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, 2002

               |_|  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. |_|

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

                                 YES |_|  NO |X|

      The aggregate market value on June 30, 2002 of the voting stock held by
non-affiliates of the registrant was $11,161,031.

      As of March 21, 2003, the number of outstanding shares of the Registrant's
Common Stock was 14,564,143.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held May 8, 2003 ("Proxy Statement") are incorporated by
reference in Part III.

<PAGE>

THE MIIX GROUP, INCORPORATED
2002 FORM 10-K
TABLE OF CONTENTS

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

ITEM 1.  BUSINESS......................................................................2
ITEM 2.  PROPERTIES...................................................................27
ITEM 3.  LEGAL PROCEEDINGS............................................................28
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................29

PART II...............................................................................29

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........29
ITEM 6.  SELECTED FINANCIAL DATA......................................................30
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATION.....................................................32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................46
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................46
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.........................................................46

PART III .............................................................................46

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........................46
ITEM 11. EXECUTIVE COMPENSATION.......................................................46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................47
ITEM 14. CONTROLS AND PROCEDURES......................................................47

PART IV  .............................................................................47

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..............47

SIGNATURES ...........................................................................54

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


                                                                               1
<PAGE>

                           FORWARD-LOOKING STATEMENTS

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
Stockholders, 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. In particular, the
success of the Company's business plan is subject to the Company's continuing
ability to avoid liquidation or rehabilitation of its New Jersey insurance
subsidiary. Other risks and uncertainties include, but are not limited to, the
Company having sufficient liquidity and working capital, the Company's ability
to diversify its product lines, the continued adequacy of the Company's loss and
loss adjustment expense ("LAE") reserves, the Company's avoidance of any
material loss on collection of reinsurance recoverables, the loss of MIIX
Advantage Insurance Company of New Jersey ("MIIX Advantage") as a customer,
continued or increased loss severity in the insurance industry generally and
among its insureds in particular, general economic conditions, including
changing interest rates, rates of inflation and the performance of the financial
markets and its effects on the investment portfolios of its insurance
subsidiaries, judicial decisions and rulings, changes in domestic and foreign
laws, regulations and taxes, effects of acquisitions and divestitures, and
various other factors. These and other risks and uncertainties are discussed in
more detail below under "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Risks and Uncertainties." The words
"believe," "expect," "anticipate," "project," and similar expressions identify
forward-looking statements. The Company's expectations regarding future values
expected or believed to be realized through the implementation of its current
business plan, including through the management of the runoff of its insurance
business and business arrangements with MIIX Advantage, earnings, initiatives,
underwriting, cost controls, adequacy of loss and LAE reserves, and realizing
shareholder value depend on a variety of factors, including economic,
competitive, market, legal and regulatory conditions which may be beyond the
Company's control and are thus difficult or impossible to predict. In light of
the significant uncertainties inherent in the forward-looking information
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the Company's objectives
or plans will be realized. 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 Medical Inter-Insurance Exchange
of New Jersey (the "Exchange") was consummated according to a Plan of
Reorganization. The Exchange was originally organized as a New Jersey reciprocal
insurance exchange in 1977. 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 ("Underwriters");
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 Underwriters. 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."


                                       2
<PAGE>

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

For purposes of this Annual 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. "MIIX" refers to MIIX Insurance Company.

The Company's business is subject to a number of business risks and
uncertainties, including the following:

o     The New Jersey Insurance Commissioner has the authority to place MIIX in
      supervision, rehabilitation or liquidation.
o     If the Company establishes inadequate loss and LAE reserves, the Company
      may face further regulatory action, including supervision, rehabilitation
      or liquidation of MIIX.
o     Indemnity payments in medical professional liability cases are rising and
      there is a risk that a very high jury award could be rendered against the
      Company.
o     The volatility of the capital markets may erode the value of the Company's
      investment portfolio.
o     The Company's reinsurance coverage could be impacted by continued
      operating losses or additional loss and allocated LAE adjustments.
o     The Company's common stock may be delisted from the New York Stock
      Exchange.
o     The Company may not receive approval from the New Jersey Insurance
      Commissioner to diversify its business.
o     The Company may not be able to retain the key employees necessary to
      operate.
o     The Company may not be able to maintain adequate cash flow and liquidity.
o     The Company is subject to litigation that could have a material adverse
      effect on its financial condition.

These risks and uncertainties are discussed in more detail below under
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Risks and Uncertainties."

OVERVIEW

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

Based on direct premiums written in 2001, the Company was a leading provider of
medical professional liability insurance in New Jersey and was ranked 11th among
medical professional liability insurers in the United States. In 2002, the
Company insured approximately 5,000 physicians and other medical professionals
who practice alone, in medical groups, clinics or in other health care
organizations. The Company also insured more than 23 hospitals, extended care
facilities and other health care organizations. The Company's business had
historically been concentrated in New Jersey but expanded to other states from
1991 to 2000. In 2002, the Company wrote policies in 24 states and the District
of Columbia. In 2002, approximately 21% of the Company's total direct premiums
written were generated outside of New Jersey, compared to 51% in 2001 and 49% in
2000. In addition to servicing current policyholders and processing claims, the
Company, to a small degree, also offered complementary insurance products to its
insureds and operated other fee-based consulting and service businesses.

In 2001, total medical professional liability direct premiums written in the
United States were approximately $7.3 billion, according to data compiled by
A.M. Best, an insurance


                                                                               3
<PAGE>

rating agency, and in New Jersey were approximately $322.2 million, according to
data compiled by OneSource Information Services, Inc. ("OneSource"), an online
data service. The Company's market share of such direct premiums written was
3.1% in the United States according to data compiled by A.M. Best and 35.0% in
New Jersey according to data compiled by OneSource. In 2002, medical malpractice
insurance accounted for approximately 99.5% of the Company's direct premiums
written.

The Company had total revenues and a net loss of $165.0 million and $116.0
million, respectively, in 2002, total revenues and a net loss of $233.3 million
and $157.6 million, respectively, in 2001 and total revenues and net loss of
$272.5 million and $36.5 million, respectively, in 2000. As of December 31,
2002, the Company had total assets of $1.6 billion and total shareholders'
equity of $41.3 million.

RECENT DEVELOPMENTS

The Company was subjected to a number of adverse developments during fiscal 2002
as a result of unexpected and unprecedented increases in loss severity during
fiscal 2002, 2001 and 2000 related to prior years' business.

In each of the last three 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 "Business - Loss and LAE Reserves,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Risks and Uncertainties -- If The Company Establishes Inadequate
Loss and LAE Reserves, The Company May Face Regulatory Action, Including
Supervision, Rehabilitation or Liquidation of MIIX" and "Indemnity Payments in
Medical Professional Liability Cases are Rising and There is a Risk that a Very
High Jury Award Could Be Rendered Against the Company."

As a result of the net losses reported in 2001, the Risk Based Capital ("RBC")
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 ("NAIC"). Both companies triggered RBC
events requiring the filing of a corrective action plan with each state of
domicile. As a result, both companies entered solvent runoff.

After ceasing to write new insurance policies in 2002, the Company's business
consisted principally of managing the runoff of existing claims, managing the
Company's investment portfolio, and managing the operations of a newly formed
New Jersey insurance company, MIIX Advantage. In addition, the Company 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, in its Lawrenceville home office. See "Business
-- Employees."

At December 31, 2002, MIIX's RBC was $18.7 million, which is below the Mandatory
Control Level, and therefore triggered another RBC event). At this level, the
Insurance Commissioner of the New Jersey Department of Banking and Insurance is
authorized to place MIIX in supervision, rehabilitation or liquidation.
Insurance regulations permit the Insurance Commissioner to allow an insurer,
like MIIX, that is writing no new insurance policies and which is running off
its existing insurance policies, to continue its runoff under the supervision of
the Commissioner, however, no assurance can be given that the Commissioner will
allow MIIX to continue to runoff its business. MIIX has requested approval from
the New Jersey Department of Banking and Insurance to discount loss and LAE
reserves and to merge LP&C into MIIX as of December 31, 2002. Similarly, LP&C
has requested approval from the Virginia Bureau of Insurance to merge LP&C into
MIIX. Pending a decision on these requests, the New Jersey Department of Banking
and Insurance and the Virginia Bureau of Insurance have granted each company
extensions to file their respective annual statutory financial statements.

