<PAGE>

                       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, 2001

 / /      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 22, 2002 of the voting stock held
by non-affiliates of the registrant was $37,692,191.

         As of March 22, 2002, the number of outstanding shares of the
Registrant's Common Stock was 13,479,760.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held May 9, 2002 ("Proxy Statement") are incorporated by
reference in Part III.



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<TABLE>
<CAPTION>

THE MIIX GROUP, INCORPORATED
2001 FORM 10-K
TABLE OF CONTENTS

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

ITEM 1.      BUSINESS...................................................................................2
ITEM 2.      PROPERTIES................................................................................25
ITEM 3.      LEGAL PROCEEDINGS.........................................................................25
ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HLDERS........................................26

PART II      ..........................................................................................27

ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................27
ITEM 6.      SELECTED FINANCIAL DATA...................................................................29
ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS.................................................................30
ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................41
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................41
ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE......................................................................41

PART III     ..........................................................................................41

ITEM 10.     EXECUTIVE COMPENSATION....................................................................42
ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................43
ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................43

PART IV      ..........................................................................................43

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...........................43

SIGNATURES   ..........................................................................................48

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES...........................................................F-1
</TABLE>


                                                                               1
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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; further control by insurance department regulators, including the
possibility of rehabilitation or liquidation; 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."

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

                                                                               2
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the insurer to guard against insolvency and many other aspects of the day-to-day
operations of the Company. See "Business -- Regulation."

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 2000, the Company has been a leading
provider of medical professional liability insurance in New Jersey and is ranked
seventh among medical professional liability insurers in the United States. The
Company currently insures approximately 17,000 physicians and other medical
professionals who practice alone, in medical groups, clinics or in other health
care organizations. The Company also insures more than 105 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. In 2001, the Company wrote policies in 24 states and the District
of Columbia. In 2001, approximately 51% 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. See "Business - Risks and Uncertainties."

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 2000, total medical professional liability direct premiums written in the
United States were approximately $6.4 billion, according to data compiled by
A.M. Best, an insurance rating agency, and in New Jersey were approximately
$290.0 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 3.3% in the United States according to data compiled
by A.M. Best and 36.8% in New Jersey according to data compiled by OneSource. In
2001, medical malpractice insurance accounted for approximately 98.7% of the
Company's direct premiums written.

The Company had total revenues and a net loss of $233.3 million and $157.6
million, respectively, in 2001, total revenues and a net loss of $272.5 million
and $36.5 million, respectively, in 2000 and total revenues and net income of
$265.1 million and $20.8 million, respectively, in 1999. As of December 31,
2001, the Company had total assets of $1.9 billion and total equity of $131.5
million.

RISKS AND UNCERTAINTIES

As a result of the net losses reported in 2001, the Risk-Based Capital of two of
the Company's operating subsidiaries, MIIX and Lawrenceville Property and
Casualty Company ("LP&C"), fell below the standards adopted by the National
Association of Insurance Commissioners.

At December 31, 2001, MIIX's Risk-Based Capital ("RBC") was $122.0 million,
which is within the Regulatory Action Level, at approximately 142% of Authorized
Control Level, which required MIIX to prepare and submit a corrective action
plan to the Insurance Commissioner of the New Jersey Department of Banking and
Insurance. The plan must be approved by the New Jersey state Insurance
Commissioner, who may perform an examination of the insurer's financial
position. At December 31, 2001, LP&C's RBC was at the Mandatory Control Level,
at approximately 18% of Authorized Control Level, which authorizes the Virginia
Insurance Commissioner to place LP&C under regulatory control that may result in
rehabilitation or, ultimately, liquidation. See "Regulation - Risk-Based
Capital".


On February 21, 2002, A.M. Best lowered the Company's rating to B- (Fair) with a
negative outlook from A- (Excellent) following the Company's announcement to
strengthen reserves at December 31, 2001. On March 22, 2002, A.M. Best again
lowered the rating of the Company to C+ (Marginal) from B- (Fair). This rating
action

                                                                               3
<PAGE>

reflects A.M. Best's view concerning the Company's weakened capitalization, the
potential negative impact of further adverse loss reserve development, and
concerns about the Company's ability to repay or refinance its debt obligations.
See "A.M. Best Ratings" and "Loss and LAE Reserves."

The Report of Independent Auditors on the Company's 2001 financial statements
contains a going concern explanatory paragraph, which primarily reflects the
potential negative impact of further adverse loss reserve development, current
regulatory limitations, any potential regulatory action by Insurance Departments
having jurisdiction over the Company's Insurance Subsidiaries and the ability of
the Company to repay or refinance its debt obligations. See "Financial
Statements - Report of Independent Auditors."

MIIX has filed a preliminary Corrective Action Plan with the New Jersey
Department of Banking and Insurance, and continues to hold regular discussions
with insurance regulators relative to the specific details included in the plan.
See "Business Strategy - Segregate and Run-Off Certain Lines of Business and
Geographic Focus and Distribution."

In March 2002, the Company communicated to various state insurance departments
where LP&C is an admitted carrier its intention to discontinue writing new
business and planned non-renewal of expiring policies, other than certain "tail"
coverage for which the Company is contractually required to provide or where
required by regulation, and the Company's plan to place LP&C into run-off. LP&C
entered into a consent order with the Virginia Bureau of Insurance on February
22, 2002, in which it agreed not to solicit or issue any new or renewal business
in any jurisdiction, in accordance with applicable laws. LP&C and the Bureau
entered into a second consent order on March 6, 2002, requiring LP&C to obtain
the Bureau's prior written consent before entering into certain material
transactions not in the ordinary course of business, as set forth in the order,
including selling or encumbering assets, lending or disbursing funds, incurring
debt, modifying reinsurance treaties with affiliates, changing directors or
officers of the company, merging the company or paying dividends to
stockholders. In addition, the Company has announced its intention to limit
MIIX's insurance writings to New Jersey and certain mid-Atlantic states and to
no longer write institutional business. In this regard, the Company has closed
its regional offices in Dallas and Indianapolis, as well as announced current
and planned future reductions in personnel and related expenses associated with
these discontinued operations, except for claims staff in these offices as well
as claims staff in the Lawrenceville home office which have been retained to
manage the claims run-off. See "Claims" and "Business Strategy - Geographic
Focus and Distribution."

While the Company envisions a narrower geographic focus going forward, primarily
New Jersey physician business, the specific components of any future business
plan are subject to the approval of the applicable insurance departments. There
can be no assurances that the Company's plan will be approved in its present
form. In the event the Company's proposed plan is not approved, it is unlikely
that the Company will be able to continue operations as an independent entity
unless an alternative plan is developed and approved. It is also uncertain what
actions, if any, the insurance departments will take with respect to the
Company's insurance subsidiaries. Such actions could include supervision,
rehabilitation or liquidation. See "Regulation - Risk-Based Capital."

The Company has outstanding borrowings under a revolving credit facility with
Amboy National Bank of $9.1 million at December 31, 2001, which matures on May
17, 2002. The Company has pledged 100% of the MIIX Insurance Company Stock as
collateral under the credit facility. It is unlikely that the Company will be
able to repay the credit facility balance prior to its May 17, 2002 maturity
date, and will be in default on the credit facility unless it is restructured
prior to that date. The Company is in ongoing discussions with Amboy National
Bank to restructure the terms of the revolving credit facility. However, there
can be no assurance that the Company will have adequate funds to repay or
refinance this loan when due or that Amboy National Bank will agree to
refinancing terms acceptable to the Company.

Actions taken by the New Jersey Department of Banking and Insurance and the A.M.
Best rating of C+ could have a material adverse impact on the Company's ability
both to write new business and to retain renewal business. See "Competition."

In each of the last two years, unexpected loss experience has caused the Company
to make large increases in its loss reserves. If this trend continues, the
Company may have to increase loss reserves further, which could have a material
adverse impact on the Company. See "Loss and LAE Reserves."

                                                                               4
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BUSINESS STRATEGY

The Company believes its revised business plan could allow it to compete
effectively and create long-term growth. The major components of the Company's
strategy are described below.

Focus on Core Markets. The Company's strategy is designed to capitalize on the
strengths that have enabled it to achieve its current market position in New
Jersey, 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 level of service it delivers to
insureds, including the aggressive defense of claims on their behalf, (iv) its
capacity on a per insured basis, (v) its ability to customize product features
and programs to fit the needs of different customers and (vi) its close
relationship with the health care community.

Segregate and Run-Off Certain Lines of Business. An integral part of the
Company's strategy includes its ability to segregate previously written
business, including discontinued institutional and physician business written by
MIIX and LP&C, from the future business written pursuant to the Company's
revised business plan. Under the proposed plan submitted to the New Jersey
Department of Banking and Insurance, the Company contemplates that the
previously written business would be placed into run-off, which the Company
believes would reduce, but not eliminate, the possibility that adverse future
loss experience could further negatively impact its remaining operations.

Geographic Focus and Distribution. The Company plans to offer its products
primarily in New Jersey and other mid-Atlantic states, including Connecticut,
Maryland, Delaware and Pennsylvania. In New Jersey, the Company has
traditionally written insurance primarily on a direct basis. Outside New Jersey,
the Company principally utilized brokers and agents.

Maintain Close Relationship with the Medical Community. Since its founding in
1977, the Company has maintained a close relationship with the health care
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. This
re-underwriting project was 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. The Company intends to continue to enhance
the products it offers to its customer base in order to be able to provide them
with a full range of business liability coverages and services.


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 and medical groups on a claims made,
"modified claims made" or occurrence basis.

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

                                                                               5
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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 Pennsylvania traditional occurrence coverage was primarily offered to
physicians. In late 2001 the Company made the decision to no longer offer
occurrence coverage to physicians in Pennsylvania because of the long loss
emergence period under this coverage and the volatile litigation climate in
Pennsylvania. Instead we offered each renewing policy on a claims made basis. In
other states, the Company issues policies primarily on a claims made coverage
basis to physicians. 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 currently offers
policy limits up to $5,000,000 per incident and $7,000,000 in the aggregate for
individual physicians.

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 under review.

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. In 2001,
the Company began an "off-anniversary" initiative to move New Jersey business
from a common January 1 renewal date to renewal dates more evenly spread
throughout the year. 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,
                                       ------------------------------------------------------------------------
                                               2001                     2000                      1999
                                       ---------------------    ----------------------     --------------------
                                                                   (In thousands)
                                                     % of                      % of                      % of
                                          $          total         $           total          $          total
                                       ---------    --------    ---------     --------     --------     -------
<S>                                    <C>          <C>         <C>           <C>          <C>         <C>
Professional Liability Products
   Occurrence/Occurrence-like          $123,331        54%      $126,323        60%        $152,520        62%

   Claims Made                          105,235        45%        83,427        39%          89,253        37%

Other Products                            2,984         1%         2,404         1%           2,653         1%
                                       --------       ----      --------       ----        --------     ------

Direct Premiums Written                $231,550       100%      $212,154       100%        $244,426       100%
                                       ========       ====      ========      =====        ========     ======
</TABLE>

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 47% of the Company's direct premiums written in New
Jersey. 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. 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 2001, 126 independent brokers and agents
actively marketed the Company's products in 24 states and the District of
Columbia and produced approximately 73% of the Company's direct premiums
written. No national broker or regional agency accounted for more than 16% of
the Company's year-end direct premiums

                                                                               6
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written. The Company selects brokers and agents that it believes have
demonstrated profitable 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 may receive 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 -- Geographic Focus and Distribution."

The Company also provides risk management services. 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 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 all underwriting authority at its home office.

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 include
information regarding the medical training, current practice and claims history
of the applicant. Large groups 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 insureds 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 nonrenewals, any candidates for cancellation or nonrenewal, 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.

The Company undertook a major re-underwriting of its book of business during
2000 with the objective of increasing the profitability of the business. This
re-underwriting project was completed during 2001. 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 higher in 2001 compared to 2000, in part
due to these actions.

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
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

                                                                               7
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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.

In March 2002, the Company announced its intention to place all operations of
LP&C into run-off. In addition, the Company announced its intention to limit
MIIX's insurance writings to New Jersey and certain mid-Atlantic states and no
longer write institutional business. As a result, other (discontinued) business
will be written only as required by contractual provisions or regulation.
Regional offices in Dallas, Texas and Indianapolis, Indiana were closed in March
2002 as part of the run-off plan, except for claims staff in these offices as
well as claims staff in the Lawrenceville home office which have been retained
to manage the claims run-off. The Company remains strongly committed to handling
claims in a strong, aggressive and professional manner.

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 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

                                                                               8
<PAGE>
have an adverse effect on the Company's results of operations for the period in
which the adjustments are made. Given the Company's current financial condition,
any material increase in its loss reserves could result in its rehabilitation or
liquidation.

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. This uncertainty is potentially
great in a period of increasing loss severity, such as the present.

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 70% of the gross loss and LAE reserves at December 31, 2001.

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, 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
December 31, 2001                 832,290          69.5%       357,495      29.9%        7,213       0.6%       1,196,998
</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
l7.6% of total gross loss and LAE reserves held at December 31, 1999 to 29.9% at
December 31, 2001. This has primarily been the result of the Company's
claims-made policy form writings during 1997 through 2001. The majority of
policies sold in these new states was claims made. In March 2002, the Company
began working with the Virginia Bureau of Insurance to place the insurance
operations of its subsidiary, LP&C, into run-off, subject to regulatory and
contractual requirements. For the immediate future, the Company expects that New
Jersey physician business may constitute a significant majority of its ongoing
writings. New Jersey physician business has primarily been written under the
occurrence-like PPP policy.

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:

          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:
</TABLE>
                                                                               9
<PAGE>

<TABLE>
<CAPTION>

<S>                            <C>            <C>         <C>            <C>        <C>            <C>      <C>
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
December 31, 2001                 429,493       35.9%        719,268       60.1%       48,237        4.0%      1,196,998
</TABLE>

The Company has issued occurrence policies since 1977 and occurrence-like PPP
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 more than twenty years ago.

The following table illustrates the amount and percentage of gross loss and LAE
reserves held by the Company at December 31, 2001 categorized by accident year.

        Gross Loss and Loss Adjustment Expense Reserves By Accident Year
                             As of December 31, 2001
                                 (In thousands)

Accident Year                                    Gross Reserves      % of Total
----------------------------------------------   --------------    ------------

1977-91.....................................           30,826           2.6%
1992........................................            7,864           0.7%
1993........................................           10,403           0.9%
1994........................................           20,774           1.7%
1995........................................           28,895           2.4%
1996........................................           57,142           4.8%
1997........................................          114,381           9.6%
1998........................................          181,270          15.1%
1999........................................          252,855          21.1%
2000........................................          264,759          22.1%
2001........................................          227,829          19.0%
                                                 ------------         ------
Total Gross Reserves held by the Company....     $  1,196,998         100.0%
                                                 ============         ======

As shown in the above tables, at December 31, 2001: approximately 70% of gross
reserves are occurrence based; over 60% of gross reserves are IBNR reserves; and
approximately 87% of gross reserves relate to the most recent five accident
years, which are the most immature (and therefore the most subject to
variability) 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.
The Company's evaluations are performed by internal staff. At December 31, 2001,
the internal evaluation was supplemented with a review of major reserve
components performed by an outside actuarial firm. 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
considers the detailed analysis performed by the actuarial staff of its
independent auditors in connection with the audit of the Company's financial
statements.

                                                                              10
<PAGE>

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. The Company's
loss and LAE reserves have been adjusted significantly upward from prior year
recorded amounts in each of the last two years. 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, risk based
capital and other regulatory trigger points or results of operations. See "Risks
and Uncertainties."

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

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                     --------------------------------------
                                                       2001           2000           1999
                                                     --------       --------       --------
                                                                 (In thousands)
<S>                                                <C>            <C>            <C>
Balance as of January 1, gross of reinsurance
  recoverable...................................   $1,142,530     $1,053,597     $  951,659

Incurred related to:
     Current year...............................      230,399        276,261        254,570
     Prior years................................      117,881         47,212         16,514
                                                   ----------     ----------     ----------
Total incurred..................................      348,280        323,473        271,084
                                                   ----------     ----------     ----------
Paid related to:
     Current year...............................        2,570          4,535          4,622
     Prior years................................      291,242        230,005        164,524
                                                   ----------     ----------     ----------
Total paid......................................      293,812        234,540        169,146
                                                   ----------     ----------     ----------
Balance at end of period, gross of reinsurance
  recoverable...................................    1,196,998      1,142,530      1,053,597
Reinsurance recoverable.........................      463,275        432,046        406,409
                                                   ==========     ==========     ==========
Balance at end of period, net of reinsurance....   $  733,723     $  710,484     $  647,188
                                                   ==========     ==========     ==========
</TABLE>

The Company increased prior year gross reserves by $117.9 million, $47.2 million
and $16.5 million during 2001, 2000 and 1999, 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 2001, 2000 and 1999. The
following table presents the estimated ultimate losses and LAE gross of
reinsurance (including changes in such estimates) by accident year:




                                                                              11
<PAGE>
<TABLE>
<CAPTION>
                                           Accident Year Development
                                                 (In thousands)

                                                                                                      Changes in Estimated
                                                                                                     Ultimate Losses and LAE
                                                         Estimated Ultimate                            for the Years Ended
                                                 Losses and LAE as of December 31,                         December 31,
                                      ----------------------------------------------------     -------------------------------------
Accident Year                            1998          1999          2000          2001           1999         2000          2001
-------------                         ----------    ----------    ----------    ----------     ----------  ------------   ----------
<S>                                   <C>           <C>           <C>           <C>            <C>           <C>          <C>
1991 and Prior                        $1,107,044    $1,093,029    $1,106,260    $1,109,790     $  (14,015)   $ 13,231     $   3,530
1992                                     112,404       112,488       114,955       114,650             84       2,467          (305)
1993                                     121,990       118,450       109,686       107,844         (3,540      (8,764)       (1,842)
1994                                     154,063       144,513       143,651       152,787         (9,550)       (862)        9,136
1995                                     165,973       169,024       155,128       156,665          3,051     (13,896)        1,537
1996                                     174,681       178,048       179,902       186,510          3,367       1,854         6,608
1997                                     195,469       213,762       205,156       226,797         18,293      (8,606)       21,641
1998                                     214,413       233,237       242,349       278,821         18,824       9,112        36,472
1999                                                   254,570       307,246       332,052                     52,676        24,806
2000                                                                 276,261       292,559                                   16,298
2001                                                                 230,399
                                      ----------    ----------    ----------    ----------     ----------  ------------   ----------

Total Estimated Ultimate Losses
and LAE                               $2,246,037    $2,517,121    $2,840,594    $3,188,874     $   16,514  $     47,212   $ 117,881
                                      ----------    ----------    ----------    ----------     ==========  ============   ==========
Less:  Total Paid Loss and LAE        $1,294,378    $1,463,524    $1,698,064    $1,991,876
                                      ----------    ----------    ----------    ----------
Gross Loss and LAE Reserves as
of December 31                        $  951,659    $1,053,597    $1,142,530    $1,196,998
                                      ==========    ==========    ==========    ==========
</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 15% of estimated accident year ultimate losses at
December 31, 2001, is not unreasonable for the medical malpractice line of
business.

