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                          ----------------------------
                                                           2000       1999       1998
                                                          ------     ------     ------
                                                                 (In thousands)
<S>                                                       <C>        <C>        <C>
Service cost..........................................    $  392     $  789     $  702
Interest cost.........................................       596        568        508
Expected return on plan assets........................      (964)      (892)      (795)
Amortization of:
   Transition asset...................................       (22)       (22)       (22)
   Prior service cost(1)..............................       (34)         0          0
   Actuarial gain.....................................      (401)      (126)      (197)
                                                          -------    ------     ------
Net periodic pension expense/(benefit)................    $ (433)    $  317     $  196
                                                          =======    ======     ======
</TABLE>

(1) Prior service cost is amortized under an alternate method where the period
is equal to the average future working lifetime of an active population.

The following table sets forth the funding status of the plan:

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                       -----------------------
                                                          2000         1999
                                                        -------      -------
                                                            (In thousands)
<S>                                                     <C>          <C>
Change in Benefit Obligation
----------------------------
Net benefit obligation at beginning of year...........  $ 7,823      $ 9,427
Service cost..........................................      392          789
Interest cost.........................................      596          568
Amendments(2).........................................     (305)           0
Actuarial loss/(gain).................................       29       (2,872)
Gross benefits paid...................................     (191)         (89)
                                                        -------      -------
Net benefit obligation at end of year.................  $ 8,344      $ 7,823
                                                        -------      -------
</TABLE>

(2) Effective April 2, 2000, the Plan was amended to adopt a Cash Balance
formula.

<TABLE>
<S>                                                     <C>          <C>
Change in Plan Assets
---------------------
Fair value of plan assets at beginning of year........  $10,807      $ 9,858
Actual return on plan assets..........................      900          675
Employer contributions................................        0          363
Gross benefits paid...................................     (191)         (89)
                                                        -------      -------
Fair value of plan assets at end of year..............  $11,516      $10,807
                                                        -------      -------

Funded status/(underfunded)...........................  $ 3,173      $ 2,984
Unrecognized actuarial gain...........................   (3,470)      (3,963)
Unrecognized prior cost...............................     (270)           0
Unrecognized net transition asset.....................      (69)         (90)
                                                        -------      -------
Accrued pension expense...............................  $  (636)     $(1,069)
                                                        =======      =======

Amounts recognized in the statement of
  financial position consists of
    Accrued benefit liability.........................  $  (636)     $(1,069)
                                                        -------      -------
Accrued pension expense...............................  $  (636)     $(1,069)
                                                        =======      =======
</TABLE>


                                                                            F-16
<PAGE>   59
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        ----------------------------
                                                         2000       1999       1998
                                                        ------     ------     ------
<S>                                                     <C>        <C>        <C>
Weighted-average assumptions
   Discount rate.....................................    7.50%      8.00%      6.50%
   Expected return on plan assets....................    9.00%      9.00%      9.00%
   Rate of compensation increase.....................    4.00%      4.00%      5.00%
</TABLE>

8.       COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET RISK

In 1997, the Company implemented an "equity collar" (collar) around the
Company's equity securities of $81.6 million. An "equity collar" is an option
position created with the simultaneous purchase and sale of an equal number of
put and call options which serves as a hedge transaction, the purpose of which
is to reduce equity market volatility and to protect surplus from significant
declines in the market value of the Company's equity securities. This resulting
option position establishes both a ceiling and a floor with respect to the
financial performance of the underlying asset, upon which the "equity collar" is
established, for a specified time period. The collar transaction was executed on
July 8, 1997 and expired on January 2, 1998. The collar was constructed using
European-style S&P 500 options and as of December 31, 1997, the collar had no
unrealized gain or loss. A "European-style" option is an option contract that
may be exercised only upon expiration of the contract. To minimize loss exposure
due to credit risk, the Company utilizes intermediaries with a Standard and
Poor's rating of "AA" or better.

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

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

The Company has employment contracts with certain officers which commit the
Company to various salary and fringe benefit obligations as specified in the
individual agreements.