MIIX's RBC level will not be impacted by the ability to discount loss and LAE
reserves as the NAIC standards do not permit discounting of loss and LAE
reserves to be taken into account in the determination of RBC. Discounting of
reserves will facilitate the New Jersey Department of Banking and Insurance's
ability to assess the continued viability of MIIX on a basis that recognizes the
long payout period of claims and matches investments and loss and LAE reserves
on a comparable economic basis. The merger will result in combining the
statutory surplus of MIIX and LP&C for purposes of determining MIIX's RBC. If
the Virginia and New Jersey regulatory authorities permit the merger, LP&C's RBC
could be included in the final determination of MIIX's RBC. At December 31,
2002, LP&C's RBC was $23.7 million, at approximately 276% of Authorized Control
Level ($8.6 million), which is


                                                                               4
<PAGE>

above the acceptable level under RBC rules. The Company cannot provide assurance
that the New Jersey and Virginia regulatory authorities will grant MIIX's and
LP&C's requests to discount loss and LAE reserves or to merge LP&C into MIIX.
See "Business - 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 that
it would 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 reflected A.M. Best's view concerning the Company's weakened
capitalization and the potential negative impact of further adverse loss reserve
development. During the second quarter of 2002, the Company withdrew from A.M.
Best's interactive rating system. . See "Business - Regulation - A.M. Best
Ratings" and "Business - Loss and LAE Reserves."

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. The credit
facility, which terminated May 17, 2002, had a fixed interest rate of 8.0% per
annum. The Company had pledged 100% of MIIX stock as collateral under the credit
facility. As of May 17, 2002, the Company had borrowed approximately $9.1
million against the credit facility, which was included in notes payable and
other borrowings on the consolidated balance sheet, and incurred interest
expense on the loan of approximately $286,000 during 2002. As of May 17, 2002,
the Company had fixed-maturity investments in Amboy National Bank of
approximately $9.1 million earning a fixed interest rate of 6% per annum. A
former CEO of the Company 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 were as fair to the Company as could have been obtained from an
unaffiliated third party. The Company, on May 23, 2002, repaid the $9.1 million
loan balance largely with the proceeds from the sale of substantially all the
net assets of Hamilton National Leasing Corporation ("HNL") and the credit
facility was closed. The Company's $9.1 million fixed-maturity investments in
Amboy National Bank matured and the funds were reinvested in short-term
securities.

The Company was advised by the NYSE on July 19, 2002 that it no longer satisfied
two of the applicable listing criteria and that its stock was subject to
delisting. In response, the Company submitted a business plan to the NYSE and
received the NYSE's approval of the plan. However, the Company remains subject
to oversight by the NYSE for 18 months. In March 2003, the Company received a
notice from the NYSE stating that it no longer satisfied one of the listing
criteria and that its stock was subject to delisting. The Company is considered
"below criteria" because its total market capitalization and stockholders'
equity are below $50 million as of December 31, 2002. If the Company is unable
to comply with these listing standards, its Common Stock will be delisted from
the NYSE. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Risks and Uncertainties -- The Company's Common Stock May
be Delisted from the New York Stock Exchange."

On August 28, 2002, The MIIX Group, MIIX and Underwriters entered into a series
of agreements with MIIX Advantage and its parent company, MIIX Advantage
Holdings, Inc. ("MIIX Holdings") relating to the purchase by MIIX Advantage of
insurance policy renewal rights from MIIX and the use of the "MIIX" name by both
MIIX Advantage and MIIX Holdings. In addition, the Company, through
Underwriters, also agreed to provide certain management services to MIIX
Advantage and MIIX Holdings. See "Business Strategy -- Third Party Management
Services."

The Report of Independent Auditors on the Company's 2002 financial statements
contains a going concern emphasis paragraph, which primarily reflects the
potential negative impact of further adverse loss reserve development, current
regulatory limitations and any potential regulatory action by Insurance
Departments having jurisdiction over the Company's insurance subsidiaries. See
"Financial Statements - Report of Independent Auditors."

During 2002, the Company engaged financial advisors to assist it in obtaining
offers for the Company's assets. No viable offers to make a significant
investment in the Company or to purchase all of its Company were received.
However, the Company continues to be interested in entertaining any and all
offers by any interested parties for its assets and/or for investment in the
Company.

On February 19, 2003, MIIX agreed to certain operating limitations with the New
Jersey Department of Banking and Insurance. The limitations include a
requirement for approval by the New Jersey Department of Banking and Insurance
prior to MIIX incurring new debt, paying dividends or investing in below
investment grade assets. Upon completion of the annual statutory financial
statements, it is probable that the New Jersey Department of


                                                                               5
<PAGE>

Banking and Insurance will initiate additional regulatory actions. See "Business
-Regulation - Risk-Based Capital", "Business - Claims" and "Business - Business
Strategy."

BUSINESS STRATEGY

Profitable Solvent Runoff. The Company's primary strategy is to manage its
insurance operations as effectively, efficiently, and profitably as possible.
Thus the Company is focused on servicing policyholders, processing claims and
managing the investment portfolio. The Company believes that if the regulators
operate the Company's runoff, they will focus primarily on protection of MIIX's
policyholders, which may not benefit the Company's stockholders.

The results of runoff insurance operations will primarily be impacted by the
trends in the legal and medical environments and the resultant impact on
recorded loss and LAE reserves. Continuing adverse trends in loss severity in
the Company's primary markets and the requirement to record additional loss and
LAE reserve adjustments could have a material adverse impact on the ultimate
profitability of the runoff. The Company has recorded over $1.1 billion of gross
loss and LAE reserves at December 31, 2002. The Company cannot assure
stockholders that it will be permitted by the New Jersey Insurance Commissioner
to manage the runoff of the insurance operations of MIIX. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation - Risks
and Uncertainties -- The New Jersey Insurance Commissioner Currently Has the
Authority to Rehabilitate or Liquidate MIIX."

Third Party Management Services. In addition to managing the runoff through
effective claim processing and investment portfolio management, the Company also
entered into management services and other agreements with a recently formed New
Jersey insurance company, MIIX Advantage. The agreements provide for the Company
to manage the operations of MIIX Advantage, to earn revenue from insurance
policy renewals in New Jersey and from the use of the MIIX name. The agreements
with MIIX Advantage and MIIX Holdings include: (a) a Management Services
Agreement, (b) a Non-Competition and Renewal Rights Agreement, (c) an
Intellectual Property License Agreement, and (d) a Reimbursement Agreement. The
material terms of the agreements are described below.

Pursuant to the Management Services Agreement, Underwriters will provide
management and operational services to MIIX Advantage, including, but not
limited to, executive and administrative services, premium collections, legal
services, claims administration, underwriting services and various other value
added services. The Management Services Agreement provides for an initial term
of eight years, which may be extended for additional five-year terms. In
exchange, MIIX Advantage agreed to pay Underwriters an amount equal to the
direct costs incurred by Underwriters in providing the services, an allocated
amount of overhead costs and an incentive payment based on the ratio of MIIX
Advantage's operating expenses to premium revenues.

Pursuant to the Non-Competition and Renewal Rights Agreement, (i) the Company
and its affiliates agreed not to compete with MIIX Advantage and MIIX Holdings
in connection with its New Jersey physician insurance business, (ii) MIIX
Advantage is permitted to issue insurance policies to MIIX's former
policyholders after their current policies expire, and (iii) MIIX Advantage
agreed not to engage in activities other than providing medical professional
liability and associated general liability insurance to eligible New Jersey
physicians. In exchange, MIIX Advantage agreed to pay to the Company a
commission for each MIIX Advantage policy issued to a former policyholder of
MIIX. The amount paid to the Company for each policy will be (i) ten percent
(10%) of the gross written premiums received by MIIX Advantage, if no other
commissions are payable by MIIX Advantage to an unaffiliated broker with respect
to the policy, or (ii) three percent (3%) of the gross written premiums received
by MIIX Advantage, if any other commissions are payable by MIIX Advantage to an
unaffiliated broker. MIIX Advantage has agreed to use its best efforts to issue
insurance policies to MIIX's former policyholders after their current policies
expire.