Specific factors noted in management's actuarial analysis that gave rise to the
accident year reserve development in 2001 included the following. Overall
reserves across all accident years were adjusted significantly to reflect
increased loss severity seen during 2001. Claims were adjudicated or settled at
higher values than the Company had previously experienced. This increase in
severity was seen primarily in the Company's Pennsylvania institutions book, and
to a lesser degree in the Company's core New Jersey physician book as well as in
the physician business in many other states, including, most particularly,
Pennsylvania, Texas and Ohio. Development on older accident years up through
1996 primarily reflects this severity trend in Pennsylvania and New Jersey.
Development on accident years 1997 through 2000 was primarily composed of
increases to Pennsylvania physician and institutional reserves as well as
increases to reserves on physician business in states outside of New Jersey and
Pennsylvania. The increases to reserves held on business outside of New Jersey
and Pennsylvania reflected increased severity as well as, to a lesser extent,
greater than previously anticipated loss frequency.

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

                                                                              12
<PAGE>

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.

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,
                                                      ------------------------------------------
                                                         2001             2000             1999
                                                      ---------        ---------        ---------
                                                              (In thousands)
<S>                                                  <C>              <C>              <C>
Balance as of January 1, net of
  reinsurance recoverable..........................  $  710,484       $  647,188       $  625,864

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

Incurred related to:
     Current year..................................     203,975          227,921          189,000
     Prior years...................................      46,793           51,303          (14,014)
                                                     ----------       ----------       ----------
Total incurred.....................................     250,768          279,224          174,986
                                                     ----------       ----------       ----------
Paid related to:
     Current year..................................       2,571            4,535            4,589
     Prior years...................................     224,958          211,393          157,359
                                                     ----------       ----------       ----------
Total paid.........................................     227,529          215,928          161,948
                                                     ----------       ----------       ----------
Balance at end of period, net of
  reinsurance recoverable..........................     733,723          710,484          647,188
Reinsurance recoverable............................     463,275          432,046          406,409
                                                     ----------       ----------       ----------
Balance at end of period, gross of reinsurance.....  $1,196,998       $1,142,530       $1,053,597
                                                     ----------       ----------       ----------
</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 January 1, 1999. 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, 2000 and 2001 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 1991
at $150,000, the $50,000 redundancy (original estimate minus actual loss) would
be included in the cumulative redundancy in each of the years 1991 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. Conditions and trends that have affected the development of
these reserves in the past will not necessarily recur in the future.

                                                                              13
<PAGE>

TABLE I.  LOSS AND LAE RESERVES DEVELOPMENT - GROSS

<TABLE>
<CAPTION>
                              1991      1992      1993      1994      1995      1996      1997        1998       1999        2000
                              ----      ----      ----      ----      ----      ----      ----        ----       ----        ----
                                                                          (In thousands)
<S>                        <C>       <C>       <C>       <C>       <C>       <C>       <C>         <C>       <C>        <C>
LOSS AND LAE RESERVES       $593,828  $629,064  $667,200  $688,455  $748,660  $795,449  $876,721    $951,659  $1,053,597 $1,142,530

LIABILITY REESTIMATED AS
OF:
   One year later            583,133   616,042   623,988   688,455   748,660   795,654   880,543     968,173   1,100,809  1,260,411
   Two years later           570,108   572,831   623,986   688,450   744,130   793,170   878,233     962,709   1,202,392
   Three years later         532,877   572,831   623,989   689,122   739,106   772,567   863,657   1,039,486
   Four years later          532,878   572,871   624,567   674,224   715,136   766,597   903,962
   Five years later          540,067   570,424   606,219   647,203   707,312   785,261
   Six years later           538,126   570,390   588,748   653,275   719,368
   Seven years later         539,298   556,459   595,682   663,794
   Eight years later         525,283   572,157   597,065
   Nine years later          538,514   575,382
   Ten years later           542,044
CUMULATIVE REDUNDANCY
(DEFICIENCY)                  51,784    53,682    70,135    24,661    29,292    10,188   (27,241)  (87,827)  (148,795)     (117,881)


                               1991     1992      1993      1994      1995       1996     1997      1998        1999        2000
                               ----     ----      ----      ----      ----       ----     ----      ----        ----        ----
                                                                          (In thousands)

CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
   One year later           $ 79,239  $ 83,837  $ 83,522  $ 98,053  $116,532  $101,217  $141,954    $164,524  $  230,005  $ 291,242
   Two years later           161,532   165,737   179,714   212,284   214,484   231,755   298,785     370,911     497,982
   Three years later         238,998   256,860   284,828   293,323   332,920   373,232   470,693     588,348
   Four years later          318,934   348,868   343,563   407,357   452,055   514,813   634,094
   Five years later          389,638   395,242   436,921   492,388   553,205   629,774
   Six years later           413,413   462,920   486,861   552,039   621,022
   Seven years later         459,668   493,034   524,025   594,337
   Eight years later         479,717   517,161   548,388
   Nine years later          495,748   537,106
   Ten years later           511,634


TABLE II.  LOSS AND LAE RESERVES DEVELOPMENT - NET


                               1991     1992      1993      1994      1995      1996      1997        1998       1999       2000
                               ----     ----      ----      ----      ----      ----      ----        ----       ----       ----
                                                                      (In thousands)

LOSS AND LAE
RESERVES-GROSS              $593,828  $629,064  $667,200  $688,455  $748,660  $795,449  $876,721    $951,659  $1,053,597 $1,142,530
REINSURANCE RECOVERABLE ON
UNPAID LOSSES                  8,265     3,037    62,682   112,917   165,729   221,749   270,731     325,795     406,409    432,046
                            --------  --------  --------  --------  --------  --------  --------    --------  ---------- ----------
                             585,563   626,027   604,518   575,538   582,931   573,700   605,990     625,864     647,188    710,484
LIABILITY REESTIMATED AS
OF:
   One year later            581,453   600,655   559,518   575,538   582,931   573,700   603,906     611,850     698,491    757,277
   Two year later            560,688   555,656   559,518   575,538   582,931   573,321   603,809     649,454     738,008
   Three years later         521,671   555,656   559,518   575,538   580,883   588,477   627,292     678,666
   Four years later          521,828   555,655   559,518   575,124   579,766   595,479   611,087
   Five years later          529,008   555,656   559,133   566,608   587,836   587,991
   Six years later           525,111   555,484   548,242   576,831   586,777
   Seven year later          524,574   541,142   561,953   580,940
   Eight years later         510,517   557,594   564,486
   Nine years later          524,772   559,570
   Ten years later           527,802
CUMULATIVE REDUNDANCY
(DEFICIENCY)                  57,761    66,457    40,032    (5,402)   (3,846)  (14,291)   (5,097)    (52,802)    (90,820)   (46,793)


                               1991     1992      1993      1994      1995      1996      1997       1998        1999       2000
                               ----     ----      ----      ----      ----      ----      ----       ----        ----       ----
                                                                      (In thousands)
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
   One year later           $ 79,239  $ 83,212  $ 82,572  $ 97,496  $116,194  $ 84,276  $134,666    $157,359   $ 211,393  $ 224,958
   Two years later           161,532   164,469   178,357   211,426   197,370   214,404   284,887     345,305     413,084
   Three years later         238,998   255,586   283,370   278,571   315,743   365,517   439,372     496,456
   Four years later          318,928   347,493   328,836   392,522   437,779   492,617   536,488
   Five years later          389,579   381,408   422,194   478,731   524,447   550,600
   Six years later           401,000   449,086   473,702   523,901   549,919
   Seven years later         447,255   479,987   508,269   544,626
   Eight years later         468,091   503,373   528,303
   Nine years later          483,654   523,319
   Ten years later           499,539
</TABLE>

The aggregate excess reinsurance contracts, in place from 1993 through 1999,
provide coverage above aggregate retentions for losses and ALAE other than
certain losses and ALAE retained by LP&C and losses and ALAE retained by MIIX or
reinsured under other insignificant reinsurance contracts. The aggregate
reinsurance contracts, therefore, have the effect of holding underwriting year
net incurred losses and ALAE for years 1993 through 1999 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 aggregate excess reinsurance
contracts for 2000 and 2001 cover New Jersey and Pennsylvania physician business
only. The adjustments to net reserves in 2001 and 2000 relate to losses and LAE
not covered by the aggregate reinsurance contracts, including, primarily, losses
and ALAE for accident years 2001 and 2000 associated with business other than
New Jersey and Pennsylvania physician business, losses and ALAE for accident
years 1992 and prior, losses and ALAE for accident years since 1997 retained by
LP&C and ULAE.

                                                                              14
<PAGE>

General liability incurred losses have been about 1.0% of medical malpractice
incurred losses over 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. The Company's loss and LAE reserves have been adjusted
significantly upward from prior year recorded amounts in each of the last two
years. 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 2001, 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 2001 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 2001, combined
ceded losses under the aggregate excess reinsurance contracts were increased by
a net amount of $61.7 million, resulting in a net additional premium charge of
$45.4 million and net additional funds held charges of $19.8 million. 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. Each of the aggregate excess reinsurance contracts also
contains a profit sharing 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 is 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

                                                                              15
<PAGE>

provisions. Profit sharing is recorded as an offset to funds held charges and to
the funds withheld liability.

Each of the aggregate excess reinsurance contracts also contains a provision
requiring that the funds withheld be placed in trust should the A.M. Best rating
assigned to MIIX Insurance Company or its predecessor, Medical Inter-Insurance
Exchange of New Jersey, fall below B+. On February 21, 2002, A.M. Best lowered
the rating of MIIX Insurance Company to B-. On March 22, 2002, A.M. Best again
lowered the rating of MIIX Insurance Company, to C+. The Company is working with
reinsurers to establish the required trust accounts and move invested assets
into trusts in accordance with contract provisions. Each of the aggregate excess
reinsurance contracts also contains a provision allowing reinsurers to offer
additional reinsurance coverage that MIIX Insurance Company or its predecessor,
Medical Inter-Insurance Exchange of New Jersey is obligated to accept. For
contract years beginning November 1, 1999 and forward, the contracts require
that the funds withheld balance on a particular contract year be below $500,000
before reinsurers may offer the additional coverage. For contract years prior to
November 1, 1999, the contracts provide no funds withheld threshold amount,
although the reinsurance intermediary has confirmed in writing that the
intention of the parties was that the additional coverage would be offered only
if and when the funds withheld balance was in a loss position. No funds withheld
balances are below $500,000 or in a loss position.

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

                                             For the Years Ended December 31,
                                           ------------------------------------
                                             2001          2000          1999
                                           --------      --------      --------
                                                      (In thousands)

Ceded premiums earned....................   $67,529       $46,463       $47,962
Ceded Losses and LAE.....................    97,509        44,248        96,077
Funds held charges.......................    42,476         7,502        14,338

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, 2001, and collateral
held by the Company in the form of funds withheld and letters of credit as of
December 31, 2001. No other single reinsurer's percentage participation in 2001
exceeded 5% of the total reinsurance recoverable at December 31, 2001.

                                                      At December 31, 2001
                                              ---------------------------------
                                              Total Amounts     Total Amount of
Reinsurer                                      Recoverable      Collateral Held
                                              -------------     ---------------
                                                       (In thousands)

Hannover Reinsurance (Ireland) Ltd...........    $236,262          $245,339
Eisen und Stahl Reinsurance (Ireland) Ltd....      58,023            61,835
Scandinavian Reinsurance Company Ltd.........      37,226            41,084
London Life and Casualty Reinsurance
   Corporation...............................      64,502            65,590
Underwriters Reinsurance Company (Barbados)..      91,677            90,170
European Reinsurance.........................      37,484            36,640

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 should such
obligations ultimately exceed the collateral held.

Reinsurance Assumed. The Company assumed reinsurance under various contracts
with assumed written premiums of $0.4 million, $14.0 million and $12.7 million
in 2001, 2000 and 1999, respectively. In 2001, 2000 and 1999, $0.4 million,
$13.9 million and

                                                                              16
<PAGE>

$12.7 million of the assumed written premiums related to an excess of loss
contract providing medical professional liability coverage on an institutional
account. This excess of loss contract was non-renewed at December 31, 2000. As
the result of a claims audit conducted during 2001, the Company has identified
significant items of dispute with the ceding company under this assumed
reinsurance contract. The parties are in the process of selecting an arbitration
panel to address the dispute. Assumed premiums in 2001 represent adjustment
premiums in accordance with terms of the contract.

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 three outside investment managers for fixed maturity securities.
At December 31, 2001 and 2000, the average credit quality of the fixed income
portfolio was AA. 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, 2001               December 31, 2000
                                                --------------------------      --------------------------
                                                  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..................................    $   54,495      $   55,038      $  141,781      $  144,709
Obligations of states and political
  subdivisions..............................       123,079         122,082         158,749         164,928
Foreign securities - U.S. dollar
  denominated...............................        35,942          35,553          45,757          44,611
Corporate securities........................       413,433         404,103         418,737         396,553
Mortgage-backed and other asset-backed
  securities................................       434,550         438,158         419,033         420,383
                                                ----------      ----------      ----------      ----------
Total fixed maturity investments............     1,061,499       1,054,934       1,184,057       1,171,184
Equity investments..........................         7,081           6,623           6,880           5,837
Short-term..................................       166,501         166,501          82,291          82,291
                                                ----------      ----------      ----------      ----------
   Total investments........................    $1,235,081      $1,228,058      $1,273,228      $1,259,312
                                                ==========      ==========      ==========      ==========
</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, 2001:

<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).......     $  500,051      $  501,571       47.6%
AA.................................................        112,106         110,114       10.4%
A..................................................        234,752         237,746       22.5%
BBB................................................        141,157         141,450       13.4%
Other Ratings (below investment grade).............         73,372          63,982        6.1%
Not Rated..........................................             61              71        0.0%
                                                        ----------      ----------      ------
   Total...........................................     $1,061,499      $1,054,934      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,

                                                                              17
<PAGE>

       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, 2001
by contractual maturity:

<TABLE>
<CAPTION>
                                                         Amortized         Fair         Percentage of
Maturity of Investment                                      Cost           Value          Fair Value
---------------------------------------------------     ----------      ----------      -------------
                                                              (In thousands)

<S>                                                     <C>             <C>                   <C>
Due one year or less...............................     $   34,014      $   34,557            3.3%
Due after one year through five years..............        130,290         132,156           12.6%
Due after five years through ten years.............        211,092         205,121           19.4%
Due after ten years................................        247,527         240,770           22.8%
Mortgage-backed and other asset-backed securities..        434,550         438,158           41.5%
Preferred stock....................................          4,026           4,172            0.4%
                                                        ----------      ----------          -----
   Total ..........................................     $1,061,499      $1,054,934          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, 2001, was 6.72 years and 4.64 years, respectively.

The mortgage-backed portfolio represents approximately 26.52% of the total fixed
income portfolio and is allocated equally across "standard" and "more complex"
securities, while the asset-backed portfolio represents approximately 15.01% 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

According to A.M. Best, in 2000 there were 325 companies nationally that wrote
medical professional liability insurance. In New Jersey, where approximately 49%
of the Company's premiums were written for the year ended December 31, 2001, as
well as in the surrounding states, 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. 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 and stronger A.M. Best ratings than the Company. 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 Company plans to compete by, among other things, maintaining a close
relationship with the health care community, maintaining underwriting discipline
with a strong clinical focus and differentiating itself through superior claims,
risk management and customer services. As a result of recent developments in the
marketplace, including poor financial performance and the exit of several
companies that had meaningful market share in various states, there is an
increasing lack of capacity in the medical malpractice insurance market. The
Company believes this should have the impact of allowing for greater acceptance
of higher rates charged on policies in most of the states where the Company
operates. All markets in which the Company now writes insurance and in which it
expects to continue to compete have certain competitors with substantially
greater financial and operating resources than the Company.

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

                                                                              18
<PAGE>

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. In addition to regulation by
Virginia, LP&C is also subject to the Holding Company Act requirements of Texas
because Texas determined in December, 2001, that LP&C met the threshold for
designation as a commercially domiciled insurer. In general, a state's 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. See "Business -- Regulation --
Risk-Based Capital."

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 and other insurance laws
also effectively restrict the Company from consummating certain reorganizations
or mergers without prior regulatory approval.

                                                                              19
<PAGE>

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. See
"Note 9 of the Notes to Consolidated Financial Statements and Market for
Registrant's Common Equity and Related Stockholders Matters - Dividends."

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's periodic financial examination based on December 31, 2000, began in May,
2001 and is scheduled to be completed during 2002. In addition, the New Jersey
Department of Banking and Insurance is currently performing a review of MIIX's
loss and LAE reserves. 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

                                                                              20
<PAGE>

amount derived from the Company's loss reserve study at June 30, 2000, and was
recorded by the Company at June 30, 2000. During 2001, LP&C was subject to a
targeted examination of the loss reserves held at December 31, 2000 and a report
was issued on February 28, 2002. The issued report concluded that the carried
reserves of LP&C fell within a reasonable range as determined by the independent
actuary hired by Virginia to conduct the study. Further, the issued report
referenced the findings of the independent actuary hired by New Jersey to review
the carried reserves of MIIX, who concluded that MIIX's carried reserves fell
within a reasonable range. The Virginia Bureau of Insurance is currently
conducting a review of LP&C's loss and LAE reserves as of December 31, 2001.
Either insurance regulator could require further increases to recorded reserves.
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 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
procedures 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 the varying levels of RBC, the Company is subject to the following
regulatory attention:

       -      Company Action Level - below which a company submits a plan for
              corrective action.

       -      Regulatory Action Level - below which a company must file a
              corrective action plan that details the insurer's corrective
              actions to raise additional statutory capital over the next four
              years. The plan must be approved by the state Insurance
              Commissioner, who may also perform an examination of the insurer's
              financial position.

       -      Authorized Control Level - below which the Insurance Commissioner
              is authorized to take the actions it considers necessary to
              protect the best interests of the policyholders and creditors of
              an insurer, which may include placing the insurance company under
              regulatory control, which, in turn, may result in rehabilitation
              or, ultimately, liquidation.

       -      Mandatory Control Level - below which the Insurance Commissioner
              is required to take the actions it considers necessary to protect
              the best interests of the policyholders and creditors of an
              insurer, which include placing the insurance company under
              regulatory control which, in turn, may result in rehabilitation
              or, if deemed appropriate, liquidation.