The Company leases office space and office equipment. Rent expense for 2000,
1999 and 1998 was $2,133,393, $2,162,120 and $1,799,749, respectively, including
rent paid to the Medical Society of New Jersey of $772,173 in 2000, 1999 and
1998. Minimum future rental obligations for leases currently in effect are as
follows:

<TABLE>
<S>                                               <C>
                           2001                   $ 1,813,378
                           2002                     1,385,261
                           2003                       757,636
                           2004                       118,272
                           2005                             0
                           Thereafter                       0
                                                  -----------
                                                  $ 4,074,547
                                                  ===========
</TABLE>

The Company currently purchases annuities without recourse on a competitive
basis to fund settlements of indemnity losses. The nature and terms of the
annuities vary according to settlements. The current value of annuities
purchased in prior years from other insurance companies, but with recourse to
the Company, and reflected as an other asset and an other liability in the
consolidated balance sheets, totaled $22.1 million and $19.9 million as of
December 31, 2000 and 1999, respectively. The Company becomes liable only in the
event that an insurance company cannot meet its obligations under existing
agreements and state guarantee funds are not available. To minimize its exposure
to such losses, the Company only utilizes insurance companies with an A.M. Best
rating of "A+" or better.

Legal proceedings beyond the ordinary course of business at December 31, 2000
included an appeal filed by three individual insureds of the order issued by the


                                                                            F-17
<PAGE>   60
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Commissioner of the New Jersey Department of Banking and Insurance approving the
Company's Plan of Reorganization. On February 14, 2000, the New Jersey Superior
Court, Appellate Division, issued an Opinion that rejected the appellants'
challenge to the Commissioner's Order approving the Plan of Reorganization. On
September 19, 2000, the appellants' petition for review of the Appellate
Division decision by the New Jersey Supreme Court was denied. The matter has now
been finally concluded in the Company's favor. A second court action challenging
certain aspects of the Plan of Reorganization and seeking damages and injunctive
relief that was filed by five individual insureds in January 1999 was dismissed
by the trial court in August 1999 and is now on appeal. The Company intends to
continue vigorously defending against these actions.

9.       STATUTORY ACCOUNTING PRACTICES

MIIX, domiciled in New Jersey, LP&C, domiciled in Virginia, MIIX New York,
domiciled in New York, and Lawrenceville Re, Ltd., domiciled in Bermuda, prepare
statutory-basis financial statements in accordance with accounting practices
prescribed or permitted by the New Jersey Department of Banking and Insurance,
the Virginia Department of Insurance, the New York State Insurance Department
and the Bermuda Register of Companies, respectively. "Prescribed" statutory
accounting practices include state laws, regulations, and general administrative
rules, as well as a variety of publications of the National Association of
Insurance Commissioners (the "NAIC"). "Permitted" statutory accounting practices
encompass all accounting practices that are not prescribed; such practices may
differ from state to state, may differ from company to company within a state,
and may change in the future. The NAIC adopted codified statutory accounting
principles "Codification," which is effective for the reporting periods
beginning after January 1, 2001. Management believes that the impact of
codification will not be material to the statutory basis financial statements of
MIIX, LP&C and MIIX New York. Combined policyholders' surplus and net income, as
reported to the domiciliary insurance departments in accordance with its
prescribed or permitted statutory accounting practices for these companies, are
summarized as follows:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                     --------------------------------
                                                       2000        1999        1998
                                                     --------    --------    --------
                                                              (In thousands)
<S>                                                  <C>         <C>         <C>
Statutory net income/(loss) for the year...........  $(39,914)   $  8,812    $ 29,631
Statutory surplus at year-end......................  $231,498    $268,445    $253,166
</TABLE>

New Jersey regulations require that an insurer's statutory surplus following a
dividend or other distribution be reasonable in relation to its outstanding
liabilities and adequate to meet its financial needs. New Jersey permits the
payment of dividends only out of statutory earned (unassigned) surplus unless
the payment out of other funds is approved by the Commissioner. In 2001, MIIX
may pay dividends to The MIIX Group of approximately $22.5 million without the
prior approval of the New Jersey Insurance Commissioner. The MIIX Group expects
that these current limitations imposed on MIIX Insurance Company should not
affect its ability to declare and pay dividends sufficient to support The MIIX
Group's initial dividend policy and other obligations. The other insurance
subsidiaries are subject to similar provisions and restrictions. No significant
amounts are currently available for payment of dividends by insurance
subsidiaries other than MIIX Insurance Company without prior approval of the
applicable state insurance department or Bermuda Registrar of Companies.

At December 31, 2000 and 1999, The MIIX Group had restricted net assets of
$288,052,310 and $292,989,329, which represented its investments in its
insurance subsidiaries.