Pursuant to the Intellectual Property License Agreement, MIIX Holdings, the
parent of MIIX Advantage, and MIIX Advantage may use the "MIIX" name, associated
service marks and certain other intangible assets of Underwriters (which holds
the intellectual property assets of the Company), in connection with providing
medical professional liability and associated general liability insurance to
eligible New Jersey physicians.

MIIX Advantage paid an aggregate amount of $3.7 million under these agreements
in 2002.


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<PAGE>

Pursuant to the Reimbursement Agreement, MIIX Advantage has agreed to reimburse
MIIX for the organizational expenses of MIIX Advantage and MIIX Holdings paid by
MIIX. Reimbursement is required in four payments over three years.

The Company intends to propose to the New Jersey Department of Banking and
Insurance to expand its third party operations, including service and consulting
arrangements with insurers and other health care providers. There is no
assurance, however, that the Department will approve this proposal.

PRODUCT OFFERINGS

The Company no longer offers insurance policies in New Jersey as of September 1,
2002 and in all other states in accordance with each state's regulatory
requirements. Prior to this time, the Company's core products included 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 offered a form of occurrence-like coverage, "modified
claims made," from 1987 to August 31, 2002. The Company's modified claims made
policy is called the Permanent Protection Plan (the "PPP"). Under the PPP,
coverage is provided for claims reported to the Company during the policy period
arising from incidents since inception of the policy. The PPP included "tail
coverage" for claims reported after the expiration of the policy for occurrences
during the policy period. The premium for tail coverage was included as part of
the annual premium, and the insured physician automatically received tail
coverage when the policy was 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, the Company offered each renewing policy on a claims made
basis. In other states, the Company issued policies primarily on a claims made
coverage basis to physicians. Tail coverage was 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 was collected at the
time such endorsement was purchased by the insured. The Company offered policy
limits up to $5,000,000 per incident and $7,000,000 in the aggregate for
individual physicians.

Substantially all of the Company's policies were 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 were recorded as earned over the life of
the policy period. The PPP policy provides occurrence-like coverage and,
accordingly, the premiums were earned in the period the policy was 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,
                                       ------------------------------------------------------------------------
                                               2002                     2001                      2000
                                       ---------------------    ----------------------     --------------------
                                                                   (In thousands)
                                                     % of                      % of                      % of
                                          $          total         $           total          $         total
                                       ---------    --------    ---------     --------     --------     -------
<S>                                    <C>            <C>       <C>             <C>        <C>           <C>
Professional Liability Products
Occurrence/Occurrence-like             $ 72,383        75%      $123,331         54%       $126,323       60%

Claims Made                              23,317        24%       105,235         45%         83,427       39%

Other Products                              509         1%         2,984          1%          2,404        1%
                                       --------       ---       --------        ---        --------      ---

Direct Premiums Written                $ 96,209       100%      $231,550        100%       $212,154      100%
                                       ========       ===       ========        ===        ========      ===
</TABLE>


                                                                               7
<PAGE>

MARKETING AND POLICYHOLDER SERVICES

The Company employed various strategies for marketing its products and providing
policyholder services. In New Jersey, the Company marketed 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 had the endorsement of numerous medical
associations. In addition to these direct marketing channels, the Company sold
its products through independent brokers and agents who produced approximately
36% of the Company's direct premiums written in New Jersey.

Outside New Jersey, the Company marketed its products exclusively through
independent brokers and agents. In 2002, 116 independent brokers and agents
actively marketed the Company's products in 24 states and the District of
Columbia and produced approximately 51% of the Company's direct premiums
written. No national broker or regional agency accounted for more than 6% of the
Company's year-end direct premiums written. Brokers and agents received market
rate commissions and may have received other incentives based on the business
they produced prior to 2002.

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

UNDERWRITING

Subsequent to August 31, 2002 in New Jersey and in all other states in
accordance with each state's specific nonrenewal requirements, underwriting
activities were limited to issuance of endorsements and tail coverage on
existing policies. Prior to that time, the Company maintained all underwriting
authority at its home office.

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

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

The Underwriting Department met 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 was composed of senior
officers of the Company. The Company maintained quality control through periodic
audits at the underwriting and processing levels.


                                                                               8
<PAGE>

PRICING

The Company established, through its underwriting and actuarial staff, rates and
rating classifications for its insureds based on loss and LAE experience it had
developed and on other relevant information. The Company had various rating
classifications based on practice location, medical specialty and other factors.
The Company established its pricing for large groups based on recognized
actuarial techniques to analyze the experience of these insureds. With the
exception of endorsements and tail coverage, as of September 1, 2002, the
Company no longer prices insurance policies for its insurance subsidiaries.

CLAIMS

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

Litigation defense is provided almost exclusively by private law firms with
lawyers whose primary focus is defending malpractice cases.

The claims representatives at the Company have on average more than 10 years of
experience handling medical professional liability cases.

The claims operation is assisted in its efforts by a 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.

LOSS AND LAE RESERVES

The Company ceased writing medical malpractice insurance policies in New Jersey
as of September 1, 2002 and in all other states in accordance with each state's
specific requirements. The discussion below pertains to the loss and LAE
reserves of the Company's insurance business which is currently in runoff.

Loss reserves recorded by the Company include estimates of amounts owed for
losses and for LAE. LAE consists of two types of costs, 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 Claims 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 quarterly actuarial analyses. 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 Claims
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


                                                                               9
<PAGE>

prior years, could have a material 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 the supervision, rehabilitation or liquidation of the Company.

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
make up a substantial portion of 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 affected 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 offered a form of occurrence-like coverage,
"modified claims made," from 1987 to August 31, 2002. The Company's modified
claims made policy was the PPP. See "Business -- Product Offerings." Under the
PPP, coverage was provided for claims reported to the Company during the policy
period arising from incidents since inception of the policy. The PPP included
"tail coverage" for claims reported after expiration of the policy for
occurrences during the policy period, and thus was 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 constituted
approximately 65% of the gross loss and LAE reserves at December 31, 2002.

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, 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
December 31, 2002                 750,175          65.1%       395,774      34.4%        5,686       0.5%       1,151,635
</TABLE>

As displayed in the above table, the proportion of the gross loss and LAE
reserves held on claims made medical professional liability policies has grown
from 24.7% of total gross loss and LAE reserves held at December 31, 2000 to
34.4% at December 31, 2002. This has primarily been the result of the Company's
claims made policy form writings during 1997 through 2002. The Company ceased
writing medical malpractice insurance policies in New Jersey as of September 1,
2002 and in all other states in accordance with each state's specific
requirements. New Jersey physician business was primarily written under the
occurrence-like PPP policy. The majority of policies sold in the Company's
expansion states were claims made.

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

          Components of Gross Loss and Loss Adjustment Expense Reserves
                                 (In thousands)

<TABLE>
<CAPTION>
                                Loss and                   Loss and                                             Total
                                ALAE Case      % of        ALAE IBNR      % of          ULAE        % of        Gross
                                Reserves       Total       Reserves       Total       Reserves      Total      Reserves
                                ---------      ------      ---------      ------      --------      -----     ----------
<S>                              <C>            <C>         <C>            <C>        <C>            <C>      <C>
Gross Reserves Held as of:
December 31, 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
December 31, 2002                 436,873       37.9%        696,287       60.5%       18,475        1.6%      1,151,635
</TABLE>


                                                                              10
<PAGE>

The Company 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 20 years ago.

The following table illustrates the amount and percentage of gross loss and LAE
reserves held by the Company at December 31, 2002 categorized by year.