At December 31, 2001, MIIX's Risk-Based Capital was $122.0 million which is
within the Regulatory Action Level, at approximately 142% of Authorized Control
Level, which required MIIX to prepare and submit a corrective action plan to
raise additional statutory capital over the next four years to the Insurance
Commissioner of the New Jersey Department of Banking and Insurance. The plan
must be approved by the New Jersey Insurance Commissioner, who may perform an
examination of the insurer's financial position. Included in MIIX's RBC at
December 31, 2001 is an $18.1 million inter-company note receivable from
Hamilton National Leasing ("HNL"). In March 2002, the Company executed a letter
of intent to sell HNL. The Company expects the note receivable will be repaid
upon the consummation of the sale of HNL, which is anticipated to occur in the
second quarter of 2002. In the event that the sale of HNL does not close as
currently anticipated, the note receivable may be considered non-admitted for
statutory reporting purposes. At December 31, 2001, LP&C's RBC was at the
Mandatory Control Level, at approximately 18% of Authorized Control Level, which

                                                                              21
<PAGE>

authorizes the Virginia Insurance Commissioner to place LP&C under regulatory
control that may result in rehabilitation or, ultimately, liquidation. On March
14 and 15, 2002, the Company made contributions of capital to LP&C totaling
$2,125,000 in order to meet minimum statutory capital requirements in Virginia
of $4 million. LP&C entered into a consent order with the Virginia Bureau of
Insurance on February 22, 2002, in which it agreed not to solicit or issue any
new or renewal business in any jurisdiction, in accordance with applicable laws.
LP&C and the Bureau entered into a second consent order on March 6, 2002,
requiring LP&C to obtain the Bureau's prior written consent before entering into
certain material transactions not in the ordinary course of business, as set
forth in the order, including selling or encumbering assets, lending or
disbursing funds, incurring debt, modifying reinsurance treaties with
affiliates, changing directors or officers of the company, merging the company
or paying dividends to stockholders. MIIX New York did not write any premium
during 2001, 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, 2001, MIIX had two ratios (two-year overall operating ratio and
change in policyholders' surplus) outside the usual range. At December 31, 2000,
MIIX had one ratio (change in policyholders' surplus) outside the usual range.
The ratios outside the usual range reflect the loss reserve strengthening in
2001 and 2000. At December 31, 2001, LP&C had eight ratios (gross premiums to
policyholders' surplus, net premiums written to policyholders' surplus, two-year
overall operating ratio, change in policyholders' surplus, liabilities to liquid
assets, gross agents' balances to policyholders' surplus, one-year reserve
development to policyholders' surplus and two-year reserve development to
policyholders' surplus outside of the usual range. 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. These ratios
outside the usual range reflect the loss reserve strengthening in 2001 and 2000,
the increase in premiums written during the early years of operation, capital
contributions by MIIX and the increased cost of 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 because it did not write business in 2000 and 2001.

Regulation of Investments. The Insurance Subsidiaries are subject to state laws
and regulations that limit the types of investments each insurance subsidiary
may make, 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 2001.

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 the filing. The possibility exists that the
Company may be unable to 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

                                                                              22
<PAGE>

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. These changes were intended to bring
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, and that punitive damages assessed against individual defendants be
capped at twice the compensatory damages. Courts in Pennsylvania have in certain
instances pronounced that the Pennsylvania Medical Professional Liability
Catastrophe Loss Fund (the "Cat Fund") be responsible for delay damages.
Pennsylvania enacted new reforms on March 19, 2002, that include requiring a
patient's medical costs exceeding $100,000 to be paid over time rather than in a
lump sum, prohibiting a patient from suing for damages paid by a health insurer,
and granting patients seven years from injury to make a claim or until a child's
20th birthday. The law also places the Cat Fund under the Department of
Insurance and phases out the fund over six years. The Company continues to
analyze the impact of these reforms. 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 occurrence 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

On February 21, 2002, A.M. Best lowered the Company's rating to B- (Fair) with a
negative outlook from A- (Excellent) following the Company's announcement to
strengthen reserves at December 31, 2001. On March 22, 2002, A.M. Best again
lowered the rating of the Company to C+ (Marginal) from B- (Fair). This rating
action reflects A.M. Best's views concerning the Company's weakened
capitalization, the potential negative impact of further adverse loss reserve
development, and concerns about the Company's ability to repay or refinance its
debt obligations.

A.M. Best publications indicate that the "C+" rating is assigned to those
companies that in A.M. Best's opinion have the ability to meet their current
obligations to policyholders, but their financial strength is vulnerable to
adverse changes in underwriting and economic conditions. 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

                                                                              23
<PAGE>

and surplus; its capital structure; the experience and competence of its
management; and its market presence.

EMPLOYEES

The Company employed approximately 215 persons at December 31, 2001. During
March, 2002, the Company reduced the number of employees to approximately 180
persons. Additional employee reductions of approximately 50 persons are planned
for the remainder of 2002. None of the Company's employees are covered by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information concerning the individuals who
currently serve executive officers of The MIIX Group. The MIIX Group has five
executive officers, Ms. Costante, Mr. Grab, Mr. Gerson, Mr. Redman and Ms.
Williams.

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 9, 2001 (the "Proxy Statement").

Name                        Position
----                        --------

Patricia A. Costante        President, Chief Executive Officer and Director

Stewart J. Gerson           Senior Vice President, Chief Financial Officer
                            and Treasurer

Edward M. Grab              Senior Vice President

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

Catherine E. Williams       Senior Vice President

Mr. Redman has been the Company's Senior Vice President, Chief Financial Officer
and Treasurer during the most recent fiscal year and will continue to serve in
such capacity until the filing of this Annual Report on Form 10-K. Mr. Gerson
will assume the positions of Senior Vice President, Chief Financial Officer and
Treasurer immediately thereafter.

Patricia A. Costante, (45) Director since 2001. Patricia A. Costante currently
serves as President and Chief Executive Officer for the Company. Before being
named CEO, Ms. Costante was the Chief Operating Officer. Prior to serving as
Chief Operating Officer, she was Senior Vice President responsible for the sale
and delivery of all products and services to the New Jersey physician market.
Prior to being named Senior Vice President, Ms. Costante was President of MIIX
Healthcare Group, Inc. a subsidiary of New Jersey State Medical Underwriters,
Inc. ("Underwriter").

Ms. Costante received a Master of Business Administration from the Stern School
of Business/New York University. She also received a Master of Social Work in
Healthcare and a post-Master certification in Human Services Administration from
Rutgers - The State University of New Jersey. She is an adjunct faculty member
of Rutgers, where she teaches healthcare management at the graduate level.

Ms. Costante is Deputy Editor, New Jersey Medicine, Journal of the Medical
Society of New Jersey; Member, Board of Trustees, Catholic Charities, Diocese of
Trenton; Member, Board Development Committee, Catholic Charities, Diocese of
Trenton; Chair, Physician Service Committee, Catholic Charities, Diocese of
Trenton. Ms. Costante is also a Diplomate, American College of Healthcare
Executives; Diplomate, American Association of Healthcare Consultants; a
Certified Healthcare Consultant; and Member, American Association of Medical
Society Executives.

She is a frequent author and lecturer on professional medical liability issues,
healthcare compliance, clinical practice and program development.

                                                                              24
<PAGE>

Stewart J. Gerson, (46) is Senior Vice President and Chief Financial Officer
responsible for the financial operations. Mr. Gerson Joined MIIX in 2002.

Before joining MIIX, Mr. Gerson held the position of Senior Vice President and
Chief Financial Officer and Treasurer of Caliber One Indemnity Company. Prior to
joining Caliber One, Mr. Gerson spent five years with Reliance Insurance Group
in Philadelphia as Senior Vice President and Treasurer, and most recently as
Senior Vice President, Chief Financial Officer and Treasurer.

Mr. Gerson received his Bachelors of Business Administration degree in
accounting, magna cum laude, from Bernard M. Baruch College, City University of
New York, in 1977. He is a Certified Public Accountant, and is a member of the
American Institute of Certified Public Accountants, the Pennsylvania Institute
of Certified Public Accountants, the Financial Executives Institute, the Society
of Insurance Financial Management and the Philadelphia Treasurer's Club. Mr.
Gerson is also a member of the Board of Directors and Treasurer of the National
Liberty Museum, Philadelphia.

Edward M. Grab, (46) is currently Senior Vice President primarily responsible
for all development and implementation of underwriting guidelines nationwide.
Mr. Grab joined MIIX in 1999 with more than 25 years of commercial insurance
experience. Before joining MIIX, he was Vice President and Actuary for Zurich
Financial Services where he directed the actuarial department in support of four
strategic business units with a combined book of $1 billion. Previously he was
Assistant Vice President, Actuarial Pricing Manager at Selective Insurance
Group, and spent a number of years in actuarial and management positions at Crum
& Forster Insurance Group.

Mr. Grab received his Bachelor of Science degree, cum laude, in Actuarial
Science from the College of Insurance. He is a fellow of the Casualty Actuarial
Society and a member of the American Academy of Actuaries.

Thomas M. Redman, (44) 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.

Catherine E. Williams, (40) currently serves as Senior Vice President, Corporate
Affairs responsible for the corporate governance, shareholder relations, human
resources and facilities functions. With 20 years of governance experience, Ms.
Williams joined MIIX in 1997 as Assistant Corporate Secretary in support of the
successful conversion of MIIX from an Exchange to a stock entity in July 1999.
Prior to joining MIIX, Ms. Williams held positions of increasing responsibility
with Church & Dwight Co., Inc. Reporting directly to the Vice President and
General Counsel, she managed corporate governance, shareholder relations and
legal operations functions of Church & Dwight's Law Department.

Ms. Williams earned her Associates of the Arts degree in Business Administration
from Bucks County Community College, and her Bachelor of Arts, summa cum laude,
in Organizational Management from Cabrini College. Ms. Williams is currently
pursuing her Masters in Business Administration from Rider University.

ITEM 2.   PROPERTIES

The Company leases approximately 47,000 square feet of space from the Medical
Society of New Jersey in Lawrenceville, New Jersey, where its home office
operations are located. During 2002, the Company closed its two regional offices
where it rents 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

                                                                              25
<PAGE>

In January 1999, five physician members of the Exchange filed a putative class
action against the Exchange, Underwriter, The 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 The MIIX
Group as excessive, challenge key executive compensation and benefit packages as
excessive, challenge the proposed IPO share price of The MIIX Group stock as
inadequate, challenge The MIIX Group Prospectus as misleading and seek 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 The 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 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. On July 11, 2001, the Appellate Division
issued an opinion affirming the dismissal of plaintiffs' Complaint in all
respects. On August 30, 2001, plaintiffs filed a Petition for Certification to
the New Jersey Supreme Court seeking review of the Appellate Division's
decision. On January 2, 2002, the New Jersey Supreme Court denied plaintiffs'
petition for certification. Plaintiffs subsequently filed a motion for
reconsideration, which was denied on March 20, 2002.

DEATH BENEFIT PLAN LITIGATION

In October 1999, a former Underwriter Board member filed an action against the
Exchange, Underwriter, The MIIX Group and Daniel Goldberg, seeking damages
arising out of the unanimous decision of the Exchange and Underwriter Boards in
July 1998 to terminate a Death Benefit Plan that was adopted by the Board in
December 1991 to provide members of the Boards and their committees with a $1
million death benefit. In October 2001, the court determined that judgment
should be entered in favor of plaintiff in the amount of $490,585, representing
the cash balance of the life insurance policy insuring plaintiff's life, which
was held by the Exchange to secure the payment of benefits under the Death
Benefit Plan. The judgment provides that this sum is payable in ten equal annual
installments following plaintiff's death, in accordance with the Plan's terms.
The Company is appealing this decision. Two subsequent actions by other Plan
participants, one styled as a class action on behalf of all Plan participants,
have been filed against the Company. These actions have been stayed pending the
outcome of the appeal in the first action. Prior to the Plan's termination,
there were approximately 48 participants in the plan. However, the majority of
these participants voted in favor of the plan's termination and, therefore,
would be precluded from participating in any legal action against the Company in
this regard. The Company and external counsel believe that the Company will
successfully appeal the court's judgment and the Company will have no ultimate
obligation in this regard.

ASSUMED REINSURANCE DISPUTE

The Company was a reinsurer on a large excess of loss assumed reinsurance
contract providing medical professional liability coverage on an institutional
account from January 1, 1999 to December 31, 2000. As the result of a claims
audit conducted during 2001, the Company has identified significant items of
dispute with the ceding company under this assumed reinsurance contract. The
parties are in the process of selecting an arbitration panel to address the
dispute.

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.


                                                                              26

<PAGE>

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 tradable 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:

                                                          COMMON STOCK
                                                          ------------
                                                        HIGH         LOW
                                                       ------       ------

            2001
            First Quarter                              $ 8.93       $ 7.25
            Second Quarter                             $ 9.16       $ 7.25
            Third Quarter                              $13.28       $ 8.50
            Fourth Quarter                             $12.20       $10.46

            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

On March 22, 2002, the closing price of the Company's stock was $2.85.

The Company's stock is thinly traded and the stock price has been extremely
volatile in the last calendar quarter. For these reasons, there can be no
assurance that an active market will be available in which to trade the
Company's stock, which could affect a stockholder's ability to sell the
Company's shares and could depress the market price of its shares.

SHAREHOLDERS OF RECORD

The number of shareholders of record of the Company's Common Stock as of March
22, 2002 was 6,304. 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 Directors (the "Board") declared a cash
dividend of $0.05 per share on its common stock each quarter of 2001, 2000 and
1999, since July 30, 1999. During 2002, the Board suspended dividend payments to
its shareholders. Future payment and amount of cash dividends will depend upon,
among other factors, the Company's operating results, overall financial
condition, capital requirements, ability to receive dividends from our insurance
company subsidiaries which are subject to regulatory approval 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 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. New Jersey regulations permit the payment
of any dividend or distribution only out of statutory earned (unassigned)
surplus. The Department may limit or disallow the payment of any dividend or
distribution if an insurer's statutory surplus following the payment of any
dividend or other distribution is not reasonable in relation to its outstanding
liabilities and adequate to meet its financial needs, or if the insurer is
determined to be in a hazardous financial condition. The other Insurance
Subsidiaries are subject to similar provisions and restrictions. No significant
amounts are currently available for payment of dividends by insurance
subsidiaries without prior approval of the applicable state insurance department
or Bermuda Registrar of Companies. The MIIX Group expects that these current
limitations imposed on MIIX Insurance Company currently affects its ability to
declare and pay dividends


                                                                              27

<PAGE>

sufficient to support The MIIX Group's initial dividend policy and suspended the
payment of dividends to shareholders during 2002. See Note 9 of the Notes to
Consolidated Financial Statements and "Business Regulation - Regulation of
Dividends from Insurance Subsidiaries."

On June 27, 2001 the Company's Board of Directors adopted a Stockholder Rights
Plan (the "Rights Plan") and declared a dividend of one right for every
outstanding share of common stock, par value $0.01, per share, to be distributed
on July 10, 2001 to stockholders of record as of the close of business on that
date. The rights will expire on June 27, 2011 or upon the earlier redemption of
the rights, and they are not exercisable until a distribution date on the
occurrence of certain specified events as defined below.

Each right entitles the holder to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock, $0.01 par value at
a price of $35.00 per one-thousandth of a share, subject to adjustments. The
Rights will, on the distribution date, become exercisable ten (10) days after a
public announcement that a party has acquired at least 15% or commenced a tender
or exchange offer that would result in any party or group owning 15% or more of
the Company's outstanding shares of common stock and the acquiring party is
determined by a majority of the Company's directors to be an "Adverse Person" as
defined in the Rights Plan.

Each holder of a right, other than the "acquiring person," as defined in the
Rights Plan, or "adverse person," will in such event have the right to receive
shares of the company common stock having a market value of two times the
exercise price of the right. In the event that the Company is acquired in a
merger or other business combination, or if more than 50% of the Company's
assets or earning power is sold or transferred, each holder of a right would
have the right to receive common stock of the acquiring company with a market
value of two times the purchase price of the right. Following the occurrence of
any of these triggering events, any rights that are beneficially owned by an
acquiring person will immediately become null and void. The Company may redeem
the rights for $0.001 per right at any time until ten (10) days following the
stock acquisition date.













                                                                              28

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

SUMMARY FINANCIAL AND OPERATING DATA

The following table sets forth selected consolidated financial and operating
data for the Company.

<TABLE>
<CAPTION>

                                                              (In thousands, except per share amounts)
                                                                   For the Years Ended December 31,
                                        ---------------------------------------------------------------------------------
                                            2001             2000              1999            1998             1997
                                            ----             ----              ----            ----             ----
<S>                                      <C>              <C>               <C>             <C>              <C>
INCOME STATEMENT DATA:
Total premiums written.................. $  231,946       $  226,126        $  257,100      $  231,858       $  177,908
                                         ==========       ==========        ==========      ==========       ==========
Net premiums earned..................... $  146,852       $  184,062        $  187,845      $  162,501       $  123,330
Net investment income...................     80,193           85,158            75,661          65,107           53,892
Realized investment gains/
   (losses).............................     (2,184)          (4,156)           (6,770)         36,390           10,296
Other revenue...........................      8,439            7,452             8,323             891            2,884
                                         ----------       ----------        ----------      ----------       ----------
       Total revenues................... $  233,300          272,516           265,059         264,889          190,402
                                         ----------       ----------        ----------      ----------       ----------
Losses and loss adjustment
   expenses.............................    250,768          279,224           174,986         155,868          120,496
Underwriting expenses...................     47,121           38,560            42,618          42,063           25,415
Funds held charges......................     42,476            7,502            14,338          13,420           13,361
Other expenses..........................      3,404            5,828             3,333               0                0
Restructuring charge....................          0                0             2,409               0                0
Impairment of capitalized
   system development costs.............          0                0                 0          12,656                0
                                         ----------       ----------        ----------      ----------       ----------
       Total expenses...................    343,769          331,114           237,684         224,007          159,272
                                         ----------       ----------        ----------      ----------       ----------
Income/(loss) before income
   taxes................................   (110,469)         (58,598)           27,375          40,882           31,130
Income tax expense/(benefit)............     41,892          (22,140)            6,617          11,154            2,006
Cumulative effect of an
   accounting change, net of
   tax (1)..............................     (5,283)               0                 0               0                0
                                         ----------       ----------        ----------      ----------       ----------
       Net income/(loss)................ $ (157,644)      $  (36,458)       $   20,758      $   29,728       $   29,124
                                         ==========       ==========        ==========      ==========       ==========

BALANCE SHEET DATA (AT END OF
PERIOD):
   Total investments................     $1,228,058       $1,259,312        $1,182,943      $1,165,698       $1,026,971
   Total assets.....................      1,895,863        1,897,353         1,837,158       1,674,262        1,446,559
   Total liabilities................      1,764,377        1,607,912         1,518,454       1,351,419        1,136,585
   Total shareholders' equity.......        131,486          289,441           318,704         322,843          309,974
ADDITIONAL DATA:
GAAP ratios:
   Loss ratio.......................        170.8%           151.7%             93.1%           95.9%            97.7%
   Expense ratio....................         32.1%            21.0%             22.7%           25.9%            20.6%
                                        ----------       ----------        ----------      ----------       ----------
   Combined ratio...................        202.9%           172.7%            115.8%          121.8%           118.3%
                                        ==========       ==========        ==========      ==========       ==========

Statutory surplus...................     $  125,485       $  231,498        $  268,445      $  253,166       $  242,395
                                         ==========       ==========        ==========      ==========       ==========

Basic and Diluted earnings/
   (loss) per share (2).............    $(11.66)          $(2.59)           $ 1.54          $ 2.47           $ 2.42
                                        =======           ======            ======          ======           ======
Dividend per share..................     $ 0.20           $ 0.20            $ 0.10          $ 0.00           $ 0.00
                                         ======           ======            ======          ======           ======
Book value per share ...............     $ 9.75           $21.34            $20.94          $26.90           $25.78
                                         ======           ======            ======          ======           ======
</TABLE>

(1)  On April 1, 2001, the Company adopted the provisions of EITF No. 99-20,
     "Recognition of Interest Income and Impairment of Purchased and Retained
     Beneficial Interests in Securitized Financial Assets." This standard
     established new guidelines for recognition of income and
     other-than-temporary decline for interests in securitized assets. EITF
     99-20 requires the Company to recognize an other-than-temporary decline if
     the fair value of the security is less than its book value and the net
     present value of expected future cash flows is less than the net present
     value of expected future cash flows at the most recent, prior, estimation
     date. The difference between the book value of the security and its fair
     value must be recognized as an other-than-temporary decline and the
     security's yield is adjusted to market yield. This new guidance also adopts
     the prospective method for adjusting the yield used to recognize interest
     income for changes in estimated future cash flows since the last quarterly
     evaluation date. On April 1, 2001, the Company recognized $5.3 million of
     other-than-temporary declines, net of tax ($0.39 per diluted share) as the
     cumulative effect of a change in accounting principle.