10.      RESTRUCTURING CHARGE

The Company undertook a restructuring during the second quarter of 1999 and on
June 23 announced the reduction of regional and home office staff and the
closing of regional offices in Boston and Atlanta to centralize their functions
at the Company's home office. The Company recognized a pre-tax charge in the
second quarter of 1999 related to this restructuring of $2.4 million. No similar
event occurred during the period ended December 31, 2000.


                                                                            F-18
<PAGE>   61
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.      INCOME TAXES

For federal income tax purposes, the Company files a consolidated return with
its subsidiaries.

The components of the income tax (benefit)/provision in the accompanying
statements of income are summarized as follows:

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                          2000       1999       1998
                                                        -------    -------    -------
                                                               (In thousands)
<S>                                                    <C>         <C>        <C>
Current income tax...................................  $(21,654)   $16,690    $19,111
Deferred income tax..................................      (486)   (10,073)    (7,957)
                                                        -------    -------    -------
Total income tax (benefit)/expense...................  $(22,140)   $ 6,617    $11,154
                                                       ========    =======    =======
</TABLE>

A reconciliation of income tax computed at the federal statutory tax rate to
total income tax (benefit)/expense is as follows:

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                          2000       1999       1998
                                                        -------    -------    -------
                                                               (In thousands)
<S>                                                    <C>         <C>        <C>
Expected annual effective federal income tax
  (benefit)/expense at 35%............................ $(20,509)   $ 9,581    $14,309
Increase/(decrease) in taxes resulting from:
  Tax-exempt interest.................................   (2,478)    (2,431)    (2,810)
  Other...............................................      847       (533)      (345)
                                                        -------    -------    -------
          Total income tax (benefit)/expense.......... $(22,140)   $ 6,617    $11,154
                                                       ========    =======    =======
</TABLE>

Significant components of the Company's deferred tax assets and liabilities are
summarized as follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
                                                                (In thousands)
<S>                                                           <C>        <C>
Deferred tax assets:
  Discounting of loss reserves..............................  $49,955    $47,747
  Unearned premium reserve..................................    5,442      5,539
  Unrealized losses on investments..........................    4,962     19,395
  Other.....................................................    2,029      2,953
                                                              -------    -------
          Total deferred tax assets.........................   62,388     75,634
                                                              -------    -------
   Less Valuation allowance.................................      612      3,612
                                                              -------    -------
           Deferred tax asset after valuation allowance.....   61,776     72,022

Deferred tax liabilities-Other..............................    2,880      2,289
                                                              -------    -------
Net deferred tax assets.....................................  $58,896    $69,733
                                                              =======    =======
</TABLE>

Based on the anticipated realizability of the deferred tax asset relating to
unrealized losses on the available-for-sale securities, the Company established
a $0.6 million and $3.6 million valuation allowance at December 31, 2000 and
1999, respectively. The decrease in the valuation allowance of $3.0 million
during 2000 and increase of $3.6 million in 1999 impacted other comprehensive
income and was included in unrealized appreciation/depreciation net of tax. Net
deferred tax assets


                                                                            F-19
<PAGE>   62
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and income tax expense in future years can be significantly affected by changes
in enacted tax rates or by unexpected adverse events that would impact
management's conclusions as to the ultimate realizability of deferred tax
assets.

At December 31, 2000, the Company had current income taxes recoverable included
in other assets of $11.1 million. At December 31, 1999 the company had $12.8
million income taxes payable included in other liabilities.

The amount of federal income taxes paid in 2000, 1999 and 1998 was $2.3 million,
$8.9 million and $17.4 million, respectively.

The federal income tax returns of the Company have been examined by the Internal
Revenue Service through the years 1994. Management believes the Company has
adequately provided for any remaining tax contingencies.

12.      IMPAIRMENT OF CAPITALIZED SYSTEM DEVELOPMENT COSTS

SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" requires recognition of impairment losses
for long-lived assets whenever events or changes in circumstances result in the
carrying amount of an asset to exceed the sum of the expected future cash flow
associated with the asset. During 1998, management replaced its policy
administration system, and accordingly, recognized a $12.7 million pre-tax
charge which represented the net book value of capitalized system development
costs associated with the old computer system at the time of disposal. No
similar event occurred during the years ended December 31, 1999 and December 31,
2000.