        Gross Loss and Loss Adjustment Expense Reserves By Coverage Year
                             As of December 31, 2002
                                 (In thousands)

Coverage Year                                   Gross Reserves      % of Total
----------------------------------------------  --------------    ------------

1977-92.....................................    $     29,061           2.5%
1993........................................          10,354           0.9%
1994........................................          17,602           1.5%
1995........................................          25,516           2.2%
1996........................................          44,905           3.9%
1997........................................          77,139           6.7%
1998........................................         146,443          12.7%
1999........................................         205,049          17.8%
2000........................................         220,922          19.2%
2001........................................         226,679          19.7%
2002........................................         147,965          12.9%
                                                ------------         ------
Total Gross Reserves held by the Company....    $  1,151,635         100.0%
                                                ============         ======

As shown in the above tables, at December 31, 2002, approximately 65% of gross
reserves are occurrence based; over 60% of gross reserves are IBNR reserves; and
approximately 82% of gross reserves relate to the most recent five coverage
years, which are the most immature (and therefore the most subject to
variability) in terms of loss development.

The Company sets and adjusts financial statement loss and LAE reserves beginning
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 establishing the IBNR component of the financial
statement reserves.

The determination of loss and LAE reserves involves the projection of ultimate
loss and ALAE through various actuarial techniques, including:

o     Incurred Development Method
o     Bornhuetter-Ferguson Method
o     Frequency-Severity Method
o     ALAE-to-Indemnity Ratio Method
o     Audit Method

ULAE reserves are projected through a Paid-to-Paid Ratio Method.

A brief description of each of these follows:

o     Incurred Development Method: Historical patterns of loss and ALAE
      emergence are observed and selections of period-to-period development
      factors are made to estimate the relative development within a Coverage
      Year from one maturity point to the next. These selected factors are
      applied to the latest reported incurred loss and ALAE amounts for each
      Coverage Year. This method is used mainly for relatively mature Coverage
      Years.
o     Bornhuetter-Ferguson Method: This method relies on the assumption that the
      remaining unreported loss and ALAE amounts are a function of the total
      expected amounts rather than a function of the latest reported incurred
      loss and ALAE amounts. Expected future development amounts are added to
      current reported incurred loss and ALAE amounts for each Coverage Year.
      The expected future development amounts for each Coverage Year are derived
      by multiplying an a-priori expected ultimate loss and ALAE amount by the


                                                                              11
<PAGE>

      estimated percentage of ultimate loss and ALAE unreported, to date. This
      percentage is based on the factors selected within the Incurred
      Development Method. The a-priori expected ultimate loss and ALAE amount is
      derived via either of two approaches: (1) it is assumed to match the prior
      quarter's selected ultimate loss and ALAE amount; or (2) it is based upon
      a more-mature Coverage Year's selected ultimate loss and ALAE amount as a
      ratio to earned premium, the current Coverage Year's earned premium, and
      estimated effects of rate and mix-of-business differences between the
      more-mature and current Coverage Years. This method is used mainly for
      relatively immature Coverage Years.
o     Frequency-Severity Method: Ultimate reported claim counts and ultimate
      average loss and ALAE per claim are projected separately, and then
      multiplied together. Ultimate claim counts are derived in a manner similar
      to the Incurred Development Method; however, the implied ultimate claim
      counts are analyzed as ratios to exposure level to achieve implied
      frequencies. Final frequencies are selected judgmentally and multiplied by
      the exposure measure to obtain final ultimate reported claim counts.
      Ultimate average loss and ALAE per claim are derived through curve-fitting
      techniques in which the a-priori parameters are the estimated ultimate
      reported claim counts and ultimate loss and ALAE amounts achieved via
      another method. Selected curve fits are extrapolated to more recent
      Coverage Years for which credible severity information may not yet exist.
      This method is used mainly for relatively immature Coverage Years.
o     ALAE-to-Indemnity Ratio Method: This method is only used to estimate
      ultimate ALAE amounts when loss and ALAE are projected independently. Both
      ALAE and Indemnity amounts must have been projected to ultimate using
      other methodologies. Then ratios of (Ultimate ALAE)-to-(Ultimate
      Indemnity) are calculated for each Coverage Year, and appropriate ratios
      are judgmentally selected for each year. More mature Coverage Years serve
      as a basis for the selections in immature years. Then, the selected ratios
      are multiplied by the ultimate indemnity amounts. This method is used
      mainly for relatively immature Coverage Years.
o     Audit Method: Claims personnel review individual claims and estimate their
      ultimate loss and ALAE amounts based on their specific characteristics.
      This method is mainly used for segments of the business with low frequency
      and high severity exposures.
o     Paid-to-Paid Ratio Method: Historical ratios of (Paid ULAE)-to-(Paid
      Indemnity and ALAE) are calculated and serve as a basis for the judgmental
      selection of a corresponding ratio to be expected in the future. This
      ratio is applied to the estimated Indemnity and ALAE reserves.

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 the current year and 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, the RBC of MIIX and LP&C and other regulatory trigger
points or results of operations and possibly result in the Company's insolvency.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation - Risks and Uncertainties."


                                                                              12
<PAGE>

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

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                     --------------------------------------
                                                       2002           2001           2000
                                                     --------       --------       --------
                                                                 (In thousands)
<S>                                                <C>            <C>            <C>
Balance as of January 1, gross of reinsurance
  recoverable...................................   $1,196,998     $1,142,530     $1,053,597

Incurred related to:
     Current year...............................      150,612        230,399        276,261
     Prior years................................      161,207        117,881         47,212
                                                   ----------     ----------     ----------
Total incurred..................................      311,819        348,280        323,473
                                                   ----------     ----------     ----------
Paid related to:
     Current year...............................        2,648          2,570          4,535
     Prior years................................      354,534        291,242        230,005
                                                   ----------     ----------     ----------
Total paid......................................      357,182        293,812        234,540
                                                   ----------     ----------     ----------
Balance at end of period, gross of reinsurance
  recoverable...................................    1,151,635      1,196,998      1,142,530
Reinsurance recoverable.........................      457,005        463,275        432,046
                                                   ==========     ==========     ==========
Balance at end of period, net of reinsurance....   $  694,630     $  733,723     $  710,484
                                                   ==========     ==========     ==========
</TABLE>

The Company increased prior year gross reserves by $161.2 million, $117.9
million and $47.2 million during 2002, 2001 and 2000, 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 coverage
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 coverage years may experience greater volatility than
aggregate reserves reported in the Company's financial statements. Individual
coverage 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 coverage years. Estimated ultimate losses and LAE associated
with individual coverage years were adjusted in 2002, 2001 and 2000. The
following table presents the estimated ultimate losses and LAE gross of
reinsurance (including changes in such estimates) by coverage year:

                           Coverage Year Development
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                     Changes in Estimated
                                                                                                    Ultimate Losses and LAE
                                                         Estimated Ultimate                           for the Years Ended
                                                 Losses and LAE as of December 31,                        December 31,
                                      ----------------------------------------------------    --------------------------------------
Coverage Year                            1999          2000          2001           2002         2000          2001           2002
-------------                         ----------    ----------    ----------    ----------    ----------    ----------    ----------
<S>                                   <C>           <C>           <C>           <C>           <C>            <C>           <C>
1992 and Prior                        $1,205,517    $1,221,215    $1,224,440    $1,227,726    $   15,698     $   3,225     $   3,286
1993                                     118,450       109,686       107,844       109,124        (8,764)       (1,842)        1,280
1994                                     144,513       143,651       152,787       159,170          (862)        9,136         6,383
1995                                     169,024       155,128       156,665       163,978       (13,896)        1,537         7,313
1996                                     178,048       179,902       186,510       217,126         1,854         6,608        30,616
1997                                     213,762       205,156       226,797       235,972        (8,606)       21,641         9,175
1998                                     233,237       242,349       278,821       303,113         9,112        36,472        24,292
1999                                     254,570       307,246       332,052       358,724        52,676        24,806        26,672
2000                                                   276,261       292,559       321,075                      16,298        28,516
2001                                                                 230,399       254,073                                    23,674
2002                                                                               150,612
                                      ----------    ----------    ----------    ----------    ----------    ----------     ---------
Total Estimated Ultimate Losses
and LAE                               $2,517,121    $2,840,594    $3,188,874    $3,500,693    $   47,212     $ 117,881     $ 161,207
                                      ----------    ----------    ----------    ----------    ==========    ==========     =========
Less:  Total Paid Loss and LAE        $1,463,524    $1,698,064    $1,991,876    $2,349,058
                                      ----------    ----------    ----------    ----------
Gross Loss and LAE Reserves as
of December 31                        $1,053,597    $1,142,530    $1,196,998    $1,151,635
                                      ==========   ===========    ==========    ==========
</TABLE>


                                                                              13
<PAGE>

The coverage year reserve development detailed in the above table is indicative
of the potential volatility of coverage year reserve estimates. Management
believes that the level of volatility experienced in a fiscal year for any
coverage year and reflected therein, which ranged up to plus or minus 15% of
estimated coverage year ultimate losses at December 31, 2002, is not
unreasonable for the medical malpractice industry.