(2)  Basic and diluted loss per share of common stock for the year ended
     December 31, 2001 is computed using the weighted average number of common
     shares outstanding during the year of 13,524,959.

                                                                              29

<PAGE>

     Basic and 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 14,100,043. 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 2001 include the
accounts and operations of The MIIX Group and its wholly-owned subsidiaries,
including, since August 4, 1999, New Jersey State Medical Underwriters, Inc. and
its wholly-owned subsidiaries ("the Underwriter"). The consolidated financial
statements prior to August 4, 1999include the accounts and operations of the
former parent company Medical Inter-Insurance Exchange (the "Exchange") and its
wholly-owned subsidiaries.

CAUTIONARY STATEMENT

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; further control by insurance department regulators, including the
possibility of rehabilitation or liquidation; 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.

CRITICAL ACCOUNTING POLICIES

The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reporting amounts of
assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, management evaluates
its estimates, including those related to income taxes, loss and loss adjustment
expenses ("LAE") reserves, contingencies and litigation. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

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The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements:

Reinsurance. Reinsurance recoverables include the balances due from reinsurance
companies for paid and unpaid losses and LAE that will be recovered from
reinsurers, based on contracts in force. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability associated with the
reinsured policy. Reinsurance contracts do not relieve the Company from its
primary obligations to policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company. The Company evaluates the
financial condition of its reinsurers and monitors concentrations of credit risk
with respect to the individual reinsurers, which participate in its ceded
programs to minimize its exposure to significant losses from reinsurer
insolvencies. The Company holds collateral in the form of letters of credit or
trust accounts for amounts recoverable from reinsurers that are not designated
as authorized reinsurers by the domiciliary Departments of Insurance.

Income Taxes. The Company accounts for income taxes in accordance with Financial
Accounting Standards ("FAS") No. 109, "Accounting for Income Taxes." Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance against deferred tax assets is recorded if
it is more likely than not, that all or some portion of the benefits related to
the deferred tax assets will not be realized. Valuation allowances are based on
estimates of taxable income and the period over which deferred tax assets will
be recoverable. In the event that actual results differ from these estimates or
these estimates are adjusted in future periods, the Company may need to
establish a valuation allowance, which would impact our financial position and
results of operations. A valuation allowance has been established for
approximately the full value of the deferred tax assets at December 31, 2001.

Goodwill and Intangible Assets. Goodwill represents the aggregate cost of
companies acquired over the fair value of net assets at the date of acquisition
and is being amortized into income using the straight-line method over periods
ranging from ten to fifteen years. Management regularly reviews the carrying
value of goodwill by determining whether the unamortized value of the goodwill
can be recovered through undiscounted future operating cash flows of the
acquired operation.

In the event goodwill is impaired, a loss is recognized based on the amount by
which the carrying value exceeds the fair value of the respective asset. Fair
value is determined primarily using anticipated cash flows at a rate
commensurate with the risk involved. Losses on assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the cost
of disposal.

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.

Loss and Loss Adjustment Expenses. The Company estimates its liability for loss
and LAE using actuarial projections of ultimate losses and LAE and other
quantitative and qualitative analyses of conditions expected to affect the
future development of claims and related expenses. The estimated liability for
losses is based upon paid and case reserve estimates for losses reported,
adjusted through judgmental formulaic calculations to develop ultimate loss
expectations; related estimates of incurred but not reported losses and expected
cash reserve developments based on past experience and projected future trends;
deduction of amounts for reinsurance placed with reinsurers; and estimates
received related to assumed reinsurance. Amounts attributable to ceded
reinsurance derived in estimating the liability for loss and LAE are
reclassified as assets in the consolidated balance sheets as required by FAS No.
113. The liability for LAE is provided by estimating future expenses to be
incurred in settlement of claims provided for in the liability for losses and is
estimated using similar techniques.

The liabilities for losses and LAE and the related estimation methods are
continually reviewed and revised to reflect current conditions and trends. The
resulting adjustments are reflected in the operating results of the current
year. While management believes the liabilities for losses and LAE are adequate
to cover the
                                                                              31

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ultimate liability, the actual ultimate loss costs may vary from the amounts
presently provided and such differences may be material.

The Company also has direct and assumed liabilities under covered extended
reporting endorsements associated with claims-made MPL policy forms, which
generally provide, at no additional charge, continuing MPL coverage for
claims-made insureds in the event of death, disability or retirement. These
liabilities are carried within unearned premium reserves and are estimated
through formula calculations that have been verified by the Company's
independent actuarial firm using techniques, which possess elements of both loss
reserves and pension liabilities, and thus include additional assumptions for
mortality, morbidity, retirement, interest and inflation.


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 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 an appeal was filed. On July 11, 2001, the Appellate Division
issued an opinion affirming the dismissal of plaintiffs' Complaint in all
respects. On August 30, 2001, plaintiffs filed a Petition for Certification to
the Supreme Court seeking review of the Appellate Division's decision. On
January 2, 2002, the Supreme Court denied plaintiffs' petition for
certification. Plaintiffs subsequently filed a motion for reconsideration, which
was denied on March 20, 2002.

The MIIX Group sold 3,450,000 shares of its common stock in the offering that
closed on August 4, 1999. 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. During 2001, The MIIX Group purchased 84,178 shares at a value of
approximately $0.7 million related to a former officer of the Company.

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 nonrenewals and other related matters.
As part of this review, rates and rating classifications for its physicians,
medical groups and other insureds are evaluated based on current and historical
losses, LAE (defined below)

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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 $117.9 million and $47.2 million in 2001 and 2000, respectively. If prior
trends continue, the Company may have to increase gross reserves again in 2002,
which could materially adversely impact the Company's financial position.

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 had increased its claims made business.
Development of losses and LAE is longer and slower for occurrence business than
claims made business. In March 2002, the Company began working with the Virginia
Bureau of Insurance to place the insurance operations of its subsidiary, LP&C,
into run-off, subject to regulatory and contractual requirements. For the
immediate future, the Company expects that new Jersey physician business may
constitute all or a significant majority of its ongoing writings. New Jersey
physician business has primarily been written under the occurrence-like PPP
policy.

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, 2001 and 2000, gross IBNR reserves composed 60.1% and
60.3%, respectively, of total gross loss and LAE reserves. The decrease in the
proportion of IBNR in 2001 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 $357.5
million, or 29.9% of total gross loss and LAE reserves at December 31, 2001,
compared to gross loss and LAE reserves on claims made policies of $282.1
million, or 24.7% of total gross loss and LAE reserves at December 31, 2000.

The Company's initial review of loss and LAE payment and case reserving activity
for the three months ended March 31, 2002 indicates that the activity, in the
aggregate, was higher than expected based on prior actuarial estimates at
December 31, 2001. In particular, activity on New Jersey physicians,
Pennsylvania institutions and LP&C claims made business was higher than
expected, which was partially offset by less than expected activity for the
other major business components. The first quarter activity requires evaluation,
which is currently in process, to determine the impact, if any, on net loss and
LAE reserves at March 31, 2002. It is not unusual for loss and LAE payment and
case reserving activity to vary significantly from quarter to quarter.

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 2001, 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 2001 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 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 above 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. Each
of the
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<PAGE>

aggregate excess reinsurance contracts also contains a provision requiring that
the funds withheld be placed in trust should the A.M. Best rating assigned to
MIIX Insurance Company or its predecessor, Medical Inter-Insurance Exchange of
New Jersey, fall below B+. On February 21, 2002, A.M. Best lowered the rating of
MIIX Insurance Company to B-. On March 22, 2002, A.M. Best again lowered the
rating of MIIX Insurance Company, to C+. The Company is working with its
reinsurers to establish the required trust accounts and move invested assets
into trust in accordance with contract provisions. Each of the aggregate excess
reinsurance contracts also contains a provision allowing reinsurers to offer
additional reinsurance coverage that MIIX Insurance Company or its predecessor,
Medical Inter-Insurance Exchange of New Jersey is obligated to accept. For
contract years beginning November 1, 1999 and forward, the contracts require
that the funds withheld balance on a particular contract year be below $500,000
before reinsurers may offer the additional coverage. For contract years prior to
November 1, 1999, the contracts provide no funds withheld threshold amount,
although the reinsurance intermediary has confirmed in writing that the
intention of the parties was that the additional coverage would be offered only
if and when the funds withheld balance was in a loss position. No funds withheld
balances are below $500,000 or in a loss position.


UNDERWRITING EXPENSES

The Company's underwriting expenses increased during 2001 primarily due to the
following: underwriting, servicing and marketing initiatives; information
systems costs; consulting fees; guarantee fund charges; severance payments and
recruitment fees; and brokers commissions. Commissions for policies sold through
brokers and agents typically range from 2.0% 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.


RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000

NET PREMIUMS EARNED. Net premiums earned were $146.9 million in 2001 compared to
$184.1 million in 2000, a decrease of approximately $37.2 million or 20.2%. This
net decrease is composed of decreased direct and assumed premium offset by an
increase in ceded premiums earned. Direct premiums earned decreased $2.7 million
or 1.2% to $213.9 million in 2001 from $216.6 million in 2000 and resulted from
a higher level of direct premiums earned during the first quarter of 2000
associated with higher direct premiums written in the fourth quarter of 1999 and
the first quarter of 2000. Assumed premiums earned decreased by $13.5 million or
96.9% to $400,000 from $13.9 million in 2000 primarily due to nonrenewal of a
large poorly performing excess of loss reinsurance contract effective January 1,
2001. Ceded premiums earned increased by $21.1 million or 45.3% to $67.5 million
in 2001 from $46.5 million in 2000 primarily due to additional ceded premiums of
$36.3 million associated with a gross reserve adjustment in the fourth quarter
of 2001 as compared to $19.9 million associated with the reserve adjustment
during the second quarter of 2000.

Total premiums written in 2001 were $231.9 million, an increase of $5.8 million,
or 2.6% from total premiums written of $226.1 million in 2000. This net increase
consisted of a net increase in direct premiums written of $19.4 million and a
decrease in assumed premiums written of $13.6 million associated with the
non-renewal, effective January 1, 2001, of a large excess of loss reinsurance
contract. The net increase in direct premiums written was composed of net
increases in Pennsylvania, New Jersey, Ohio and other states of $12.4 million,
$6.4 million, $2.2 million and $3.1 million, respectively, and net decreases in
Maryland and other states of $3.5 million and $1.3 million, respectively. The
increases and decreases by state resulted from the combined effects of
significant selected rate increases offset by disciplined underwriting actions.
In New Jersey, written premiums in 2001 also included $10.5 million of premiums
associated with early renewals of certain policies in a program initiated in
2001 to move the business off of a common January 1 renewal date.

NET INVESTMENT INCOME. Net investment income decreased $5.0 million, or 5.8%, to
$80.2 million in 2001 from $85.2 million in 2000. The decrease was primarily
attributable to the combined effects of lower market yields and a decrease in
average

                                                                              34

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invested assets resulting mainly from the impact on cash flow of the Company's
premium financing program initiated during the last quarter of 2000. Average
invested assets at amortized cost decreased to approximately $1.26 billion in
2001 from $1.27 billion in 2000. The average pre-tax yield on the investment
portfolio decreased to 6.38% in 2001 from 6.69% in 2000 primarily as the result
of lower market yields and ongoing changes in asset allocation due to a changing
market yield environment.

REALIZED INVESTMENT GAINS AND LOSSES. Net realized investment losses decreased
$2.0 million, or 47.4%, due to net realized investment losses of $2.2 million in
2001 compared to net realized investment losses of $4.2 million in 2000. In
2001, $19.7 million of net realized gains were taken primarily from continued
repositioning of the portfolio, offset by $21.8 million of losses related to
other-than-temporary declines in investment values, including $8.1 million ($5.3
million net of tax) resulting from activity following adoption of EITF 99-20,
"Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets" effective April 1, 2001.
EITF 99-20 established new guidelines for recognition of income and
other-than-temporary declines for interests in securitized assets. In 2000, the
net losses resulted from the recognition of $1.1 million of other-than-temporary
declines in investment values 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.

OTHER REVENUE. Other revenue increased $0.9 million, or 13.2%, to $8.4 million
in 2001 compared to $7.5 million in 2000. In 2001, other revenue was primarily
composed of $3.1 million in finance charge income resulting from the Company's
premium financing program initiated in November 2000 and $5.3 million associated
with the Company's non-insurance operations. In 2000, other revenue primarily
consisted of $7.1 million associated with the Company's non-insurance operations
of which $2.3 million related to the Company's reinsurance intermediary
subsidiary, which was sold on July 1, 2000, and premium financing charge income
of $0.4 million.

LOSS AND LOSS ADJUSTMENT EXPENSES (LAE). Losses and LAE decreased $28.4 million,
or 10.2%, to $250.8 million in 2001 from $279.2 million in 2000. Losses and LAE
were net of ceded losses and LAE of $97.5 million in 2001 and $44.2 million in
2000. The ratio of net losses and LAE to net premiums earned increased to 170.8%
in 2001 from 151.7% in 2000.

As a result of reserve studies conducted by the Company, the Company's outside
actuary and a second actuarial firm specializing in medical malpractice
reserving, the Company recorded a $64.5 million net adjustment to loss and loss
adjustment expenses as of December 31, 2001. During 2001, the Company increased
direct and assumed prior year loss and loss adjustment expense reserves of
$113.1 million and $4.8 million, respectively. During 2001, ceded reserves
associated with the Company's aggregate reinsurance contracts increased by $61.7
million. The increase in prior year loss and loss adjustment expense reserves
resulted from three primary factors: increased loss severity, particularly in
the Pennsylvania institutions and New Jersey physicians book; adverse
development in the form of additional frequency and severity relating to
physicians business in certain states, primarily in Pennsylvania, Texas and
Ohio; and adverse development associated with reserves held on an assumed excess
of loss reinsurance contract which was non-renewed January 1, 2001. The increase
in current year loss and loss adjustment expense reserves resulted primarily
from increased severity levels and reduced profitability indications from prior
accident years.

During 2000, loss and loss adjustment expense were significantly impacted by the
reserve strengthening actions taken by the Company at June 30, 2000 that
resulted from a loss and LAE study conducted by the Company. Following the
reserve study, gross loss and loss adjustment expense reserves were increased by
$92.4 million, including $48.4 million for 1999 and prior accident years and
$14.0 million for accident year 2000. Ceded loss and LAE reserves were increased
by $22.3 million. Net loss and LAE reserves were increased by $70.1 million. The
increase in loss and loss adjustment expense reserves in 2000 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.

                                                                              35

<PAGE>

UNDERWRITING EXPENSES. Underwriting expenses increased $8.5 million, or 22.2%,
to $47.1 million in 2001 from $38.6 million in 2000. This increase was primarily
composed of $3.4 million in severance and recruitment fees, $1.5 million largely
related to underwriting, servicing, and marketing initiatives, $1.0 million
associated with information systems costs, $1.4 million for consulting fees and
$1.2 million of other costs which included broker commission expense and
guarantee fund charges. The ratio of underwriting expenses to net premiums
earned increased to 32.1% in 2001 from 21.0% in 2000. The increase resulted
primarily from increased expenses and lower net earned premiums due to
additional ceded premiums associated with additional losses ceded under the
Company's aggregate reinsurance contracts. The ratio of underwriting expenses to
net premiums earned excluding the impact of the severance charges was 29.8%.

FUNDS HELD CHARGES. Funds held charges increased $35.0 million, or 466.2%, to
$42.5 million in 2001 from $7.5 million in 2000. 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. Funds held charges increased $19.8 million resulting
from adjustments to loss reserves, ceded losses and ceded premiums during 2001.
Funds held charges during 2000 decreased by $13.2 million as a result of
adjustments to loss reserves, ceded losses and ceded premiums during 2000. Funds
held charges are calculated based upon the beginning of quarter funds held
balances and are adjusted based upon changes to ceded premiums associated with
changes in ceded losses.

OTHER EXPENSES. Other expenses decreased $2.4 million, or 41.6%, to $3.4 million
in 2001 from $5.8 million in 2000 and primarily consisted of expenses associated
with the leasing and other businesses owned by the Company. The decrease is
primarily related to the sale of substantially all of the assets of the
Company's reinsurance intermediary subsidiary on July 1, 2000.

CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE FOR CERTAIN DEBT SECURITIES, NET OF
TAX. On April 1, 2001, the Company adopted EITF 99-20, "Recognition of Interest
Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets," which established new guidelines for recognition
of income and other-than-temporary declines for interests in securitized assets.
The cumulative effect of adopting EITF 99-20 was $5.3 million, net of $2.8
million tax, on April 1, 2001.

INCOME TAXES. An income tax expense of $41.9 million was recorded in 2001, as
compared to an income tax benefit of $22.1 million in 2000. The increase of
$64.0 million in income tax expense in 2001 is primarily the result of a $95.1
million valuation allowance recorded against the net deferred tax asset in
accordance with Statement of Financial Accounting Standards 109, "Accounting for
Income Taxes," offset by an increase in pre-tax loss of $52.0 million resulting
in an increased tax benefit of $18.2 million at a 35% tax rate, a tax
contingency reserve release of $10.2 million, and a net increase in taxes of
$2.9 million in other items including $1.0 million due to lower tax exempt
interest. The release of the tax contingency reserve resulted from the
establishment of the valuation allowance, at approximately full value.

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

                                                                              36

<PAGE>

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 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.

                                                                              37

<PAGE>

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.