13.      DEFERRED POLICY ACQUISITION COSTS

The following represents the components of deferred policy acquisition costs and
the amounts that were charged to expense for the years ended December 31, 2000,
1999 and 1998.

<TABLE>
<CAPTION>
                                                         2000       1999       1998
                                                       --------    -------    -------
                                                                (In thousands)
<S>                                                    <C>        <C>        <C>
Balance at beginning of period.......................  $  3,165   $  2,810   $    100
Cost deferred during the period......................    12,576     13,565     14,648
Amortization expense.................................   (12,715)   (13,210)   (11,938)
                                                       --------   --------   --------
Balance at end of period.............................  $  3,026   $  3,165   $  2,810
                                                       ========   ========   ========
</TABLE>

14.      COMPREHENSIVE INCOME/(LOSS)

The components of comprehensive income/(loss), net of related tax, for the years
ended December 31, 2000, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                            2000       1999       1998
                                                          --------   --------   --------
                                                                  (In thousands)
<S>                                                       <C>        <C>        <C>
Net income/(loss).......................................  $(36,458)  $ 20,758   $ 29,728
Other comprehensive income/(loss):
  Unrealized holding appreciation/(depreciation) arising
    during period (net of tax of $13,821, $(23,944)
    and $3,659, respectively)...........................    27,146    (54,273)     6,795
  Reclassification adjustment for (gains)/losses
    realized in net income (net of tax of $1,455,
    $2,370 and $(12,736), respectively).................     2,701      4,400    (23,654)
                                                          --------   --------   --------
  Net unrealized appreciation/(depreciation) arising
    during the period at December 31, (net of tax of
    $15,276, $(21,574) and $(9,078), respectively)......    29,847   $(49,873)  $(16,859)
                                                          --------   --------   --------
Comprehensive income/(loss).............................  $ (6,611)  $(29,115)  $ 12,869
                                                          ========   ========   ========
</TABLE>


                                                                            F-20
<PAGE>   63
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15.      STOCK BASED COMPENSATION

The Company accounts for its stock-based compensation in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations. The Company's policy regarding stock options is to issue
options with an exercise price equal to the market price on the date of grant.
Under APB 25 no compensation expense is recognized given the Company's policy.

Pursuant to stock purchase and loan agreements, The MIIX Group loaned during
1999 certain officers of the Company approximately $4,640,000 which the officers
used to purchase unregistered shares of the MIIX Group common stock at the
Offering Price. In the first half of 2000 the Company loaned approximately an
additional $770,000 which the officers used to purchase unregistered shares of
the MIIX Group common stock at market price. The loans, two of which are with
former officers of the Company, bear interest rates ranging from 5.37% to 6.21%
and provide for full recourse against the borrowers.

On September 15, 1999, 45,515 restricted shares of The MIIX Group common stock,
having a per share market value of $16.06, were granted to certain officers and
board members, of which 12,597 shares were immediately vested, and 20,078 shares
were subsequently forfeited. During 2000 an additional 4,280 shares of
restricted shares of The MIIX Group common stock were vested.

The aggregate number of options for common shares issued and issuable under the
Plan is currently limited to 2,250,000. All options granted have ten year terms
and vest over various future periods. Options outstanding at December 31, 2000
have exercise prices ranging from $11.31 to $16.06.

A summary of the Company's stock option activity and related information
follows:

<TABLE>
<CAPTION>
                                                        2000                               1999
                                            -----------------------------       -----------------------------
                                             Number of   Weighted-Average        Number of   Weighted-Average
                                              Options     Exercise Price          Options     Exercise Price
                                            ---------     --------------         ---------    --------------
<S>                                         <C>          <C>                     <C>          <C>
Options outstanding at beginning
   of year.............................       451,500          $13.47                   0          $ 0.00
Granted during year....................       203,511           11.54             609,000           13.48
Exercised during year..................             0            0.00                   0            0.00
Canceled during the year...............       123,576           12.82             157,500           13.50
                                              -------                             -------
Options outstanding at end of year.....       531,435          $12.88             451,500          $13.47
                                              =======                             =======
</TABLE>

The Company's pro forma information using the Black-Scholes valuation model
follows:

<TABLE>
<CAPTION>
                                                            2000        1999
                                                           -------     -------
<S>                                                        <C>         <C>
   Estimated weighted average of the fair value of
     options granted                                       $3.56       $3.77
   Pro forma net income/(loss) (in thousands)              $(36,719)   $19,821
   Pro forma earnings/(loss) per share - Basic             $(2.60)     $1.47
                                       - Diluted           $(2.60)     $1.46
</TABLE>

For pro forma disclosure purposes, the fair value of stock options was estimated
at each date of grant using a Black-Scholes option pricing model using the
following assumptions: Risk-free interest rates ranging from 5.8% to 6.6%;
dividend yields ranging from 1.48% to 1.77%; volatility factors of the expected
market price of the Company's common stock ranging from 33.3% to 39.8%; and a
three-years weighted average expected life of the options.

In management's opinion, existing stock option valuation models do not provide
an entirely reliable measure of the fair value of non-transferable employee
stock options with vesting restrictions.


                                                                            F-21
<PAGE>   64
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16.      EARNINGS/(LOSS) PER SHARE

Basic and diluted earnings/(loss) per share are calculated in accordance with
SFAS Statement No. 128, "Earnings per Share." Earnings/(loss) per share for the
years ended December 31, 2000 and 1999 is computed using the weighted-average
number of common shares outstanding during these periods of 14,100,043 and
13,497,110, respectively. Earnings per share for the period ended December 31,
1998 gives effect to the reorganization and the allocation of approximately
12,025,000 shares of common stock distributed to the Exchange's members on
August 4, 1999.

The following table sets forth the computation of basic and diluted
earnings/(loss) per share:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                                2000       1999       1998
                                                              --------    -------    -------
                                                                      (In thousands)
<S>                                                           <C>         <C>        <C>
Numerator for basic and diluted earnings/(loss) per share
   of common stock:
   Net income/(loss)........................................  $(36,458)   $20,758    $29,728

Denominator:
  Denominator for basic earnings/(loss) per share of
  common stock - weighted-average shares outstanding........    14,100     13,497     12,025

  Effect of dilutive securities:
    Stock options and non-vested restricted stock...........        17         37          0
                                                              --------    -------    -------
    Denominator for diluted earnings/(loss) per share of
    common stock adjusted - weighted-average shares
    outstanding.............................................    14,117     13,534     12,025

Basic earnings/(loss) per share of common stock.............  $  (2.59)   $  1.54    $  2.47
                                                              ========    =======    =======

Diluted earnings/(loss) per share of common stock...........  $  (2.58)   $  1.53    $  2.47
                                                              ========    =======    =======
</TABLE>


                                                                            F-22
<PAGE>   65
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


17. UNAUDITED QUARTERLY FINANCIAL DATA

The following is a summary of unaudited quarterly results of operations for 2000
and 1999:

<TABLE>
<CAPTION>
                                                                       2000
                                                     -----------------------------------------
                                                       1ST         2ND        3RD        4TH
                                                     --------    -------    -------    -------
                                                                   (In thousands)
<S>                                                  <C>        <C>        <C>        <C>
Total written premiums.............................  $128,763   $ 15,682   $ 52,073   $ 29,608
Net premiums earned................................    49,179     30,747     51,814     52,322
Net investment income..............................    21,479     20,902     21,399     21,378
Realized investment losses.........................       (29)      (568)      (109)    (3,450)
Losses and loss adjustment expenses................    47,770    118,153     52,038     61,263
Net income/(loss)..................................  $  6,854   $(47,968)  $  2,930   $  1,726

Basic earnings/(loss) per share....................  $   0.47   $  (3.37)  $   0.21   $   0.13
                                                     ========   ========   ========   ========
Diluted earnings/(loss) per share of common stock..  $   0.47   $  (3.36)  $   0.21   $   0.13
                                                     ========   ========   ========   ========
Dividend per share of common stock.................  $   0.05   $   0.05   $   0.05   $   0.05
                                                     ========   ========   ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                                       1999
                                                     -----------------------------------------
                                                       1ST         2ND        3RD        4TH
                                                     --------    -------    -------    -------
                                                                   (In thousands)
<S>                                                  <C>        <C>        <C>        <C>
Total written premiums.............................  $141,619   $ 12,617   $ 69,503   $ 33,361
Net premiums earned................................    45,581     45,906     58,798     37,560
Net investment income..............................    17,387     18,348     19,479     20,447
Realized investment losses.........................      (504)    (2,928)    (1,668)    (1,670)
Losses and loss adjustment expenses................    43,043     43,176     54,318     34,449
Restructuring charge...............................         0      2,409          0          0
Net income.........................................  $  4,606   $  2,894   $  6,442   $  6,816