The most notable factor in the increase in gross estimated ultimate loss and
ALAE during 2002 was increased loss severity in virtually all states in which
the Company conducted business.

Two other factors which are believed to have had a significant impact on
assumptions within the reserve setting process are the re-underwriting
initiatives undertaken by the Company since 1999 and the acceleration of claim
reporting, settlement and payments experienced by the Company during 2002.

The effect of the increase in severity has been, and continues to be, difficult
to quantify within the IBNR reserve setting process because it is heavily
dependent upon changes in judicial liability standards, as determined by
individual judges and trial juries. As more claims are tried to conclusion or
settled, the evolving standards become more clear in the historical experience
and can be more accurately incorporated into the reserve setting processes.

The continued increase in severity of claims was particularly noted in the
physician book in Texas, Ohio and New Jersey, and in the hospital book in
Pennsylvania and all other markets. The majority of the adverse development in
all markets was observed in coverage years prior to 2000. A significant
acceleration of claim reporting was observed in the first half of 2002 in
Pennsylvania attributable to a rush to file suits ahead of pending tort reform
legislation in this state. The Pennsylvania book also showed indications of
acceleration of the claim settlement process, which the Company believes is
attributable to its runoff status, lifting of stays that had delayed many cases
and general efforts by the Pennsylvania court system to clear the backlog of
cases. The New Jersey physician book showed significant acceleration in the
claim settlement process in the latter half of the year with claim settlement
rates in some of the older coverage years (1998 and prior) 100% or more above
expected levels. The Company believes the acceleration in New Jersey is
attributable to its runoff status, as well as the continued effects of the "Best
Practices" initiative mandated by the New Jersey Supreme Court in September
2000.

The decrease in ULAE reserves is due to a decrease in the selected ratio of
(Paid ULAE)-to-(Paid Indemnity and ALAE). This lower ratio is caused by the
greater level of claims activity associated with claims made business written in
recent years. Claims made business generally has a shorter development tail than
occurrence policies, so the duration of anticipated future claim handling
activity, and claim activity costs per dollar of indemnity and ALAE payment, has
diminished.

Specific factors noted in management's actuarial analysis that gave rise to the
coverage year reserve development in 2001 included the following: overall
reserves across all coverage 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 in prior coverage years
through 1996 primarily reflects this severity trend in Pennsylvania and New
Jersey. Development on coverage 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.

The specific factors noted in management's actuarial analyses that gave rise to
the coverage year development in 2000 are varied. Reserves held on coverage
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 coverage 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 coverage year 1997 were adjusted to reflect the net impact of the
lengthened


                                       14
<PAGE>

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
coverage years 1998 and 1999 were adjusted to reflect the net impact of higher
than anticipated claims frequency and severity 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.

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,
                                                      ------------------------------------------
                                                         2002             2001             2000
                                                      ---------        ---------        ---------
                                                                     (In thousands)
<S>                                                  <C>              <C>              <C>
Balance as of January 1, net of
  reinsurance recoverable..........................  $  733,723       $  710,484       $  647,188

Incurred related to:
     Current year..................................     146,619          203,975          227,921
     Prior years...................................      49,868           46,793           51,303
                                                     ----------       ----------       ----------
Total incurred.....................................     196,487          250,768          279,224
                                                     ----------       ----------       ----------
Paid related to:
     Current year..................................       2,648            2,571            4,535
     Prior years...................................     232,932          224,958          211,393
                                                     ----------       ----------       ----------
Total paid.........................................     235,580          227,529          215,928
                                                     ----------       ----------       ----------
Balance at end of period, net of
  reinsurance recoverable..........................     694,630          733,723          710,484
Reinsurance recoverable............................     457,005          463,275          432,046
                                                     ----------       ----------       ----------
Balance at end of period, gross of reinsurance.....  $1,151,635       $1,196,998       $1,142,530
                                                     ----------       ----------       ----------
</TABLE>

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 1997 to be $100,000 was first reserved in 1992
at $150,000, the $50,000 redundancy (original estimate minus actual loss) would
be included in the cumulative redundancy in each of the years 1992 through 1996
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.

TABLE I.  LOSS AND LAE RESERVES DEVELOPMENT - GROSS

<TABLE>
<CAPTION>
                             1992     1993      1994      1995      1996      1997        1998       1999        2000       2001
                             ----     ----      ----      ----      ----      ----        ----       ----        ----       ----
                                                                        (In thousands)
<S>                       <C>       <C>       <C>       <C>       <C>       <C>       <C>         <C>         <C>        <C>
LOSS AND LAE RESERVES     $629,064  $667,200  $688,455  $748,660  $795,449  $876,721  $  951,659  $1,053,597  $1,142,530 $1,196,998

LIABILITY REESTIMATED AS
OF:
   One year later          616,042   623,988   688,455   748,660   795,654   880,543     968,173   1,100,809   1,260,411  1,358,205
   Two years later         572,831   623,986   688,450   744,130   793,170   878,233     962,709   1,202,392   1,397,944
   Three years later       572,831   623,989   689,122   739,106   772,567   863,657   1,039,486   1,311,410
   Four years later        572,871   624,567   674,224   715,136   766,597   903,962   1,121,831
   Five years later        570,424   606,219   647,203   707,312   785,261   962,015
   Six years later         570,390   588,748   653,275   719,368   834,139
   Seven years later       556,459   595,682   663,794   737,630
   Eight years later       572,157   597,065   674,743
   Nine years later        575,382   601,631
   Ten years later         578,668
CUMULATIVE REDUNDANCY
(DEFICIENCY)                50,396    65,569    13,712    11,030   (38,690)  (85,294)  (170,172)  (257,813)  (255,414)   (161,207)
</TABLE>


                                                                              15
<PAGE>

<TABLE>
<CAPTION>
                                1992     1993      1994      1995      1996      1997       1998      1999       2000        2001
                                ----     ----      ----      ----      ----      ----       ----      ----       ----        ----
                                                                           (In thousands)
<S>                          <C>       <C>       <C>       <C>       <C>       <C>      <C>        <C>        <C>         <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
   One year later            $ 83,837  $ 83,522  $ 98,053  $116,532  $101,217  $141,954 $  164,524 $  230,005 $  291,242  $  354,535
   Two years later            165,737   179,714   212,284   214,484   231,755   298,785    370,911    497,982    620,952
   Three years later          256,860   284,828   293,323   332,920   373,232   470,693    588,348    755,339
   Four years later           348,868   343,563   407,357   452,055   514,813   634,094    771,226
   Five years later           395,242   436,921   492,388   553,205   629,774   757,853
   Six years later            462,920   486,861   552,039   621,022   707,116
   Seven years later          493,034   524,025   594,337   655,511
   Eight years later          517,161   548,388   618,134
   Nine years later           537,106   562,629
   Ten years later            550,018
</TABLE>