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. New Jersey
regulations permit the payment of any dividend or distribution only out of
statutory earned (unassigned) surplus. The Department may limit or disallow the
payment of any dividend or distribution if an insurer's statutory surplus
following the payment of any dividend or other distribution is not deemed
adequate in relation to its outstanding liabilities and adequate to meet its
financial needs, or the insurer is determined to be in a hazardous financial
condition. The other Insurance Subsidiaries are subject to similar provisions
and restrictions. No significant amounts are currently available for payment of
dividends by Insurance Subsidiaries without prior approval of the applicable
state insurance department or Bermuda Registrar of Companies. As a result of
these limitations, The MIIX Group does not expect that MIIX Insurance Company
will have the ability to declare and pay dividends to The MIIX Group to meet its
operating needs.

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 May 17, 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, 2001,
the Company had borrowed approximately $9.1 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, 2001, the Company incurred
interest expense on the loan of approximately $716,000. At December 31, 2001,
the Company had fixed maturity investments in Amboy National Bank of
approximately $9.1 million earning a fixed interest rate of 6% per annum. The
Company's former CEO is a brother of the Senior Vice President and CFO of Amboy
National Bank. The Company believes that the terms of the credit facility
described above are as fair to the Company as could have been obtained from an
unaffiliated third party. The Company has initiated discussions with Amboy
National Bank to restructure the terms of the revolving credit facility. The
restructuring discussions are ongoing and may rely in part on proceeds from the
sale of the Company's leasing subsidiary, Hamilton National Leasing Corporation
("Hamilton"). On March 8, 2002, the Company executed a letter of intent with an
unrelated third party to sell Hamilton. The sale transaction is expected to
close during the second quarter of 2002. It is unlikely that the Company will be
able to repay the credit facility

                                                                              38

<PAGE>

balance prior to the May 17, 2002 termination date and will be in default on the
credit facility unless it is restructured prior to that date.

The primary sources of the Company's liquidity are insurance 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 $(23.6) million
in 2001 compared to $59.4 million in 2000 and $107.4 million in 1999. The
decrease in cash flow during this period was significantly impacted by two
items, one impacting cash flows during 2000 and the other impacting cash flows
during 2001. During 2000, operating cash flows were significantly increased due
to one-time proceeds of $33.0 million collected on termination of the Company's
corporate-owned life insurance (COLI) program. Without these one-time proceeds,
operating cash flows in 2000 were $26.4 million. During 2001, operating cash
flows were significantly impacted by premium financing activity conducted by the
Company under a program begun in November 2000. Prior to November 2000, premium
financing was conducted by a third party vendor and the company received full
proceeds from financed policies shortly after the policies were written from the
third party vendor. Excluding the impact of the net premium financing activity
of $32.2 million, operating cash flows in 2001 were $8.6 million, a $17.8
million decrease from 2000. This decrease resulted primarily from increases in
paid losses and LAE, and underwriting expenses and reduced investment income.
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's cash flow could be further impacted by actions taken by the
insurance department regulators of New Jersey and Virginia, as well as the
Company's A.M. Best rating, which is currently C+, could hinder the Company's
ability to write new business and renew existing business. See "Risks and
Uncertainties." Similarly, if the Company cannot execute its revised business
plan successfully, its cash flow could be materially adversely affected. See
"Business Strategy" and "Regulation - Risk-Based Capital."

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, 2001 and 2000, the Company held collateral of $374.2 million and
$306.7 million, respectively, in the form of funds held, and $166.5 million and
$173.2 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. During
February, 2002, A.M. Best downgraded the financial strength rating of the
Company to B- (Fair) from A- (Excellent). On March 22, 2002, A.M. Best again
lowered the rating of the Company to C+ (Marginal). Following the rating action,
reinsurers requested that assets supporting the fund withheld account be placed
in trust. The Company is working with reinsurers to establish the required trust
accounts and move invested assets into trust in accordance with contract
provisions. The Company does not anticipate a material impact on the Company's
financial condition or results of operations from placing the funds withheld in
trust. 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 2001. Payment of
dividends is subject to approval by the Board of Directors, earnings and the
financial condition of the Company. During 2002, The MIIX Group Board of
Directors suspended the payments of dividends to shareholders. Future payments
and amounts of cash dividends will depend upon, among other factors, the
Company's operating results, overall financial condition, capital requirements,
ability to receive dividends from our insurance company subsidiaries which are
subject to regulatory approval and general business conditions. See "Risks and
Uncertainties."

                                                                              39

<PAGE>

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. During 2001, The MIIX Group
repurchased 84,178 shares at a value of approximately $0.7 million related to a
former officer of the Company.

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.

The tables below provide, as of December 31, 2001 and 2000, 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, 2001:

<TABLE>
<CAPTION>
                                                     Expected Maturity Date
                        ----------------------------------------------------------------------------------    Total
                                                         (In thousands)                                     Principal
                            2002          2003           2004          2005          2006      Thereafter    Amounts     Fair Value
                        -----------   -----------    -----------   -----------   -----------   ----------  -----------   ----------

<S>                     <C>           <C>            <C>           <C>           <C>           <C>          <C>          <C>
Government & Agency     $    10,630   $     1,766    $     5,470   $         0   $         0   $   40,748   $   58,614   $   62,604
- Average Yield ...            1.76%         3.08%          3.88%         0.00%         0.00%         5.8%        4.84%
Corporate .........     $    36,100   $    35,595    $    45,795   $    50,728   $    44,649   $  245,229   $  458,096   $  432,090
- Average Yield ...            3.80%         4.17%          6.02%         9.70%         6.15%        8.23%        7.25%
Mortgage-Backed ...     $     2,371   $    10,818    $     9,172   $    34,274   $    13,503   $  211,918   $  282,056   $  279,797
- Average Yield ...            6.92%         5.15%          6.07%         6.06%         5.43%        6.31%        6.19%
Asset-Backed ......     $    21,294   $    13,411    $    37,346   $    11,162   $    27,343   $   48,327   $  158,883   $  158,361
- Average Yield ....           4.13%         5.66%          5.89%         6.95%         5.93%        6.44%        5.89%
Municipal .........     $         0   $         0    $         0   $         0   $     5,420   $  120,765   $  126,185   $  122,082
- Average Yield ...            0.00%         0.00%          0.00%         0.00%         4.05%        5.04%        4.99%
                        -----------   -----------    -----------   -----------   -----------    ----------  ----------   ----------
TOTALS ............     $    70,395   $    61,590    $    97,783   $    96,164   $    90,915   $  666,987   $1,083,834   $1,054,934

At December 31, 2000:

<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>
                                                                              40
<PAGE>

At December 31, 2001, the Company had net after-tax unrealized losses on its
fixed maturity investment portfolio of $6.6 million, which included a full-value
deferred tax valuation allowance of $2.3 million. The net after-tax unrealized
losses of $6.6 million on the fixed maturity portfolio represented 4.7% 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 and 2001.

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, 2001 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.

Short term investments are composed of highly rated money market instruments.
The Company also holds a portfolio of equity investments. At December 31, 2001,
the cost and fair value of equity investments was $7.1 million and $6.6 million,
respectively. At December 31, 2000, the cost and fair value of equity
investments was $6.9 million and $5.8 million, respectively. A 10% decline in
value of the equity investments at December 31, 2001 would result in after-tax
accumulated unrealized losses on equity investments of $0.7 million or 0.5% 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

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."

                                                                              41

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

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






















                                                                              42

<PAGE>

ITEM 11.  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 12.  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:

Exhibit
Number                               Description

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, amended
         February 20, 2002.

4.1      Rights Agreement dated as of June 27, 2001 (incorporated by reference
         to the exhibit filed with the registrant's Form 8-K/A dated June 28,
         2001 and filed with the Securities and Exchange Commission on July 11,
         2001 (file no. 001-14593)).

4.2      Certificate of Designation, Preferences and Rights (incorporated by
         reference to the exhibit filed with the registrant's Form 8-K dated
         June 27, 2001 and filed with the Securities and Exchange Commission on
         June 28, 2001 (file no. 001-14593)).

                                                                              43

<PAGE>

10.1     Lease By and Between the Medical Society of New Jersey and New Jersey
         State Medical Underwriters, Inc. dated October 1, 2000.

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)).

10.13    Combined Aggregate and Casualty Catastrophe Excess of Loss Reinsurance
         Treaty, effective December 15, 1992 among Medical Inter-Insurance
         Exchange of New

                                                                              44

<PAGE>

         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)).

10.17*   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)).

10.21*   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*   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*   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)).

10.26*   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)).

10.28*   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*   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)).

10.31*   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

                                                                              45

<PAGE>

         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)).

10.37*   Separation Agreement between The MIIX Group, Inc., New Jersey State
         Medical Underwriters, Inc. and Kenneth Koreyva (incorporated by
         reference to Exhibit 10.37 filed with the registrant's Form 10-Q for
         the period ended June 30, 2001 and filed with the Securities and
         Exchange Commission on August 13, 2001) (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) 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 (incorporated by
         reference to the exhibit filed with the registrant's Annual Report on
         Form 10-K for the year ended December 31, 2000 as filed with the
         Securities and Exchange Commission on April 2, 2001 (file no.
         001-14593)).

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

                                                                              46

<PAGE>

         Reinsurance Company (incorporated by reference to the exhibit filed
         with the registrant's Annual Report on Form 10-K for the year ended
         December 31, 2000 as filed with the Securities and Exchange Commission
         on April 2, 2001 (file no. 001-14593)).

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 (incorporated by reference to the exhibit
         filed with the registrant's Annual Report on Form 10-K for the year
         ended December 31, 2000 as filed with the Securities and Exchange
         Commission on April 2, 2001 (file no. 001-14593)).

10.49    Combined Quota Share and Aggregate Reinsurance Treaty, effective
         November 1, 1999 between MIIX Insurance Company and Hannover
         Reinsurance (Ireland) Ltd. (incorporated by reference to the exhibit
         filed with the registrant's Annual Report on Form 10-K for the year
         ended December 31, 2000 as filed with the Securities and Exchange
         Commission on April 2, 2001 (file no. 001-14593)).

10.50    Combined Quota Share and Aggregate Reinsurance Treaty, effective
         November 1, 1999 between MIIX Insurance Company and E+S Reinsurance
         (Ireland) Ltd. (incorporated by reference to the exhibit filed with the
         registrant's Annual Report on Form 10-K for the year ended December 31,
         2000 as filed with the Securities and Exchange Commission on April 2,
         2001 (file no. 001-14593)).

10.51    Combined Quota Share and Aggregate Reinsurance Treaty, effective
         November 1, 1999 between MIIX Insurance Company and Swiss Reinsurance
         Company. (incorporated by reference to the exhibit filed with the
         registrant's Annual Report on Form 10-K for the year ended December 31,
         2000 as filed with the Securities and Exchange Commission on April 2,
         2001 (file no. 001-14593)).

10.52    Revolving Line of Credit Loan Agreement and Promissory Note, effective
         May 24, 2000, between The MIIX Group, Incorporated, and Amboy National
         Bank. (incorporated by reference to the exhibit filed with the
         registrant's Annual Report on Form 10-K for the year ended December 31,
         2000 as filed with the Securities and Exchange Commission on April 2,
         2001 (file no. 001-14593)).

10.53    Combined Quota Share And Aggregate Excess Of Loss Reinsurance
         Agreement, effective November 1, 2000, and dated as of July 30, 2001,
         between MIIX Insurance Company and Hannover Reinsurance (Ireland)
         Limited/E + S Reinsurance (Ireland) Limited (incorporated by reference
         to Exhibit 10.53 filed with the registrant's Form 10-Q for the period
         ended June 30, 2001 and filed with the Securities and Exchange
         Commission on August 13, 2001(file no. 001-14593)).

10.54*   Agreement by The MIIX Group, Incorporated and New Jersey State Medical
         Underwriters, Inc. and Thomas M. Redman, effective March 31, 2002 or on
         the date that the Company's year 2001 audited financial statements are
         completed (which is expected to be on or about March 31, 2002),
         whichever is later.

10.55*   Employment Agreement among The MIIX Group, Incorporated, New Jersey
         State Medical Underwriters, Inc. and Catherine E. Williams, dated
         October 31, 2001.

10.56*   Employment Agreement among The MIIX Group, Incorporated, New Jersey
         State Medical Underwriters, Inc. and Patricia A. Costante, dated
         December 19, 2001.

10.57*   Employment Agreement among The MIIX Group, Incorporated, New Jersey
         State Medical Underwriters, Inc. and Stewart Gerson, entered into and
         effective March 19, 2002.

10.58*   Non-Qualified Deferred Compensation Agreement by and between The MIIX
         Group, Incorporated, New Jersey State Medical Underwriters, Inc. and
         Catherine E. Williams, entered into and effective October 31, 2001.

10.59*   Non-Qualified Deferred Compensation by and between The MIIX Group,
         Incorporated, New Jersey State Medical Underwriters, Inc. and Stewart
         Gerson, Agreement entered into and effective March 19, 2002.

10.60    First Amendment to Lease Agreement between Medical Society of New
         Jersey and New Jersey State Medical Underwriters, Inc. effective
         February 5, 2002.

                                                                              47

<PAGE>

10.61*   Settlement Agreement and Release by and between Daniel G. Smereck and
         The MIIX Group, Incorporated and News Jersey State Medical
         Underwriters, Inc. effective February 22, 2002.

10.62*   The MIIX Group, Incorporated and New Jersey State Medical Underwriters,
         Inc. Employee Retention Incentive Plan.

10.63*   First Amendment and Allonge to Note between the MIIX Group,
         Incorporated and Patricia A. Costante, entered into March 5, 2002.

10.64*   First Amendment and Allonge to Note between the MIIX Group,
         Incorporated and Edward M. Grab, entered into March 5, 2002.

10.65*   Stock Loan Repayment Agreement by and between Patricia A. Costante and
         The MIIX Group, Incorporated, entered into March 5, 2002.

10.66*   Stock Loan Repayment Agreement by and between Edward M. Grab and The
         MIIX Group, Incorporated, entered into May 5, 2002.

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.

* Represents a management contract or compensatory plan or arrangement.

(b)      Reports on Form 8-K

         During the quarter ended December 31, 2001, a Current Report on Form
         8-K dated October 3, 2001 was filed by the Company reporting the
         President and Chief Executive Officer's resignation and the appointment
         of Patricia A. Costante as Chief Operating Officer (file no.
         001-14593)).

                                   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/ PATRICIA A. COSTANTE
                                        ---------------------------------------
                                                   Patricia A. Costante
                                        President and Chief Executive Officer

                                                     April 1, 2002


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/ PATRICIA A. COSTANTE...                 President, Chief Executive
---------------------------                 Officer and Director
Patricia A. Costante                        (principal executive officer)                   April 1, 2002


/s/ THOMAS M. REDMAN                        Senior Vice President and
----------------------------                Chief Financial Officer
Thomas M. Redman                            (principal financial and
                                            accounting officer)                             April 1, 2002
</TABLE>

                                                                              48

<PAGE>

<TABLE>
<CAPTION>
<S>                                         <C>                                             <C>
/s/ ANGELO S. AGRO                          Director
----------------------------
Angelo S. Agro, M.D.                                                                        April 1, 2002


/s/ HARRY M. CARNES                         Director
----------------------------
Harry M. Carnes, M.D.                                                                       April 1, 2002


/s/ PAUL J. HIRSCH                          Director
----------------------------
Paul J. Hirsch, M.D.                                                                        April 1, 2002


/s/ VINCENT A. MARESSA                      Director
----------------------------
Vincent A. Maressa, Esq.                                                                    April 1, 2002


/s/ A. RICHARD MISKOFF                      Director
----------------------------
A. Richard Miskoff, D.O.                                                                    April 1, 2002


/s/ EILEEN MARIE MOYNIHAN                   Director
----------------------------
Eileen Marie Moynihan, M.D.                                                                 April 1, 2002


/s/ CARL RESTIVO, JR.                       Director
----------------------------
Carl Restivo, Jr., M.D.                                                                     April 1, 2002


/s/ MARTIN L. SORGER                        Director
----------------------------
Martin L. Sorger, M.D.                                                                      April 1, 2002


/s/ BESSIE M. SULLIVAN                      Director
----------------------------
Bessie M. Sullivan, M.D.                                                                    April 1, 2002
</TABLE>







                                                                              49

<PAGE>

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


                                                                         PAGE
                                                                         ----

Report of Independent Auditors...........................................F- 2
Consolidated Balance Sheets as of December 31, 2001 and 2000.............F- 3
Consolidated Statements of Income for the years ended
  December 31, 2001, 2000 and 1999.......................................F- 4
Consolidated Statements of Stockholders' Equity for the three years
  ended December 31, 2001................................................F- 5
Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999.......................................F- 6
Notes to Consolidated Financial Statements...............................F- 7
Schedule I -- Summary of Investments -- Other than
  Investments in Related Parties.........................................F-29
Schedule II -- Condensed Financial Information of Registrant.............F-30
Schedule V -- Valuation and Qualifying Accounts..........................F-34



(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>

                         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, 2001 and 2000, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, 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.

The Company has prepared the accompanying financial statements assuming the
Company will continue as a going concern, recognizing the circumstances
addressed in Note 9. As more fully described in Notes 3 and 9, the Company's net
worth has been significantly reduced as a result of the increases reported in
the liability for unpaid losses and loss adjustment expenses in 2000 and 2001,
limiting financial flexibility and triggering exposure to regulatory control by
the New Jersey Department of Banking and Insurance and the Virginia Bureau of
Insurance. The Company's loss experience has been subject to significant
unexpected variability, the continuation of which, among other things, could
cause increased regulatory oversight. Furthermore, as addressed in Note 4, the
Company has debt due in May 2002, the payment or refinancing of which is
presently uncertain. The potential consequences of these conditions and those
described in Note 18 raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Notes 9 and 18. The financial statements do not reflect any
adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2 to the financial statements, during 2001 the Company
changed its method of accounting for certain investments.