Basic earnings per share...........................  $   0.38   $   0.24   $   0.44   $   0.44
                                                     ========   ========   ========   ========
Diluted earnings per share of common stock.........  $   0.38   $   0.24   $   0.44   $   0.44
                                                     ========   ========   ========   ========
Dividend per share of common stock.................  $   0.00   $   0.00   $   0.05   $   0.05
                                                     ========   ========   ========   ========
</TABLE>


                                                                            F-23
<PAGE>   66
                                   SCHEDULE I

       SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
                                DECEMBER 31, 2000
                                 (In thousands)

<TABLE>
<CAPTION>
                                                        AMORTIZED                     AMOUNT ON
                                                           COST       FAIR VALUE    BALANCE SHEET
                                                        ----------    ----------    -------------
<S>                                                     <C>           <C>             <C>
Fixed maturities:
Bonds:
  United States government and government agencies
     and authorities..................................  $  141,781    $  144,709      $  144,709
  States, municipalities and political subdivisions...     158,749       164,928         164,928
  Public utilities....................................      45,578        43,808          43,808
  Foreign securities--U.S. dollar denominated.........      45,757        44,611          44,611
  All other corporate bonds...........................     792,192       773,128         773,128
                                                        ----------    ----------      ----------
     Total fixed maturities...........................  $1,184,057    $1,171,184      $1,171,184
                                                        ----------    ----------      ----------
Equity securities:
  Common stock:
     Banks, trust and insurance companies.............       6,157         5,295           5,295
     All other corporate stock........................         723           539             539
     Foreign stocks...................................           0             3               3
                                                        ----------    ----------      ----------
     Total equity securities..........................  $    6,880    $    5,837      $    5,837
                                                        ----------    ----------      ----------
Short-term investments................................  $   82,291    $   82,291      $   82,291
                                                        ----------    ----------      ----------

Total investments.....................................  $1,273,228    $1,259,312      $1,259,312
                                                        ==========    ==========      ==========
</TABLE>


                                                                            F-24
<PAGE>   67
                                   SCHEDULE II

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                          The MIIX Group, Incorporated
                            Condensed Balance Sheets
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                             --------------------
                                                               2000        1999
                                                            --------   ---------
<S>                                                         <C>        <C>
Assets:
  Investments
  Equity investments, at fair value
     (cost: 2000 - $2,614; 1999 - $5,819)................... $  1,752    $  4,869
  Short-term investments, at cost which approximates
     fair value.............................................      131      11,850
  Investment in subsidiaries................................  296,846     303,167
                                                             --------    --------
          Total investments.................................  298,729     319,886

  Cash......................................................       10           0

  Other assets..............................................      874         609
                                                              -------    --------
          Total assets...................................... $299,613    $320,495
                                                             ========    ========

Liabilities:
  Due to subsidiaries....................................... $  2,378    $    362
  Loan Payable..............................................    7,500           0
  Other liabilities.........................................      294       1,429
                                                             --------    --------
          Total liabilities................................. $ 10,172    $  1,791
                                                             --------    --------

  Stockholders' Equity:
  Preferred stock, $0.01 par value, 50,000,000 shares
     authorized, no shares issued and outstanding........... $      0    $      0
  Common stock, $0.01 par per share, 100,000,000 shares
     authorized, 16,538,005 shares issued
     (2000 - 13,563,938 shares outstanding;
     1999 - 15,258,567 shares outstanding)..................      166         165
  Additional paid-in capital................................   53,716      52,942
  Retained earnings.........................................  289,655     328,897
  Treasury stock, at cost (2000 - 2,974,067 shares;
     1999 - 1,236,809 shares)...............................  (38,897)    (19,249)
  Stock purchase loans and unearned stock compensation......   (5,929)     (4,934)
  Accumulated other comprehensive income/(loss).............   (9,270)    (39,117)
                                                             --------    --------
          Total stockholders' equity........................ $289,441    $318,704
                                                             --------    --------

          Total liabilities and stockholders' equity........ $299,613    $320,495
                                                             ========    ========
</TABLE>


                                                                            F-25
<PAGE>   68
                                   SCHEDULE II

           CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)