TABLE II.  LOSS AND LAE RESERVES DEVELOPMENT - NET

<TABLE>
<CAPTION>
                               1992     1993      1994      1995      1996      1997      1998       1999       2000        2001
                               ----     ----      ----      ----      ----      ----      ----       ----       ----        ----
                                                                      (In thousands)
<S>                         <C>       <C>       <C>       <C>       <C>       <C>      <C>        <C>        <C>         <C>
LOSS AND LAE
RESERVES-GROSS              $629,064  $667,200  $688,455  $748,660  $795,449  $876,721   $951,659 $1,053,597 $1,142,530  $1,196,998
REINSURANCE RECOVERABLE ON
UNPAID LOSSES                  3,037    62,682   112,917   165,729   221,749   270,731    325,795    406,409    432,046     463,275

                             626,027   604,518   575,538   582,931   573,700   605,990    625,864    647,188    710,484     733,723
LIABILITY REESTIMATED AS
OF:
   One year later            600,655   559,518   575,538   582,931   573,700   603,906    611,850    698,491    757,277     783,590
   Two year later            555,656   559,518   575,538   582,931   573,321   603,809    649,454    738,008    765,508
   Three years later         555,656   559,518   575,538   580,883   588,477   627,292    678,666    674,266
   Four years later          555,655   559,518   575,124   579,766   595,479   611,087    622,337
   Five years later          555,656   559,133   566,608   587,836   587,991   596,751
   Six years later           555,484   548,242   576,831   586,777   583,738
   Seven year later          541,142   561,953   580,940   587,266
   Eight years later         557,594   564,486   582,625
   Nine years later          559,570   568,076
   Ten years later           564,151
CUMULATIVE REDUNDANCY
(DEFICIENCY)                  61,876    36,442    (7,087)   (4,335)  (10,038)    9,239      3,527    (27,078)   (55,024)    (49,867)
</TABLE>

<TABLE>
<CAPTION>
                                1992     1993      1994      1995      1996      1997       1998      1999       2000        2001
                                ----     ----      ----      ----      ----      ----       ----      ----       ----        ----
                                                                       (In thousands)
<S>                          <C>       <C>       <C>       <C>       <C>       <C>        <C>       <C>        <C>         <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
   One year later            $ 83,212  $ 82,572  $ 97,496  $116,194  $ 84,276  $134,666   $157,359  $ 211,393  $ 224,958   $232,932
   Two years later            164,469   178,357   211,426   197,370   214,404   284,887    345,305    413,084    433,064
   Three years later          255,586   283,370   278,571   315,743   365,517   439,372    496,456    548,839
   Four years later           347,493   328,836   392,522   437,779   492,617   536,488    557,648
   Five years later           381,408   422,194   478,731   524,447   550,600   542,294
   Six years later            449,086   473,702   523,901   549,919   531,001
   Seven years later          479,987   508,269   544,626   533,102
   Eight years later          503,373   528,303   528,347
   Nine years later           523,319   530,409
   Ten years later            536,225
</TABLE>

The aggregate excess reinsurance contracts, in place from 1995 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 1995 through 1999 at a constant level
provided such losses and ALAE ceded under the aggregate excess reinsurance
contracts remain within the coverage limits available in each underwriting year.
Ceded losses and ALAE have remained within coverage limits in each year since
1995. The aggregate excess reinsurance contracts for 2000 and 2001 cover New
Jersey and Pennsylvania physician business only. The aggregate excess
reinsurance contract for 2002 covers New Jersey physician business only. The
aggregate contracts operate on a funds held basis and provide for premium
adjustments based on loss experience. The adjustments to net reserves in 2000
through 2002 relate to losses and ALAE not covered by the aggregate reinsurance
contracts, including, primarily losses and ALAE for coverage years 2000 through
2002 associated with business other than New Jersey physician business and
losses and ALAE for coverage years 2000 and 2001 associated with business other
than Pennsylvania physician business losses and ALAE for coverage years 1994 and
prior; and losses and ALAE for coverage years since 1997 retained by LP&C and
ULAE. See "Business - Reinsurance and "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Risks and Uncertainties."

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


                                                                              16
<PAGE>

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 three 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 and results of operations and possibly lead to the Company's
insolvency.

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 ALAE 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.

In prior years, the Company reinsured 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 previously described for
several years. Effective January 1, 2002, the Specific Contract was terminated,
consistent with MIIX's decision to discontinue writing insurance. All risks that
were renewed in 2002 and previously reinsured by the Specific Contract were
reinsured with Facultative Reinsurance Contracts in 2002. In 2002, the Company
renewed five institutional policies that were reinsured by the Specific Excess
Contract in 2001. These policies were reinsured with Facultative Reinsurance
Contracts, which reduced the amount of risk that MIIX retained on each policy.
Under Facultative Reinsurance Contracts the risks are individually underwritten
by the reinsurers. The contracts are on a quota share basis; therefore MIIX
shares a portion of the premium and loss on each Facultative Reinsurance
Contract. The quota share amount that MIIX retains ranges between 25% and 50%.

The Aggregate Contract in 2002 provided coverages on an aggregate excess of loss
and quota share basis. This contract was effective November 1, 2001 through
August 1, 2002 and covers New Jersey physician business only. This contract was
terminated on the date that MIIX ceased issuing or renewing policies. The
primary coverage afforded under the Aggregate Contract attaches above a Company
retention measured on an underwriting year basis as a 65% loss and ALAE ratio.
Reinsurers provide coverage for an additional 75% loss and ALAE ratio, with an
aggregate annual limit of $100 million. The Company has maintained aggregate
excess of loss coverage generally similar to that previously described since
1995. 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 2002, combined
ceded losses under the aggregate excess reinsurance contracts were increased by
a net amount of $91.1 million, resulting in a net additional premium charge of
$45.8 million and net additional funds held charges of $30.0 million. During
2001, combined ceded losses under the aggregate excess reinsurance contracts
were increased by a net amount of $61.7 million, resulting in net additional
premium charges of $45.4 million and a net reduction in 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 net additional funds held
charges of $13.0 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


                                                                              17
<PAGE>

contract exceeds the related ceded reserves, after any adjustments under the
adjustable premium 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 or its predecessor, Medical Inter-Insurance Exchange of New
Jersey, fall below B+. Under the contracts, and as a result of the downgrade of
the Company's A.M. Best rating to below B+ during the first quarter of 2002,
reinsurers requested that assets supporting the funds withheld account be placed
in trust. The Company has established the required trust accounts 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 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. As of December 31, 2002, 2001 and 2000, no funds withheld
balances were 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,
                                           ------------------------------------
                                             2002          2001          2000
                                           --------      --------      --------
                                                      (In thousands)

Ceded premiums earned....................  $ 59,325       $67,529       $46,463
Ceded Losses and LAE.....................   115,332        97,509        44,248
Funds held charges.......................    54,209        42,476         7,502

The Company seeks to control credit risk from reinsurance 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, 2002,
and collateral held by the Company in the form of funds withheld and letters of
credit as of December 31, 2002. No other single reinsurer's percentage
participation in 2002 exceeded 5% of the total reinsurance recoverable at
December 31, 2002.

                                                      At December 31, 2002
                                               ---------------------------------
                                                Total Amounts    Total Amount of
Reinsurer                                       Recoverable      Collateral Held
                                               -------------     ---------------
                                                       (In thousands)

Hannover Reinsurance (Ireland) Ltd............    $209,583          $212,671
Eisen und Stahl Reinsurance (Ireland) Ltd.....      52,396            53,043
London Life and Casualty Reinsurance
   Corporation................................      57,642            58,931
Underwriters Reinsurance Company (Barbados)...     105,948           106,154
Swiss Reinsurance/European Reinsurance........      54,608            55,820

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 did not assume reinsurance in 2002, consistent
with its decision to discontinue writing insurance. The Company assumed
reinsurance under various contracts with assumed written premiums of $0.4
million and $14.0 million in 2001 and 2000, respectively. In 2001 and 2000, $0.4
million and $13.9 million, respectively, of the assumed written premiums related
to an excess of loss contract providing medical