                                            ERNST & YOUNG LLP

New York, New York
April 1, 2002



                                                                             F-2
<PAGE>

                          THE MIIX GROUP, INCORPORATED

                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 2001          2000
                                                              ----------    ----------

                                        ASSETS
<S>                                                           <C>           <C>
Securities available-for-sale:
  Fixed maturity investments, at fair value (amortized cost:
     2001 - $1,061,499; 2000 - $1,184,057)..................  $1,054,934    $1,171,184
  Equity investments, at fair value (cost: 2001 - $7,081;
     2000 - $6,880).........................................       6,623         5,837
  Short-term investments, at cost which approximates fair
     value..................................................     166,501        82,291
                                                              ----------    ----------
      Total investments.....................................   1,228,058     1,259,312
Cash........................................................       2,029         2,191
Accrued investment income...................................      13,261        16,074
Premium receivable, net.....................................      20,546         9,765
Reinsurance recoverable on unpaid losses....................     463,275       432,046
Prepaid reinsurance premiums................................      16,067        14,560
Reinsurance recoverable on paid losses, net.................      51,632        13,820
Deferred policy acquisition costs...........................       4,416         3,026
Deferred income taxes.......................................         410        58,896
Net investment in direct financing leases...................      32,101        26,997
Other assets................................................      64,068        60,666
                                                              ----------    ----------
      Total assets..........................................  $1,895,863    $1,897,353
                                                              ==========    ==========

                                LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses..................  $1,196,998    $1,142,530
Unearned premiums...........................................      88,598        71,033
Premium deposits............................................      18,928        15,618
Funds held under reinsurance treaties.......................     374,156       306,693
Notes payable and other borrowings..........................      10,699        14,732
Other liabilities...........................................      74,998        57,306
                                                              ----------    ----------
      Total liabilities.....................................  $1,764,377    $1,607,912
                                                              ----------    ----------

Commitments and Contingent Liabilities (Note 8)

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,(2001 - 13,479,760
   shares outstanding; 2000 - 13,563,938 shares outstanding)         166           166
Additional paid-in capital..................................      53,927        53,716
Retained earnings...........................................     129,307       289,655
Treasury stock, at cost (2001 - 3,058,245 shares;
    2000 - 2,974,067 shares)................................     (39,631)      (38,897)
Stock purchase loans and unearned stock compensation........      (5,444)       (5,929)
Accumulated other comprehensive income/loss.................      (6,839)       (9,270)
                                                              ----------    ----------
      Total stockholders' equity............................  $  131,486    $  289,441
                                                              ----------    ----------
      Total liabilities and stockholders' equity............  $1,895,863    $1,897,353
                                                              ==========    ==========
</TABLE>


                             See accompanying notes

                                                                             F-3
<PAGE>

                          THE MIIX GROUP, INCORPORATED

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

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               2001        2000        1999
                                                             --------    --------    --------
<S>                                                         <C>         <C>         <C>
REVENUES
Net premiums earned........................................ $ 146,852   $ 184,062   $ 187,845
Net investment income......................................    80,193      85,158      75,661
Realized investment losses.................................    (2,184)     (4,156)     (6,770)
Other revenue..............................................     8,439       7,452       8,323
                                                            ---------   ---------   ---------
          Total revenues...................................   233,300     272,516     265,059
EXPENSES
Losses and loss adjustment expenses........................   250,768     279,224     174,986
Underwriting expenses......................................    47,121      38,560      42,618
Funds held charges.........................................    42,476       7,502      14,338
Other expenses.............................................     3,404       5,828       3,333
Restructuring charge.......................................         -           -       2,409
                                                            ---------   ---------   ---------
          Total expenses...................................   343,769     331,114     237,684
Income/(loss) before income taxes..........................  (110,469)    (58,598)     27,375
Income tax provision/(benefit).............................    41,892     (22,140)      6,617
     Net income/(loss) before cumulative effect of an
       accounting change...................................  (152,361)    (36,458)     20,758
     Cumulative effect of an accounting change for
       certain debt securities, net of tax.................    (5,283)          -           -
                                                            ---------   ---------   ---------
          Net income/(loss)................................ $(157,644)  $ (36,458)  $  20,758
                                                            =========   =========   =========
Basic and diluted earnings/(loss) per share before
     cumulative effect of an accounting change.............  $(11.27)     $(2.59)      $1.54
Cumulative effect of an accounting change for certain
     debt securities.......................................    (0.39)          -           -
                                                             -------      ------       -----
Basic and diluted earnings/(loss) per share of common
     stock (1).............................................  $(11.66)     $(2.59)      $1.54
                                                             =======      ======       =====

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

(1) 1999 figures pro forma; see Note 15


                             See accompanying notes

                                                                             F-4
<PAGE>

                          THE MIIX GROUP, INCORPORATED

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                   For the Three Years Ended December 31, 2001
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                                   Stock
                                                                                                 Purchase     Accumu-
                                                                                                  Loans       lated
                                         Number                                                    and         Other
                                           of                                                    Unearned     Compre-       Total
                                         Shares              Additional                           Stock       hensive       Stock-
                                          Out-       Common   Paid-In     Retained   Treasury    Compensa     Income/      holders'
                                        standing     Stock    Capital     Earnings    Stock       -tion        (Loss)      Equity
                                      ------------- ------- ------------ ---------- ---------- ------------ ----------- ------------

<S>                                   <C>           <C>     <C>          <C>        <C>         <C>          <C>        <C>
 Balance at January 1, 1999........              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 agreement
      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 agreement
      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
   Net loss........................                                       (157,644)                                        (157,644)
   Other comprehensive income/(loss),
      net of tax...................
      Net unrealized appreciation on
        securities available-for-
        sale, net of deferred taxes                                                                              2,431        2,431
   Stock purchase and loan agreement
      activities...................        (86,049)                 (66)                 (840)         454                     (452)
   Stock compensation..............          1,440                  222                   101           31                      354
   Treasury stock activity, net....            431                   55                     5                                    60
   Cash dividends to stockholders..                                         (2,704)                                          (2,704)
                                        ----------  ------     --------   --------  ---------    ---------   ---------    ----------

 Balance at December 31, 2001......     13,479,760  $  166     $ 53,927   $129,307  $ (39,631)   $  (5,444)  $  (6,839)   $ 131,486
                                        ==========  ======     ========   ========  =========    =========   =========    =========
</TABLE>


                             See accompanying notes


                                                                             F-5
<PAGE>

                          THE MIIX GROUP, INCORPORATED

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                         -------------------------------------
                                                            2001          2000         1999
                                                         ----------    ----------    ---------
<S>                                                      <C>           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)......................................  $ (157,644)   $  (36,458)  $   20,758
Adjustments to reconcile net income/(loss) to net cash
  provided by operating activities (net of balances
  acquired):
    Cumulative effect of an accounting change, net
       of tax..........................................       5,283             -            -
    Unpaid losses and loss adjustment expenses.........      54,468        88,933       73,653
    Unearned premiums..................................      17,565        (4,400)      21,272
    Premium deposits...................................       3,310       (12,295)        (479)
    Premium receivable, net............................     (10,781)        8,609        5,956
    Reinsurance balances, net..........................      (3,085)        8,921      (37,362)
    Deferred policy acquisition costs..................      (1,390)          139         (355)
    Realized investment losses.........................       2,184         4,156        6,770
    Depreciation, accretion and amortization...........      (2,482)       (3,948)      (2,699)
    Deferred income taxes expense/(benefit)............      56,869          (486)     (10,073)
    Accrued investment income..........................       2,813        (1,755)        (708)
    Net investment in direct financing leases..........      (5,104)       (1,929)         961
    Other assets.......................................      (3,402)       26,830       24,988
    Other liabilities..................................      17,807       (16,924)       4,743
                                                         ----------    ----------    ---------
Net cash provided by/(used in) operating activities....     (23,589)       59,393      107,425
                                                         ----------    ----------    ---------


CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed maturity investment sales..........     503,153        72,476      856,302
Proceeds from fixed maturity investments matured,
  called, or prepaid...................................     115,121        85,755       97,278
Proceeds from equity investment sales..................       2,132         6,578        1,553
Cost of investments acquired...........................    (505,880)     (210,669)  (1,055,237)
Purchase of NJSMU (net of cash acquired)...............           -             -         (198)
Change in short-term investments, net..................     (84,210)       10,453       13,079
Net receivable/(payable) for securities................           -          (205)     (30,496)
                                                         ----------    ----------    ---------
Net cash provided by/(used in) investing activities....      30,316       (35,612)    (117,719)
                                                         ----------    ----------    ---------


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering, net of
  offering and reorganization costs....................           -             -       37,350
Proceeds from notes payable and other borrowings.......       3,199        18,476       16,461
Repayment of notes payable and other borrowings........      (7,232)      (20,205)     (19,265)
Purchase of treasury stock.............................           0       (19,648)     (19,249)
Cash dividends to stockholders.........................      (2,704)       (2,784)      (1,560)
Cash in lieu of stock paid to Distributees.............           -             -       (2,269)
Subordinated loan certificates redeemed................        (152)           (3)          (8)
                                                         ----------    ----------    ---------
Net cash provided by/(used in) financing activities....      (6,889)      (24,164)      11,460
                                                         ----------    ----------    ---------

Net change in cash.....................................        (162)         (383)       1,166
Cash at beginning of year..............................       2,191         2,574        1,408
                                                         ----------    ----------    ---------
Cash at end of year....................................  $    2,029    $    2,191    $   2,574
                                                         ==========    ==========    =========
</TABLE>

                             See accompanying notes


                                                                             F-6
<PAGE>

                          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. During
2001, The MIIX Group repurchased 84,178 shares at a value of approximately $0.7
million related to a former officer of the Company.

The Company has historically provided 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-two percent and seventy percent of the Company's direct
premiums during 2001 and 2000, 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>

                          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.), an inactive 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.

On April 1, 2001, the Company adopted the provisions of EITF No. 99-20,
"Recognition of Interest Income and Impairment of Purchased and Retained
Beneficial Interests in Securitized Financial Assets." This standard established
new guidelines for recognition of income and other-than-temporary decline for
interests in securitized assets (loan-backed and asset-backed securities),
unless they met certain exception criteria). EITF 99-20 requires the Company to
recognize an other-than-temporary decline if the fair value of the security is
less than its book value and the net present value of expected future cash flows
is less than the net present value of expected future cash flows at the most
recent, prior, estimation date. The difference between the book value of the
security and its fair value must be recognized as an other-than-temporary
decline and the security's yield is adjusted to market yield. This new guidance
also adopts the prospective method for adjusting the yield used to recognize
interest income for changes in estimated future cash flows since the last
quarterly evaluation date. On April 1, 2001, the Company recognized $5.3 million
of other-than-temporary declines, net of tax ($0.39 per diluted share) as the
cumulative effect of a change in accounting principle. Expected cash flow
assumptions are obtained from both proprietary and broker/dealer estimates and
are consistent with the current interest rate and economic environment.

Premiums and discounts on investments (other than loan-backed and asset-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 fair value that is other than temporary is
recognized by an adjustment to carrying 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.

                                                                             F-8
<PAGE>

                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Premium Receivable

Premium receivable is net of an allowance for doubtful accounts as of December
31, 2001 and 2000 of $132,675 and $57,681, respectively. Net amounts
(recovered)/charged to expense in 2001, 2000 and 1999 were $(74,994), $(269,696)
and $(127,527), respectively.

Reinsurance Recoverable on Paid Losses

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

Deferred Policy Acquisition Costs

Policy acquisition costs, (primarily commissions and premium taxes 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, 2001 and 2000 of $753,411 and $520,789,
respectively. Amounts charged to expense in 2001 and 2000 were $460,000 and
$356,000, 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.

                                                                             F-9

<PAGE>
                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. 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 if, based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax asset
will not be realized.

Reclassification

Certain prior year amounts have been reclassified to be comparable to the 2001
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 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.

                                                                            F-10
<PAGE>

                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations." SFAS No. 141 eliminates the pooling-of-interests
method of accounting for business combinations and requires that all business
combinations be accounted for using the purchase method. The purchase method of
accounting requires that net assets acquired that constitute a business be
recorded at their fair value with any excess cost over the net assets acquired
be recorded as goodwill. SFAS No. 141 also requires that certain intangible
assets acquired in a business combination be recognized apart from goodwill. The
provisions of SFAS No. 141 apply to all business combinations initiated after
June 30, 2001. Adoption of SFAS No. 141 will not have a material impact on the
Company's financial condition or results of operations.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." Under current accounting guidance, goodwill resulting from a business
combination is amortized against income over its estimated useful life. Under
SFAS No. 142, goodwill is no longer amortized as an expense but instead is
reviewed and tested for impairment under a fair value approach. Goodwill will be
tested for impairment at least annually, or more frequently as a result of an
event or change in circumstances that would indicate an impairment may be
necessary. Goodwill must be tested for impairment in the year of adoption with
an initial test, to determine potential impairment, to be performed within six
months of adoption. If the initial test indicates potential impairment, then a
more detailed analysis to determine the extent of the impairment related to
goodwill must be completed within twelve months of adoption.

SFAS No. 142 will be applied beginning January 1, 2002 to all goodwill and other
intangible assets, regardless of when those assets were initially recognized.
Adoption of SFAS No. 142 will result in the elimination of goodwill
amortization. Goodwill amortization of approximately $0.4 million was recorded
in 2001. Effective January 1, 2002, goodwill of approximately $6.5 million will
no longer be amortized. Adoption of the other provisions of SFAS No. 142 will
not have a material impact on the Company's financial condition 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,
                                                            ----------------------------------
                                                               2001        2000        1999
                                                            ----------  ----------  ----------
                                                                      (In thousands)
<S>                                                         <C>         <C>         <C>
Balance as of January 1, net of reinsurance recoverable
  of $432.0 million, $406.4 million and $325.8 million,
  respectively............................................. $  710,484  $  647,188  $  625,864

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

Incurred related to:
  Current year.............................................    203,975     227,921     189,000
  Prior years..............................................     46,793      51,303     (14,014)
                                                            ----------  ----------  ----------
Total incurred.............................................    250,768     279,224     174,986

Paid related to:
  Current year.............................................      2,571       4,535       4,589
  Prior years..............................................    224,958     211,393     157,359
                                                            ----------  ----------  ----------
Total paid.................................................    227,529     215,928     161,948
                                                            ----------  ----------  ----------
Balance as of December 31, net of reinsurance
  recoverable..............................................    733,723     710,484     647,188
Reinsurance recoverable....................................    463,275     432,046     406,409
                                                            ----------  ----------  ----------
Balance, gross of reinsurance.............................. $1,196,998  $1,142,530  $1,053,597
                                                            ==========  ==========  ==========
</TABLE>

The Company increased prior year gross reserves in the amounts of $117.9
million, $47.2 million and $16.5 million during 2001, 2000 and 1999,
respectively. At December 31, 2001, 2000 and 1999, reserves for gross losses and
loss adjustment expenses on

                                                                            F-11
<PAGE>

                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

incurred but not reported claims amounted to $719.3 million, $689.4 million and
$640.1 million, respectively, of which $532.8 million, $458.2 million and $444.7
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 2001, loss and
loss adjustment expense reserves were adjusted primarily to reflect increases in
loss severity and frequency on occurrence, occurrence-like and claims made
policies and resulted from three primary factors: increased loss severity
associated with business written by the Company primarily in Pennsylvania, on
the institutions business, and in New Jersey, on the physician business, and to
a lesser extent in certain other states; adverse development in the form of
additional frequency and severity relating to physician business written
primarily in Pennsylvania, Texas, Ohio and certain other states; and adverse
development associated with reserves held on a non-renewed excess of loss
reinsurance contract, effective January 1, 2001. 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
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 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 and 2001. 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, 2001, 2000 and 1999. The
adjustments to net reserves in 2001 generally resulted from increased loss
severity and frequency primarily associated with accident year 2000 on business
other than New Jersey and Pennsylvania physician business, reserves held on
accident years prior to 1993 and reserves on physician business held net by
LP&C. 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 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 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
$760,512 in 2001 and $772,173 in 2000 and 1999. The Company held a note
receivable of $2.1 million and $2.3 million, included in other assets, at
December 31, 2001 and 2000, 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

                                                                            F-12
<PAGE>

                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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 May 17, 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, 2001,
the Company had borrowed approximately $9.1 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, 2001, the Company incurred
interest expense on the loan of approximately $716,000. At December 31, 2001,
the Company had fixed maturity investments in Amboy National Bank of
approximately $9.1 million earning a fixed interest rate of 6% per annum. The
Company's former 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. The Company has initiated discussions with Amboy National Bank to
restructure the terms of the revolving credit facility. The restructuring
discussions are ongoing and may rely in part on proceeds from the sale of the
Company's leasing subsidiary, Hamilton National Leasing Corporation
("Hamilton"). During March 2002, the Company executed a letter of intent with an
unrelated third party to sell Hamilton. The sale transaction is expected to
close during the second quarter of 2002. It is unlikely that the Company will be
able to repay the credit facility balance prior to the May 17, 2002 termination
date and will be in default on the credit facility unless it is restructured
prior to that date. Also see Note 9 - Statutory Accounting Practices for
additional discussion.

In addition, the Company made annual contributions to the Medical Society of New
Jersey in 2001, 2000 and 1999. Vincent A. Maressa, Esq., Executive Director and
General Counsel of the Medical Society, is Chairman of the Board of the Company.
Angelo S. Agro, M.D., Eileen Marie Moynihan, M.D. and Bessie M. Sullivan, M.D.
are the President, Treasurer and Secretary, respectively, of the Medical Society
and 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.

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, 2001 and 2000, the average
credit quality of the fixed income portfolio was AA.


                                                                            F-13
<PAGE>

                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The actual or amortized cost and estimated market value of the Company's
available-for-sale securities as of December 31, 2001 and 2000 were as follows:

<TABLE>
<CAPTION>
                                                                GROSS UNREALIZED     ESTIMATED
                                                  AMORTIZED     -----------------      MARKET
                                                     COST        GAINS     LOSSES      VALUE
                                                  ----------    -------    ------    ----------
                                                                  (In thousands)
<S>                                               <C>           <C>       <C>        <C>
2001
U.S. Treasury securities and obligations of
  U.S. government corporations and agencies.....  $   54,495    $ 1,105   $   562    $   55,038
Obligations of states and political
  subdivisions..................................     123,079        503     1,500       122,082
Foreign securities - U.S. dollar denominated....      35,942        728     1,117        35,553
Corporate securities............................     413,433      5,462    14,792       404,103
Mortgage-backed and other asset-backed
  securities....................................     434,550      6,065     2,457       438,158
                                                  ----------    -------   -------    ----------
Total fixed maturity investments................   1,061,499     13,863    20,428     1,054,934
Equity investments..............................       7,081        391       849         6,623
                                                  ----------    -------   -------    ----------
          Total investments (excluding
             short-term)........................  $1,068,580    $14,254   $21,277    $1,061,557
                                                  ==========    =======   =======    ==========
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
                                                  ==========    =======   =======    ==========
</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, 2001 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.....................................  $   34,014   $   34,557
Due after one year through five years.......................     130,290      132,156
Due after five years through ten years......................     211,092      205,121
Due after ten years.........................................     247,527      240,770
Mortgage-backed and other asset-backed securities...........     434,550      438,158
Preferred stock.............................................       4,026        4,172
                                                              ----------   ----------
          Total fixed maturity investments..................  $1,061,499   $1,054,934
                                                              ==========   ==========
</TABLE>


                                                                            F-14
<PAGE>

                          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,
                                                        -----------------------------
                                                         2001        2000       1999
                                                        -------    -------    -------
                                                               (In thousands)
<S>                                                     <C>        <C>        <C>
Fixed maturity investments............................  $75,675    $78,410    $70,025
Equity investments....................................      195        258        256
Short-term investments................................    5,455      7,584      6,472
Other.................................................      669        644        503
                                                        -------    -------    -------
          Subtotal....................................   81,994     86,896     77,256
Investment expenses...................................    1,801      1,738      1,595
                                                        -------    -------    -------
Net investment income.................................  $80,193    $85,158    $75,661
                                                        =======    =======    =======
</TABLE>

Realized gains and losses from sales and other-than-temporary declines in fair
values of investments, excluding the cumulative effect of an accounting change,
are summarized as follows:

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         2001        2000       1999
                                                        -------    -------    -------
                                                               (In thousands)
<S>                                                     <C>        <C>        <C>
Fixed maturity investments
  Gross realized gains................................  $22,489    $   490    $ 4,950
  Gross realized losses...............................  (23,819)    (4,214)   (11,358)
                                                        -------    -------    -------
Net realized losses on fixed maturity
  investments.........................................   (1,330)    (3,724)    (6,408)
Equity investments
  Gross realized gains................................        0        241        138
  Gross realized losses...............................     (854)      (673)      (500)
                                                        -------    -------    -------
Net realized losses on equity investments.............     (854)      (432)      (362)
                                                        -------    -------    -------
Net realized losses on investments....................  $(2,184)   $(4,156)   $(6,770)
                                                        =======    =======    =======
</TABLE>

The change in the Company's unrealized appreciation/(depreciation) on fixed
maturity investments was $6,308, $41,252 and $(70,672) for the years ended
December 31, 2001, 2000 and 1999, respectively. The corresponding amounts for
equity investments were $585, $(268) and $(775).