                          The MIIX Group, Incorporated
                       Condensed Statements of Operations

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                       --------------------------------
                                                         2000        1999        1998
                                                       --------    --------    --------
                                                                  (In thousands)
<S>                                                      <C>         <C>         <C>
         Net investment income.......................... $    382    $    711    $      0
         Realized investment gains/(losses).............     (345)        138           0
         Other expenses.................................     (858)       (852)          0
                                                         --------    --------    --------
         Loss before federal income taxes and equity
           in income of subsidiaries....................     (821)         (3)          0

         Federal income taxes/(benefit).................     (475)        (11)          0
                                                         --------    --------    --------

         Earnings/(loss) before equity in income of
           subsidiaries.................................     (346)          8           0
         Equity in income/(loss) of subsidiaries........  (36,112)     20,750         191
                                                         --------    --------    --------
                 Net income/(loss)...................... $(36,458)   $ 20,758    $    191
                                                         ========    ========    ========
</TABLE>


                                                                            F-26
<PAGE>   69
                                   SCHEDULE II

           CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)

                          The MIIX Group, Incorporated
                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                       YEARS ENDED DECEMBER 31,
                                                                             ------------------------------------------
                                                                               2000             1999             1998
                                                                             --------         --------         --------
                                                                                           (In thousands)
<S>                                                                          <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) ...................................................        $(36,458)        $ 20,758         $    191

Adjustments to reconcile net income to net cash provided by operating
   activities:
Realized investment (gains)/losses ..................................             345             (138)               0
Change in payable to subsidiaries ...................................           2,016              362                0
Net change in other assets and liabilities ..........................          (1,652)             857                0
Equity in undistributed income of subsidiaries ......................          36,112          (20,750)            (191)
                                                                             --------         --------         --------

Net cash provided by operating activities ...........................             363            1,089                0

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed maturity investment sales .......................               0            2,915                0
Proceeds from equity sales ..........................................           2,860            1,553                0
Cost of investments acquired ........................................               0          (10,148)               0
Purchase of subsidiary ..............................................               0             (100)               0
Change in short-term investments, net ...............................          11,719          (11,850)               0
                                                                             --------         --------         --------
Net cash provided by investing activities ...........................          14,579          (17,630)               0

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering, net of
   offering and reorganization costs ................................               0           37,350                0
Purchase of treasury stock ..........................................         (19,648)         (19,249)               0
Cash dividends to stockholders ......................................          (2,784)          (1,560)               0
Notes payable and other borrowings ..................................           7,500                0                0
Capital contribution from the Exchange ..............................               0                0           10,000
Capital contribution to MIIX Insurance ..............................               0                0          (10,000)
                                                                             --------         --------         --------

Net cash provided by/(used in) financing activities .................         (14,932)          16,541                0

Net change in cash ..................................................              10                0                0

Cash at beginning of period .........................................               0                0                0

Cash at end of period ...............................................              10                0                0
                                                                             ========         ========         ========
                                                                             $     10         $      0         $      0
                                                                             ========         ========         ========
</TABLE>


                                                                            F-27
<PAGE>   70
                                   SCHEDULE II

            CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                          The MIIX Group, Incorporated

                     Notes to Condensed Financial Statements
                                December 31, 2000

1. REORGANIZATION

On August 4, 1999 the Exchange consummated its Plan of Reorganization whereby
the Exchange reorganized from a reciprocal insurer to a stock insurance company
(MIIX) and became a wholly owned subsidiary of The MIIX Group.

The MIIX Group has no historic operation and was organized in October 1997 as
part of the Exchange's plan to reorganize its corporate structure. The Plan of
Reorganization included several key components, including: formation of the MIIX
Group to be the ultimate parent for the reorganized Company; the transfer of
assets and liabilities held by the Exchange to MIIX, formed for that purpose;
acquisition of the Underwriter; distribution of shares of The MIIX Group common
stock and/or cash to current and former members of the Exchange ("Distributees")
as defined in the Plan of Reorganization; and dissolution of the Exchange.

2. BASIS OF PRESENTATION

In The MIIX Group's financial statements, investment in subsidiaries is stated
at cost plus equity in undistributed earnings of subsidiaries since date of
acquisition. The MIIX Group, Incorporated's financial statements should be read
in conjunction with the consolidated financial statements.


                                                                            F-28