                                                                              18
<PAGE>

professional liability coverage on an institutional account. This excess of loss
contract was non-renewed at December 31, 2000. Effective July 1, 2002, the
Company commuted this treaty and recorded assumed paid losses of approximately
$31.1 million and reduced assumed loss and LAE reserves of approximately $31.1
million to $0. The commutation of this treaty had no impact on the Company's
financial condition or results of operations. 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
total return on its invested assets. Independent investment managers and
internal management make investments under policies established at the direction
of the Company's Board of Directors. The Company's current investment policy
places primary emphasis on holding investment grade, fixed maturity securities
and maximizing after-tax yields while minimizing credit risks of the portfolio
and maintaining liquidity. The Company currently uses three outside investment
managers for fixed maturity securities. At December 31, 2002 and 2001, 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, 2002               December 31, 2001
                                                --------------------------      --------------------------
                                                  Cost or                         Cost or
                                                 Amortized         Fair          Amortized         Fair
                                                    Cost           Value            Cost           Value
                                                ----------      ----------      ----------      ----------

                                                                      (In Thousands)
<S>                                             <C>             <C>             <C>             <C>
U.S. Treasury securities and obligations of
  U.S. government corporations and
  agencies..................................    $  108,725      $  112,499      $   54,495      $   55,038
Obligations of states and political
  subdivisions..............................             0               0         123,079         122,082
Foreign securities - U.S. dollar
  denominated...............................         6,946           7,351          35,942          35,553
Corporate securities........................       280,152         285,183         413,433         404,103
Mortgage-backed and other asset-backed
  securities................................       375,591         383,547         434,550         438,158
                                                ----------      ----------      ----------      ----------
Total fixed maturity investments............       771,414         788,580       1,061,499       1,054,934
Equity investments..........................         4,804           5,187           7,081           6,623
Short-term..................................       262,537         262,537         166,501         166,501
                                                ----------      ----------      ----------      ----------
   Total investments........................    $1,038,755      $1,056,304      $1,235,081      $1,228,058
                                                ==========      ==========      ==========      ==========
</TABLE>

The investment portfolio of fixed maturity investments consists primarily of
intermediate-term, investment-grade securities with an allocation to below
investment-grade (i.e. high yield) fixed maturity investments not to exceed 7.5%
of invested assets as per the Company's investment policy prior to 2002.

The table below contains additional information concerning the investment
ratings of the longer term fixed maturity investments at December 31, 2002:

<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).......     $  454,833      $  466,040       59.2%
AA.................................................         43,782          45,947        5.8%
A..................................................        144,965         152,279       19.3%
BBB................................................         89,903          90,210       11.4%
Other Ratings (below investment grade).............         37,931          34,104        4.3%
                                                        ----------      ----------      ------
   Total...........................................     $  771,414      $  788,580      100.0%
                                                        ==========      ==========      ======
</TABLE>

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


                                                                              19
<PAGE>

The following table sets forth certain information concerning the maturities of
fixed maturity investments, excluding equity and short-term fixed maturity
securities, in the investment portfolio as of December 31, 2002 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...............................     $   16,593      $   16,932            2.1%
Due after one year through five years..............        125,777         129,945           16.5%
Due after five years through ten years.............        179,127         180,366           22.9%
Due after ten years................................         74,325          77,790            9.9%
Mortgage-backed and other asset-backed securities..        375,592         383,547           48.6%
                                                        ----------      ----------          -----
   Total ..........................................     $  771,414      $  788,580          100.0%
                                                        ==========      ==========          =====
</TABLE>

The average effective maturity and the effective duration of the securities in
the longer term fixed maturity portfolio (excluding short-term investments) as
of December 31, 2002, was 5.73 years and 4.03 years, respectively.

The mortgage-backed portfolio represents approximately 23.0% of the total fixed
income portfolio and is allocated equally across "standard" and "more complex"
securities, while the asset-backed portfolio represents approximately 25.7% of
the total fixed income portfolio. Asset-backed securities may involve certain
risks not presented by other securities. These risks may be enhanced during
periods of economic downturn such as what was experienced in the past year.
Risks include default, lack of liquidity, price volatility and sensitivity to
interest rates.

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, that are
backed by the same underlying collateral mortgages.

CUSTOMERS

The Company continues to vigorously defend the claims that arise from its
insureds. The Company is also currently writing endorsements and tail coverage
of its current insureds.

Additionally, the Company is providing third party management services to MIIX
Advantage. In 2003, it is expected that revenues from the MIIX Advantage
Management Services Agreement, Non-Competition and Renewal Rights Agreement and
Intellectual Property License Agreement will account for approximately 6% of the
Company's revenues. The Company will continue to evaluate the marketplace for
additional opportunities to provide third party administrative and consulting
services to other insurance companies and health care organizations.

COMPETITION

According to A.M. Best, in 2001 there were 335 companies nationally that wrote
medical professional liability insurance. Prior to September 1, 2002 when the
Company ceased writing new insurance policies in all states in accordance with
each state's specific regulatory requirements, the Company's principal
competitors included the Princeton Insurance Companies, ProMutual Group,
ProNational Insurance Group, and Medical Protective Company. Substantially all
of these companies rank among the top 20 medical malpractice insurers
nationally.

The insurance service business is highly competitive and there are many
insurance brokerage and service organizations as well as individuals throughout
the world who actively compete with the Company in every area of its business.
There are firms in a particular region or locality that are as large or larger
than the Company. The Company believes that the primary factors determining its
competitive position with other organizations in its industry are the quality of
the services rendered and the overall costs to its clients.

REGULATION


                                                                              20
<PAGE>

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

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 31 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.

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 30 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 30-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. In the past, substantially all of the
Company's rate applications have been approved in the normal course of review.
In other states, policy forms usually are subject to prior approval by the
regulatory agency while rates usually are "file and use." The New York Insurance
Department sets the rates for medical malpractice coverage on an annual basis.

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 15 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 30 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 60 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


                                                                              21
<PAGE>

any 12 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 transactions may not
be entered into unless the insurer has notified the New York Insurance
Department in writing at least 30 days prior to entering the transaction and the
Department has not disapproved of such transaction within the 30-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.

MIIX, LP&C and MIIX New York 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 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%. Contributions can
be increased if the fund falls below the minimum. 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.

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 Fund ("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 through 2005, the Cat Fund coverage is limited to
$700,000 per claim and $2.1 million in the aggregate. On October 1, 2002,
Pennsylvania's Cat Fund became the MCARE Fund. The MCARE Fund is administered by
the Pennsylvania Insurance Department. The MCARE Fund operates almost
identically to its predecessor, the Cat Fund.

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 was completed during 2002. No report has yet been issued by the New
Jersey Department of Banking and Insurance. In conjunction with MIIX's request
to discount statutory reserves and merge LP&C into MIIX, the New Jersey
Department of Banking and Insurance is currently performing a review of MIIX's
loss and LAE reserves. The last


                                                                              22
<PAGE>

periodic financial examination of LP&C, based on December 31, 1999 financial
statements, was completed on May 5, 2000, and a report was issued on October 20,
2000. The issued report included an examination adjustment to loss and LAE
reserves of $29.3 million, the amount derived from the Company's loss reserve
study at June 30, 2000, and was recorded by the Company at June 30, 2000.

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 conducted a review of LP&C's loss and LAE reserves
as of December 31, 2001. The issued report concluded that the carried reserves
as of March 31, 2002 of LP&C fell within a reasonable range.

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.

The New York Insurance Department conducted an examination of MIIX New York as
of December 31, 2001. No report has been issued to date.

Medical Malpractice Reports. The Company wrote medical malpractice insurance and
it is subject to requirements to report detailed information with regard to
settlements or judgments against its 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.

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 2002.

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

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


                                       23
<PAGE>

lead to increased regulatory oversight from individual state insurance
commissioners. At December 31, 2002, MIIX had six ratios outside the usual range
(two-year overall operating ratio, net change in writings, liabilities to liquid
assets, one-year reserve development to policyholders' surplus, two-year reserve
development to policyholders' surplus and change in policyholders' surplus). At
December 31, 2001, MIIX had two ratios (two-year overall operating ratio and
change in policyholders' surplus)outside the usual range. The ratios outside the
usual range reflect the loss reserve strengthening in 2002 and 2001 and the
cessation of insurance operations during 2002.