At December 31, 2001 and 2000, investments in fixed maturity investments with a
carrying amount of approximately $8.0 million were on deposit with state
insurance departments to satisfy regulatory requirements.



                                                                            F-15
<PAGE>

                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.  REINSURANCE

Certain premiums, losses and loss adjustment expenses are ceded to other
insurance companies under various reinsurance agreements in-force during 2001,
2000 and 1999. 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:

<TABLE>
<CAPTION>
                               COVERAGE                       COVERAGE
              CONTRACT           TYPE         RETENTION         LIMIT               OTHER
              --------           ----         ---------         -----               -----

<S>      <C>                  <C>          <C>               <C>             <C>
2001     Specific Excess      Per loss     $10 million       $25 million     10% participating, no
                                                                             aggregate deductible

2001     Aggregate Excess     Aggregate    75% loss and      75% loss and    Aggregate limit
                                           ALAE ratio        ALAE ratio

2000     Specific Excess      Per loss     $10 million       $25 million     10% participating, 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     8% participating, no
                                                                             aggregate deductible

1999     Aggregate Excess     Aggregate    75% loss and      75% loss and    Aggregate limit
                                           ALAE ratio        ALAE ratio
</TABLE>

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

<TABLE>
<CAPTION>
                               2001                    2000                    1999
                       --------------------    --------------------    --------------------
                       WRITTEN      EARNED     WRITTEN      EARNED     WRITTEN      EARNED
                       --------    --------    --------    --------    --------    --------
<S>                    <C>         <C>         <C>         <C>         <C>         <C>
Direct...............  $231,550    $213,944    $212,154    $216,595    $244,426    $222,898
Assumed..............       396         437      13,971      13,930      12,674      12,909
Ceded................   (67,131)    (67,529)    (38,043)    (46,463)    (53,682)    (47,962)
                       --------    --------    --------    --------    --------    --------
Net premiums.........  $164,815    $146,852    $188,082    $184,062    $203,418    $187,845
                       ========    ========    ========    ========    ========    ========
</TABLE>

During 2001, 2000 and 1999, approximately $97.5 million, $44.2 million and $96.1
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, 2001 and 2000, the Company
held collateral under related reinsurance agreements for all unpaid losses and
loss adjustment expenses ceded in the form of funds withheld of $374.2 million
and $306.7 million and letters of credit of $166.5 million and $173.2 million,
respectively.

In accordance with the provisions of the aggregate excess 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. Each
aggregate excess reinsurance contract contains an adjustable provision that may
result in changes to ceded premium and related funds held charges based on loss
experience under the contract. Each of the aggregate excess reinsurance
contracts also contains a provision allowing reinsurers to offer additional
reinsurance coverage that MIIX Insurance Company or its predecessor, Medical
Inter-Insurance Exchange of New Jersey is obligated to accept. For contract
years beginning November 1, 1999 and forward, the contracts require that the
funds withheld balance on a particular contract year be below $500,000 before
reinsurers may offer the additional coverage. For contract years prior to
November 1, 1999, the contracts provide no funds withheld threshold amount,
although the reinsurance intermediary has confirmed in writing the intention of
the parties was that the additional coverage would be offered only if and when
the funds withheld balance was in a loss position. No funds withheld balances
are below $500,000 or in a loss position. Each of the aggregate excess
reinsurance contracts also contains a provision requiring that the funds
withheld be placed in trust should the A.M. Best rating assigned to MIIX
Insurance Company or its predecessor, Medical Inter-

                                                                            F-16
<PAGE>

                          THE MIIX GROUP, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Insurance Exchange of new Jersey, fall below B+. On February 21, 2002, A.M. Best
lowered the rating of MIIX Insurance Company to B-. On March 22, 2002, A.M. Best
again lowered the rating of MIIX Insurance Company, to C+. The Company is
working with reinsurers to establish the required trust accounts and move
invested assets into trust in accordance with contract provisions. The Company
does not anticipate a material impact on the Company's financial condition or
results of operations from this action.

7.  RETIREMENT PLANS

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, 2001, 2000 and 1999 totaled $327,448, $395,094 and
$344,852, 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.

The net periodic pension expense consists of the following components:

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                          ----------------------------
                                                           2001       2000       1999
                                                          ------     ------     ------
                                                                 (In thousands)
<S>                                                      <C>         <C>        <C>
Service cost..........................................   $   341     $  392     $  789
Interest cost.........................................       607        596        568
Expected return on plan assets........................    (1,006)      (964)      (892)
Amortization of:
   Transition asset...................................       (22)       (22)       (22)
   Prior service cost(1)..............................       (45)       (34)         0
   Actuarial gain.....................................      (336)      (401)      (126)
                                                         --------    ------     ------
Net periodic pension expense/(benefit)................   $  (461)    $ (433)    $  317
                                                         ========    ======     ======
</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,
                                                       -----------------------
                                                          2001         2000
                                                        -------      -------
                                                            (In thousands)
<S>                                                     <C>          <C>
CHANGE IN BENEFIT OBLIGATION
Net benefit obligation at beginning of year...........  $ 8,344      $ 7,823
Service cost..........................................      341          392
Interest cost.........................................      607          596
Amendments(2).........................................        0         (305)
Actuarial loss........................................      514           29
Gross benefits paid...................................     (201)        (191)
                                                        -------      -------
Net benefit obligation at end of year.................  $ 9,605      $ 8,344
                                                        -------      -------
</TABLE>

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


                                                                            F-17

<PAGE>
                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year........  $11,516      $10,807
Actual return on plan assets..........................      149          900
Gross benefits paid...................................     (201)        (191)
                                                        -------      -------
Fair value of plan assets at end of year..............  $11,464      $11,516
                                                        -------      -------

Funded status.........................................  $ 1,860      $ 3,173
Unrecognized actuarial gain...........................   (1,758)      (3,470)
Unrecognized prior cost...............................     (230)        (270)
Unrecognized net transition asset.....................      (47)         (69)
                                                        -------      -------
Accrued pension expense...............................  $  (175)     $  (636)
                                                        =======      =======

Amounts recognized in the statement of
  financial position consists of
    Accrued benefit liability.........................  $  (175)     $  (636)
                                                        -------      -------
Accrued pension expense...............................  $  (175)     $  (636)
                                                        =======      =======

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        ----------------------------
                                                         2001       2000       1999
                                                        ------     ------     ------
<S>                                                      <C>        <C>        <C>
Weighted-average assumptions
   Discount rate.....................................    7.25%      7.50%      8.00%
   Expected return on plan assets....................    9.00%      9.00%      9.00%
   Rate of compensation increase.....................    4.00%      4.00%      4.00%
</TABLE>

8.  COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET RISK

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 2001,
2000 and 1999 was $2,648,170, $2,133,393 and $2,162,120, respectively, including
rent paid to the Medical Society of New Jersey of $760,512 in 2001 and $772,173
in 2000 and 1999. Minimum future rental obligations for leases currently in
effect are as follows:

                2002                              $ 1,511,853
                2003                                  939,785
                2004                                  158,044
                Thereafter                                  0
                                                  -----------

                                                  $ 2,609,682
                                                  ===========

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 $22.6 million and $22.1 million as of
December 31, 2001 and 2000, 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, 2001
included a court action challenging certain aspects of the Plan of
Reorganization and seeking damages and injunctive relief filed by five
individual insureds in January 1999 which was dismissed by the trial court in
August 1999 and an appeal was filed. On July 11, 2001, the Appellate Division
issued an opinion affirming the dismissal of plaintiffs' Complaint in all
respects. On August 30, 2001, plaintiffs filed a Petition for Certification to
the Supreme Court seeking review of the Appellate Division's

                                                                            F-18
<PAGE>
                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

decision. On January 2, 2002, the Supreme Court denied plaintiffs' petition for
certification. Plaintiffs subsequently filed a motion for reconsideration, which
is now pending. The Company intends to continue vigorously defending against
these actions.

In October 1999, a former NJSMU Board member filed an action against the
Exchange, Underwriter, The MIIX Group and Daniel Goldberg, seeking damages
arising out of the unanimous decision of the Exchange and Underwriter Boards in
July 1998 to terminate a Death Benefit Plan that was adopted by the Board in
December 1991 to provide members of the Boards and their committees with a $1
million death benefit. In October 2001, the court determined that judgment
should be entered in favor of plaintiff in the amount of $490,585, representing
the cash balance of the life insurance policy insuring plaintiff's life, which
was held by the Exchange to secure the payment of benefits under the Death
Benefit Plan. The judgment provides that this sum is payable in ten equal annual
installments following plaintiff's death, in accordance with the Plan's terms.
The Company is appealing this decision. Two subsequent actions by other Plan
participants, one styled as a class action on behalf of all Plan participants,
have been filed against the Company. These actions have been stayed pending the
outcome of the appeal in the first action. Prior to the Plan's termination,
there were approximately 48 participants in the plan. However, the majority of
these participants voted in favor of the plan's termination and, therefore,
would be precluded from participating in any legal action against the Company in
this regard. The Company and external counsel believe that the Company will
successfully appeal the Court's judgment.

The Company was a reinsurer on a large excess of loss assumed reinsurance
contract providing medical professional liability coverage on an institutional
account from January 1, 1999 to December 31, 2000. As the result of a claims
audit conducted during 2001, the Company has identified significant items of
dispute with the ceding company under this assumed reinsurance contract. The
parties are in the process of selecting an arbitration panel to address the
dispute.

The Company believes that it will prevail in these matters.

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. Adoption of codification did not have a
material impact 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:
                                                     YEARS ENDED DECEMBER 31,
                                                --------------------------------
                                                  2001        2000        1999
                                                --------    --------    --------
                                                         (In thousands)

Statutory net income/(loss) for the year......  $(87,172)   $(39,914)   $  8,812
Statutory surplus at year-end.................  $125,485    $229,150    $268,445

The National Association of Insurance Commissioners (NAIC) has established and
the states insurance departments have adopted, risk-based capital (RBC)
standards that property and casualty insurers must meet. RBC standards are
designed to measure the acceptable level of capital an insurer should have,
based on the inherent and specific risk of each insurer.

The RBC formula is used by state insurance regulators as an early warning tool
to identify, for the purpose of initiating regulatory action, insurance
companies that potentially are inadequately capitalized. In addition, the
formula defines minimum capital standards which an insurer must maintain.
Regulatory compliance is determined

                                                                            F-19
<PAGE>

                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


by a ratio of the enterprise's regulatory Total Adjusted Capital, to its
Authorized Control Level RBC, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of which may
require specific corrective action depending upon the insurer's state of
domicile. The levels and ratios are as follows:

                                                RATIO OF TOTAL ADJUSTED CAPITAL
                                                TO AUTHORIZED CONTROL LEVEL RBC
                                                             (LESS
                       REGULATORY EVENT                 THAN OR EQUAL TO)
                       ----------------          -------------------------------

           Company action level                                2
           Regulatory action level                             1.5
           Authorized control level                            1
           Mandatory control level                             0.7

At the varying levels of RBC, the Company is subject to the following regulatory
attention:

      -    Company Action Level - below which a company submits a plan for
           corrective action.

      -    Regulatory Action Level - below which a company must file a
           Corrective Action Plan that details the insurer's corrective actions
           to raise additional statutory capital over the next four years. The
           plan must be approved by the state Insurance Commissioner, who may
           perform an audit of the insurer's financial position.

      -    Authorized Control Level - below which the Insurance Commissioner is
           authorized to take the actions it considers necessary to protect the
           best interests of the policyholders and creditors of an insurer,
           which may include placing the insurance company under regulatory
           control, which, in turn, may result in rehabilitation or, ultimately,
           liquidation.

      -    Mandatory Control Level - below which the Insurance Commissioner is
           required to take the actions it considers necessary to protect the
           best interests of the policyholders and creditors of an insurer,
           which include placing the insurance company under regulatory control
           which, in turn, may result in rehabilitation or, if deemed
           appropriate, liquidation.

At December 31, 2001, MIIX's Total Adjusted Risk-Based Capital was $122.0
million and fell within the Regulatory Action Level, at approximately 142% of
Authorized Control Level ($85.6 million), which required MIIX to prepare and
submit a corrective action plan to the Insurance Commissioner of the New Jersey
Department of Banking and Insurance. The plan must be approved by the New Jersey
Insurance Commissioner, who may perform an examination of the insurer's
financial position. Included in MIIX's statutory surplus and RBC at December 31,
2001 is an $18.1 million inter-company note receivable from Hamilton National
Leasing ("HNL"). In March 2002, the Company executed a letter of intent to sell
HNL. The Company expects the note receivable will be repaid upon the
consummation of the sale of HNL, which is anticipated to occur in the second
quarter of 2002. In the event that the sale of HNL does not close as currently
anticipated, the note receivable may be considered non-admitted for statutory
reporting purposes. At December 31, 2001, LP&C's RBC was at the Mandatory
Control Level, at approximately 18% of Authorized Control Level, which
authorizes the Virginia Insurance Commissioner to place LP&C under regulatory
control that may result in rehabilitation or, ultimately, liquidation. On March
14 and 15, 2002, the Company made contributions of capital to LP&C totaling
$2,125,000 in order to meet minimum statutory capital requirements in Virginia
of $4 million. LP&C entered into a consent order with the Virginia Bureau of
Insurance on February 22, 2002, in which it agreed not to solicit or issue any
new or renewal business in any jurisdiction, in accordance with applicable laws.
LP&C and the Bureau entered into a second consent order on March 6, 2002,
requiring LP&C to obtain the Bureau's prior written consent before entering into
certain material transactions not in the ordinary course of business, as set
forth in the order, including selling or encumbering assets, lending or
disbursing funds, incurring debt, modifying reinsurance treaties with
affiliates, changing directors or officers of the company, merging the company
or paying dividends to stockholders. Also see Note 4 - Related Party
Transactions for additional discussion.

                                                                            F-20
<PAGE>

                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


The Company has filed a preliminary corrective action plan with the New Jersey
Department of Banking and Insurance and continues to hold regular discussions
with insurance regulators relative to the specific details included in the plan.
The Company had previously communicated to various insurance departments its
intention to discontinue writing new business in LP&C and non-renewing expiring
policies, other than certain "tail" coverage for which the Company is
contractually obligated to provide or where required by regulation, and put LP&C
into run-off. The Company has closed its regional offices in Dallas and
Indianapolis and has undertaken reductions in personnel and related costs
associated with the operations of LP&C. In addition, the Company has announced
its intention to limit its insurance writings in MIIX to New Jersey and certain
mid-Atlantic states.

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. New Jersey
regulations permit the payment of any dividend or distribution only out of
statutory earned (unassigned) surplus. The Department may limit or disallow the
payment of any dividend or distribution if an insurer's statutory surplus
following the payment of any dividend or other distribution is not reasonable in
relation to its outstanding liabilities and adequate to meet its financial
needs, or the insurer is determined to be in a hazardous financial condition.
The other insurance subsidiaries are subject to similar provisions and
restrictions. No significant amounts are currently available for payment of
dividends by insurance subsidiaries without prior approval of the applicable
state insurance department or Bermuda Registrar of Companies. As a result of
these limitations, The MIIX Group does not expect that MIIX Insurance Company
will have the ability to declare and pay dividends to The MIIX Group to meet its
operating needs.

At December 31, 2001 and 2000, The MIIX Group had restricted net assets of
$132,974,436 and $288,052,310, 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 years ended December 31, 2000 and 2001.

11.  INCOME TAXES

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



                                                                            F-21

<PAGE>

                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of the income tax (benefit)/provision in the accompanying
statements of income, before the cumulative effect of an accounting change, are
summarized as follows:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                       ---------------------------
                                                          2001       2000       1999
                                                        -------    -------    -------
                                                               (In thousands)
<S>                                                    <C>        <C>         <C>
Current income tax...................................  $(14,977)  $(21,654)   $16,690
Deferred income tax..................................    56,869       (486)   (10,073)
                                                       --------   --------    -------
Total income tax (benefit)/expense...................  $ 41,892   $(22,140)   $ 6,617
                                                       ========   ========    =======

A reconciliation of income tax computed at the federal statutory tax rate to
total income tax (benefit)/expense before the cumulative effect of an accounting
change is as follows:
<CAPTION>

                                                           YEARS ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2001       2000       1999
                                                       -------    -------    --------
                                                               (In thousands)
<S>                                                   <C>        <C>         <C>
Expected annual effective federal income tax
  (benefit)/expense at 35%............................ $(38,664)  $(20,509)   $ 9,581
Increase/(decrease) in taxes resulting from:
  Establishment of valuation allowance, net of
     reduction of tax contingency reserves............   82,297        612          0
  Tax-exempt interest.................................   (1,695)    (2,478)    (2,431)
  Other...............................................      (46)       235       (533)
                                                       --------   --------    -------
          Total income tax (benefit)/expense.......... $ 41,892   $(22,140)   $ 6,617
                                                       ========   ========    =======
</TABLE>

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

                                                                 DECEMBER 31,
                                                              ------------------
                                                               2001       2000
                                                              -------    -------
                                                                (In thousands)
Deferred tax assets:
  Net operating loss carryforwards..........................  $26,843    $     0
  Discounting of loss reserves..............................   49,857     49,955
  Unearned premium reserve..................................    6,660      5,442
  Unrealized losses and other-than-temporary declines
      on investments........................................   11,939      4,962
  Other.....................................................    3,620      2,029
                                                              -------    -------
          Total deferred tax assets.........................   98,919     62,388
                                                              -------    -------
   Less valuation allowance.................................   95,129        612
                                                              -------    -------
           Deferred tax asset after valuation allowance.....    3,790     61,776

Deferred tax liabilities-Other..............................    3,380      2,880
                                                              -------    -------
Net deferred tax assets.....................................  $   410    $58,896
                                                              =======    =======

At December 31, 2001 and 2000 the Company established a valuation allowance of
$95.1 million and $0.6 million, respectively, to reduce its deferred tax assets
to the estimated realizable value. The deferred tax assets primarily relate to
net operating loss carryforwards which expire in twenty years, and the different
tax and book treatment of discounting of loss reserves, unrealized losses and
other-than-temporary

                                                                            F-22
<PAGE>

                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

declines on the available-for-sale securities and unearned
premium reserve. The Company evaluates a variety of factors in determining the
amount of the deferred income tax assets to be recognized pursuant to SFAS No.
109, "Accounting for Income Taxes," including the Company's earnings history,
the number of years the Company's operating loss and tax credit can be carried
forward and expected future taxable income. Due to the Company's cumulative loss
position in recent years, a valuation allowance has been provided for
approximately the full value of the deferred tax assets at December 31, 2001.
The increase in the valuation allowance of $94.5 million during 2001 impacted
the Company's income tax provision and other comprehensive income which was
included in unrealized appreciation/depreciation, net of tax.

At December 31, 2001, the Company released a $10.2 million tax contingency
reserve which resulted from the establishment of the valuation allowance, at
approximately full value.

The December 31, 2000 valuation allowance related to unrealized losses on the
available-for sale securities. The decrease of $3.0 million during 2000 impacted
other comprehensive income and was included in unrealized
appreciation/depreciation, net of tax. Net deferred tax assets 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 ultimately realizability of deferred tax assets.

At December 31, 2001 and 2000, the Company had current income taxes recoverable
included in other assets of $13.8 million and $11.1 million, respectively. 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 2001, 2000 and 1999 was $7.2 million,
$2.3 million and $8.9 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.  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, 2001,
2000 and 1999.
                                                  2001        2000       1999
                                                --------    --------   --------
                                                         (In thousands)

Balance at beginning of period................  $  3,026    $  3,165   $  2,810
Cost deferred during the period...............    15,086      12,576     13,565
Amortization expense..........................   (13,696)    (12,715)   (13,210)
                                                --------    --------   --------
Balance at end of period......................  $  4,416    $  3,026   $  3,165
                                                ========    ========   ========

13.  COMPREHENSIVE INCOME/(LOSS)


                                                                            F-23
<PAGE>

                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of comprehensive income/(loss), net of related tax, for the years
ended December 31, 2001, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                                            2001       2000       1999
                                                          --------   --------   --------
                                                                  (In thousands)

<S>                                                      <C>         <C>        <C>
Net income/(loss)....................................... $(157,644)  $(36,458)  $ 20,758

Other comprehensive income/(loss):

Unrealized holding appreciation/(depreciation) arising
    during period (net of tax of $0, $13,821 and
    $(23,944), respectively)............................    (4,272)    27,146    (54,273)

  Reclassification adjustment for losses realized in
    net income (net of tax of $3,609, $1,455 and
    $2,370, respectively)...............................     6,703      2,701      4,400
                                                         ---------   --------   --------
  Net unrealized appreciation/(depreciation) arising
    during the period at December 31, (net of tax of
    $3,609, $15,276, and $(21,574), respectively)....... $   2,431   $ 29,847   $(49,873)
                                                         ---------   --------   --------
Comprehensive loss...................................... $(155,213)  $ (6,611)  $(29,115)
                                                         =========   ========   ========
</TABLE>

14.  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, three 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. Pursuant to a former CEO's
separation agreement during 2001, the outstanding stock purchase and loan
balance was reduced by approximately $0.7 million. As part of the separation
agreement, the Company also issued 221,591 phantom stock options, which are
stock appreciation rights, with prices ranging from $7.40 to $13.50, all of
which were immediately exercisable and expire April 13, 2006.

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. During 2001, the
Company granted an additional 40,000 shares of restricted shares of The MIIX
Group common stock, of which 10,000 shares were immediately vested, and 28,560
shares were forfeited.

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, 2001
have exercise prices ranging from $7.45 to $16.06.

                                                                            F-24

<PAGE>

                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                        2001                               2000
                                            ---------------------------        ---------------------------
                                            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.............................       531,435          $12.88             451,500          $13.47
Granted during year....................       707,800            8.12             203,511           11.54
Exercised during year..................           431            7.45                   0            0.00
Forfeited during the year..............       307,535            9.67              54,439           12.31
Expired during the year................        65,200           12.86              69,137           13.29
                                              -------                             -------
Options outstanding at end of year.....       866,069          $10.13             531,435          $12.88
                                              =======          ======             =======          ======

Options exercisable....................       412,087           11.29             230,419           13.21
                                              =======           =====             =======           =====
</TABLE>

FASB Statement No. 123 requires disclosure of the pro forma net income and
earnings per share as if the Company had accounted for its employee stock
compensation under the fair value method of that Statement.

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

                                                           2001          2000
                                                        ----------    ----------

   Estimated weighted average of the fair value of
     options granted................................... $ 2.36        $ 3.56
   Pro forma net loss (in thousands)................... $ (157,838)   $ (36,719)
   Pro forma loss per share - Basic/Diluted............ $ (11.67)     $ (2.60)

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 3.2% to 6.6%;
dividend yields ranging from 1.24% to 2.69%; volatility factors of the expected
market price of the Company's common stock ranging from 35.1% to 48.2%; and a
three-year 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.

15.  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, 2001 and 2000 is computed using the weighted-average
number of common shares outstanding during these periods of 13,524,959 and
14,100,043, respectively. Earnings per share through August 4, 1999, 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.


                                                                            F-25

<PAGE>

                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                                2001       2000       1999
                                                              --------    -------    -------
                                                                      (In thousands)
<S>                                                          <C>         <C>         <C>
Numerator for basic and diluted earnings/(loss) per share
   of common stock:
   Net income/(loss) before cumulative effect of an
     accounting change...................................... $(152,361)  $(36,458)   $20,758
   Cumulative effect of an accounting change for certain
     debt securities, net of tax............................    (5,283)         0          0
                                                             ---------   --------    -------

   Net income/(loss)........................................ $(157,644)  $(36,458)   $20,758
                                                             =========   ========    =======

Denominator:
  Denominator for basic earnings/(loss) per share of
  common stock - weighted-average shares outstanding........    13,525     14,100     13,497

  Effect of dilutive securities:
    Stock options and non-vested restricted stock...........        81         17         37
                                                              --------   --------    -------
    Denominator for diluted earnings/(loss) per share of
    common stock adjusted - weighted-average shares
    outstanding.............................................    13,606     14,117     13,534
                                                              ========   ========    =======

Basic and diluted earnings/(loss) per share of common stock
   before cumulative effect of an accounting change.........  $ (11.27)  $  (2.59)   $  1.54
Cumulative effect of an accounting change for certain
   debt securities..........................................     (0.39)      0.00       0.00
                                                              --------   --------    -------

Basic and diluted earnings/(loss) per share of common stock.  $ (11.66)  $  (2.59)   $  1.54
                                                              ========   ========    =======
</TABLE>

16.  PREFERRED STOCK PURCHASE RIGHTS

On June 27, 2001 the Company's Board of Directors adopted a Stockholder Rights
Plan (the "Rights Plan") and declared a dividend of one Right for every
outstanding share of common stock, par value $0.01, per share, to be distributed
on July 10, 2001 to stockholders of record as of the close of business on that
date. The Rights will expire on June 27, 2011 or upon the earlier redemption of
the Rights, and they are not exercisable until a distribution date on the
occurrence of certain specified events as defined below.

Each right entitles the holder to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock, $0.01 par value at
a price of $35.00 per one-thousandth of a share, subject to adjustments. The
Rights will, on the distribution date, become exercisable ten (10) days after a
public announcement that a party has acquired at least 15% or commenced a tender
or exchange offer that would result in any party or group owning 15% or more of
the Company's outstanding shares of common stock and the acquiring party is
determined by a majority of the Company's directors to be an "Adverse Person" as
defined in the Rights Plan.

Each holder of a Right, other than the "Acquiring Person," as defined in the
Rights Plan, or "Adverse person," will in such event have the right to receive
shares of the Company Common stock having a market value of two times the
exercise price of the Right. In the event that the Company is acquired in a
merger or other business combination, or if more than 50% of the Company's
assets or earning power is sold or transferred, each holder of a Right would
have the right to receive common stock of the acquiring company with a market
value of two times the Purchase Price of the Right. Following the occurrence of
any of these "Triggering Events," any rights that are beneficially owned by an
acquiring person will immediately become null and void. The Company may redeem
the Rights for $0.001 per Right at any time until ten (10) days following the
stock acquisition date.

                                                                            F-26

<PAGE>

                          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 2001
and 2000:

<TABLE>
<CAPTION>
                                                                       2001
                                                     -----------------------------------------
                                                       1ST         2ND        3RD        4TH
                                                     --------    -------    -------    -------
                                                                   (In thousands)
<S>                                                  <C>        <C>        <C>       <C>
Total written premiums.............................  $100,763   $ 23,550   $ 70,993  $  36,640
Net premiums earned................................    44,634     46,468     49,488      6,262
Net investment income..............................    21,310     20,906     19,862     18,115
Realized investment losses.........................     3,019      4,552     (2,216)    (7,539)
Losses and loss adjustment expenses................    45,604     46,438     47,073    111,653
Net income/(loss)..................................  $  6,501   $  1,827   $  2,464  $(168,436)

Basic and diluted earnings/(loss) per share........  $   0.48   $   0.13   $   0.18   $ (12.43)
                                                     ========   ========   ========   ========
Dividend per share of common stock.................  $   0.05   $   0.05   $   0.05   $   0.05
                                                     ========   ========   ========   ========


                                                                       2000
                                                     -----------------------------------------
                                                       1ST         2ND        3RD        4TH
                                                     --------    -------    -------    -------
                                                                   (In thousands)

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

18. SUBSEQUENT EVENTS

During 2002, A.M. Best Company downgraded the financial strength rating of MIIX
and its two subsidiaries, LP&C and MIIX New York, to B- (Fair) with negative
implications from A- (Excellent). The rating action followed the Company's
announcement to strengthen loss reserves at December 31, 2001. On March 22,
2002, A.M. Best again lowered the rating of the Company to C+ (Marginal), with
outlook continuing to be negative, from B- (Fair). These downgrades have
resulted in certain reinsurers requests to place assets in trust in accordance
with the Company's Aggregate Reinsurance Contracts. See Note 6.

In March, 2002, the Company announced its intention to place all operations of
LP&C into run-off. In addition, the Company announced its intention to limit
MIIX's insurance writings to New Jersey and certain Mid-Atlantic states and no
longer write institutional business. As a result, other business will be written
only as required by contractual provisions or regulation. Regional offices in
Dallas, Texas and Indianapolis, Indiana were closed in March, 2002, as part of
the run-off plan. A restructuring charge associated with these closures and
other actions is expected to be recorded in the period ended March 31, 2002. The
amount of the charge is not yet determined.

During February, 2002, The MIIX Group Board of Directors suspended the payments
of dividends to shareholders. Future payments and amounts of cash dividends will
depend upon, among other factors, the Company's operating results, overall
financial condition, capital requirements and general business conditions.

On March 9, 2002, The Job Creation and Worker Assistance Act of 2002 was enacted
into law. This act amends the carryback of certain net operating losses to five
years and temporarily suspends the 90% Alternative Minimum Tax (AMT) Limit. The
amendment applies to net operating losses for taxable years ending December 31,
2001 and 2002. As a result of this act, the Company will record a current income
tax receivable with

                                                                            F-27
<PAGE>

                          THE MIIX GROUP, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a corresponding income tax benefit of approximately $11.0 million in the first
quarter of 2002.

On March 8, 2002, the MIIX Group executed a letter of intent to sell its leasing
subsidiary, Hamilton National Leasing Corporation. The sale transaction is
expected to close during the second quarter of 2002. The Company expects to
receive proceeds from the sale of Hamilton Leasing sufficient to repay the $18.1
million intercompany note between Hamilton and MIIX Insurance Company, and repay
a substantial portion of the Amboy National Bank loan (See Notes 4 and 9).


















                                                                            F-28
<PAGE>

                                   SCHEDULE I

       SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
                                DECEMBER 31, 2001
                          The MIIX Group, Incorporated
                                 (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..................................  $   54,495    $   55,038      $   55,038
  States, municipalities and political subdivisions...     123,079       122,082         122,082
  Public utilities....................................      57,975        57,526          57,526
  Foreign securities--U.S. dollar denominated.........      35,942        35,553          35,553
  All other corporate bonds...........................     790,008       784,735         784,735
                                                        ----------    ----------      ----------
     Total fixed maturities...........................  $1,061,499    $1,054,934      $1,054,934
                                                        ----------    ----------      ----------
Equity securities:
  Common stock:
     Banks, trusts and insurance companies............       4,211         3,475           3,475
     All other corporate stock........................       2,870         3,148           3,148
     Foreign stocks...................................           0             0               0
                                                        ----------    ----------      ----------
     Total equity securities..........................  $    7,081    $    6,623      $    6,623
                                                        ----------    ----------      ----------
Short-term investments................................  $  166,501    $  166,501      $  166,501
                                                        ----------    ----------      ----------

Total investments.....................................  $1,235,081    $1,228,058      $1,228,058
                                                        ==========    ==========      ==========
</TABLE>











                                                                            F-29
<PAGE>

                                   SCHEDULE II

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                             --------------------
                                                               2001        2000
                                                             --------   ---------
<S>                                                          <C>         <C>
Assets:
  Investments
  Equity investments, at fair value
     (cost: 2001 - $2,614; 2000 - $2,614)................... $  1,846    $  1,752
  Short-term investments, at cost which approximates
     fair value.............................................      108         131
  Investment in subsidiaries................................  145,474     296,846
                                                             --------    --------
          Total investments.................................  147,428     298,729

  Cash......................................................       (5)         10

  Other assets..............................................      533         874
                                                             --------    --------
          Total assets...................................... $147,956    $299,613
                                                             ========    ========

Liabilities:
  Due to subsidiaries....................................... $  4,413    $  2,378
  Loan Payable..............................................    9,050       7,500
  Other liabilities.........................................    3,007         294
                                                             --------    --------
          Total liabilities................................. $ 16,470    $ 10,172
                                                             --------    --------

  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
     (2001 - 13,479,760 shares outstanding;
     2000 - 13,563,938 shares outstanding)..................      166         166
  Additional paid-in capital................................   53,927      53,716
  Retained earnings.........................................  129,307     289,655
  Treasury stock, at cost (2001 - 3,058,245 shares;
     2000 - 2,974,067 shares)...............................  (39,631)    (38,897)
  Stock purchase loans and unearned stock compensation......   (5,444)     (5,929)
  Accumulated other comprehensive income/(loss).............   (6,839)     (9,270)
                                                             --------    --------
          Total stockholders' equity........................ $131,486    $289,441
                                                             --------    --------

          Total liabilities and stockholders' equity........ $147,956    $299,613
                                                             ========    ========
</TABLE>



                                                                            F-30
<PAGE>

                                   SCHEDULE II

           CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)

                          The MIIX Group, Incorporated
                         Condensed Statements of Income

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                         --------------------------------
                                                           2001        2000        1999
                                                         --------    --------    --------
                                                                  (In thousands)
<S>                                                      <C>         <C>         <C>
         Net investment income.......................... $    285    $    382    $    711
         Other Income...................................       10           0           0
       Realized investment gains/(losses).............          0        (345)        138
         Other expenses.................................   (2,371)       (858)       (852)
                                                         --------    --------    --------
         Loss before federal income taxes and equity
           in income of subsidiaries....................   (2,076)       (821)         (3)

         Tax provision/(benefit)........................    1,556        (475)        (11)
                                                         --------    --------    --------

         Earnings/(loss) before equity in income of
           subsidiaries.................................   (3,632)       (346)          8
         Equity in income/(loss) of subsidiaries........ (154,012)    (36,112)     20,750
                                                        ---------    --------    --------
                 Net income/(loss)......................$(157,644)   $(36,458)   $ 20,758
                                                        =========    ========    ========
</TABLE>






                                                                            F-31
<PAGE>

                                   SCHEDULE II

           CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)

                          The MIIX Group, Incorporated
                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                            YEARS ENDED DECEMBER 31,
                                                                        -------------------------------
                                                                          2001        2000       1999
                                                                        --------    --------   --------
                                                                              (In thousands)
<S>                                                                   <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)....................................................  $(157,644)  $(36,458)   $ 20,758

Adjustments to reconcile net income to net cash provided by operating
   activities:
Realized investment (gains)/losses...................................          0        345        (138)
Change in payable to subsidiaries....................................      2,035      2,016         362
Net change in other assets and liabilities...........................      2,713     (1,652)        857
Equity in undistributed income of subsidiaries.......................    154,012     36,112     (20,750)
                                                                       ---------   --------    --------
Net cash provided by operating activities............................      1,116        363       1,089
                                                                       ---------   --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed maturity investment sales.........................         0          0       2,915
Proceeds from equity sales............................................         0      2,860       1,553
Cost of investments acquired..........................................         0          0     (10,148)
Purchase of subsidiary................................................         0          0        (100)
Change in short-term investments, net.................................        23     11,719     (11,850)
                                                                       ---------   --------    --------
Net cash provided by/(used in) investing activities..................        23     14,579     (17,630)
                                                                       ---------   --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering, net of
   offering and reorganization costs..................................         0          0      37,350
Purchase of treasury stock............................................        (0)   (19,648)    (19,249)
Cash dividends to stockholders........................................    (2,704)    (2,784)     (1,560)
Notes payable and other borrowings....................................     1,550      7,500           0
                                                                       ---------   --------    --------

Net cash provided by/(used in) financing activities..................    (1,154)   (14,932)     16,541
                                                                       ---------   --------    --------

Net change in cash....................................................       (15)        10           0

Cash at beginning of period...........................................        10          0           0
                                                                       ---------   --------    --------

Cash at end of period................................................. $      (5)  $     10    $      0
                                                                       =========   ========    ========
</TABLE>




                                                                            F-32
<PAGE>

                                   SCHEDULE II

           CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)

                          The MIIX Group, Incorporated

                     Notes to Condensed Financial Statements
                                December 31, 2001

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 Insurance Company (MIIX) and became a wholly owned subsidiary of The MIIX
Group, Incorporated (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 condensed financial statements, investment in subsidiaries
is stated at cost plus equity in undistributed earnings of subsidiaries since
date of acquisition. The MIIX Group's condensed financial statements should be
read in conjunction with the consolidated financial statements, in particular
see Notes 4 and 9.










                                                                            F-33
<PAGE>

                                   SCHEDULE V

                          The MIIX Group, Incorporated

                        Valuation and Qualifying Accounts
                                                  (in thousands)

<TABLE>
<CAPTION>
                                      Balance at
                                     beginning of      Charged to                                        Balance at end
                                        period            costs         Charged to                          of period
                                      January 1,           and             other                           December 31,
          Description                    2001            expenses        accounts       Deductions             2001
---------------------------------    --------------    ------------    ------------   --------------    -----------------
<S>                                          <C>           <C>             <C>                  <C>           <C>
Deferred tax valuation
    allowance...................             612           91,827          2,690                0             95,129 (a)

Direct financing leases -
    allowance for doubtful
    accounts....................             521              460              0              228                753 (a)

Premium receivable..............              58               75              0                0                133 (a)

Reinsurance allowance...........           1,300                0              0            1,300                  0 (a)

</TABLE>

(a) Deducted from the asset section in the balance sheet










                                                                            F-34