At December 31, 2002, LP&C had four ratios (two-year overall operating ratio,
change in net writings, change in policyholders' surplus and two-year reserve
development to policyholders' surplus) outside of the usual range. 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 policyholder surplus, one-year reserve development to policyholders'
surplus and two-year reserve development to policyholders' surplus)outside of
the usual range. These ratios outside the usual range reflect the loss reserve
strengthening in 2002 and 2001, capital contributions by MIIX and the cessation
of writing new business during 2002. IRIS ratio results for MIIX New York are
not meaningful because it did not write business in 2002 and 2001.

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 NAIC. The NAIC's methodology for
assessing the adequacy of statutory surplus of property and casualty insurers
includes an 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. The Commissioner may allow an insurer that
            is writing no business and running-off its existing business to
            continue its run-off under the Commissioner's supervision.

At December 31, 2002, MIIX's RBC was $18.7 million, which is below the Mandatory
Control Level, at approximately 22% of Authorized Control Level ($85.7 million).
At this level, the Insurance Commissioner of the New Jersey Department of
Banking and Insurance is authorized to place MIIX in supervision, rehabilitation
or liquidation. In the case of an insurer, like MIIX, that is writing no new
business and which is running off its existing business, the Insurance
Commissioner may allow the insurer to continue its runoff under the supervision
of the Commissioner. However, no assurance can be given that the Commissioner
will allow MIIX to continue to runoff its business. MIIX has requested approval
from the New Jersey Department of Banking and Insurance to discount loss and LAE
reserves and to merge LP&C into MIIX as of December 31, 2002. Similarly, LP&C
has requested approval from the Virginia Bureau of Insurance to merge LP&C into
MIIX. Pending a decision on these


                                       24
<PAGE>

requests, the New Jersey Department of Banking and Insurance and the Virginia
Bureau of Insurance have granted each company extensions to file their
respective annual statutory financial statements. MIIX's RBC level will not be
impacted by the ability to discount loss and LAE reserves as the NAIC standards
do not permit discounting of loss and LAE reserves to be taken into account in
the determination of RBC. Discounting of reserves will facilitate the New Jersey
Department of Banking and Insurance to assess the continued viability of MIIX on
a basis that recognizes the long payout period of claims and matches investments
and loss and LAE reserves on a comparable economic basis. The merger will result
in combining the statutory surplus of MIIX and LP&C for purposes of determining
MIIX's RBC. If the Virginia and New Jersey regulatory authorities permit a
merger, LP&C's statutory surplus could be included in the final determination of
MIIX's RBC. At December 31, 2002, LP&C's RBC was $23.7 million, at approximately
276% of Authorized Control Level ($8.6 million), which is above the Virginia
regulatory action levels under RBC rules. The Company cannot provide assurances
that the New Jersey and Virginia regulatory authorities will grant MIIX's and
LP&C's requests to discount loss and LAE reserves or merge LP&C into MIIX. See
"Business - Regulation -- Risk Based Capital."

At December 31, 2001, MIIX's 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. On
February 22, 2002, LP&C was placed in solvent runoff by the Virginia Bureau of
Insurance, which approved LP&C's corrective action plan on May 10, 2002. The New
Jersey Department of Banking and Insurance on May 3, 2002 approved MIIX's new
business plan which provided for MIIX to be placed into voluntary solvent runoff
effective May 3, 2002. MIIX ceased writing insurance business in all states in
accordance with each state's specific regulatory requirements, but continued to
renew New Jersey physician business through August 31, 2002. MIIX New York did
not write any premium during 2001, and therefore the RBC ratio is not meaningful
for that period.

On February 19, 2003, MIIX agreed to certain operating limitations with the New
Jersey Department of Banking and Insurance, including the requirement for
approval by the New Jersey Department of Banking and Insurance prior to paying
stockholder dividends to the Company. The limitations include a requirement for
approval by the New Jersey Department of Banking and Insurance approval prior to
MIIX incurring new debt or investing in below investment grade assets. Upon
completion of the annual statutory financial statements it is probable that the
New Jersey Department of Banking and Insurance will initiate additional
regulatory actions. See "Business - Regulation - Risk-Based Capital," and
"Business - Business Strategy."

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. Additional tort reform
measures are currently under consideration by the New Jersey legislature,
including caps on non-economic damages and revisions to the statute of
limitation rules. 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. 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 reform also
caps punitive damages at 200% of the compensatory award. In August, 2002, the
Pennsylvania legislature redefined joint and several liability, requiring a
defendant to be 60% responsible for joint and several liability to apply. A
recent court decision requires suits to be filed in the county where the alleged
injury occurred potentially removing hundreds of cases from the most volatile
county, Philadelphia. 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.


                                       25
<PAGE>

The United State Congress is currently considering medical malpractice tort
reforms. On March 13, 2003, the House of Representatives passed a bill,
patterned after California's Medical Injury Compensation Reform Act, that would
place a cap on non-economic damages of $250,000 or twice the economic damages,
whichever is less; provide for payments of judgements over time rather than in a
lump sum; ensure that old cases could not be brought years after an event; and
provide the defendants pay judgments in proportion to their fault. The bill's
chances for Senate approval remain uncertain.

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 that
it would 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 reflected A.M. Best's view concerning the Company's weakened
capitalization and the potential negative impact of further adverse loss reserve
development, and concerns about the Company's ability to repay or refinance its
debt obligations. During the second quarter of 2002, the Company withdrew from
the interactive rating system with A.M. Best.

EMPLOYEES

The Company employed approximately 118 persons at December 31, 2002. During
2002, as a result of its reduced insurance operations, the Company reduced the
number of employees by approximately 97 persons. None of the Company's employees
are covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good.

AVAILABLE INFORMATION

The Company files annual, quarterly and current reports, proxy statements and
other documents with the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934 (the "Exchange Act"). The public may read
and copy any materials that the Company files with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains
reports, proxy and information statements, and other information regarding
issuers, including those that filed electronically with the SEC. The public can
obtain any documents that the Company files with the SEC at http://www.sec.gov.

The Company also makes available free of charge on or through its Internet
website (http://www.MIIX.com) its Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after the Company electronically files such material
with, or furnishes it to, the SEC.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information concerning the individuals who
currently serve as executive officers of The MIIX Group. The MIIX Group has
seven executive officers, Ms. Costante, Mr. Davis, Mr. Grab, Ms. Mason, Mr.
Roynan, Mr. Sugerman and Ms. Williams.

Information regarding Directors of the Company is incorporated by reference to
the section entitled "Election of Directors" in the Proxy Statement.

Name                                Position

Patricia A. Costante       Chairman and Chief Executive Officer

William G. Davis, Jr.      Senior Vice President, Claims Operations

Edward M. Grab             Senior Vice President, Chief Actuary

Verice M. Mason            Senior Vice President and General Counsel

James P. Roynan            Senior Vice President, Information Systems

Allen G. Sugerman          Interim Chief Financial Officer and Treasurer

Catherine E. Williams      Senior Vice President, Business Development and
                           Corporate Secretary


                                       26
<PAGE>

Patricia A. Costante (46), Chairman and Chief Executive Officer. Patricia A.
Costante has been Chairman since 2002 and Chief Executive Officer of the Company
since 2001. Before being named Chief Executive Officer, Ms. Costante was the
Company's Chief Operating Officer from September 2001 to November 2001. 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 from March 2000 to September 2001. Prior to being named Senior
Vice President, Ms. Costante was Executive Vice President and Chief Operating
Officer of MIIX Healthcare Group, Inc., a subsidiary of the Underwriter from
April 1998 to March 2000 and from July 1996 to April 1998 served as Assistant
Vice President. Ms. Costante is Deputy Editor, New Jersey Medicine, Journal of
the Medical Society of New Jersey, and a member of the Board of Trustees,
Catholic Charities, Diocese of Trenton.

William G. Davis, Jr. (56), Senior Vice President, Claims Operations. Mr. Davis
has been Senior Vice President, Claims since March 2002. He is responsible for
Claims Operations. Prior to serving as Senior Vice President, Mr. Davis served
as Vice President, Claims Operations from September 1995 to February 2000 and
Assistant Vice President, Claims from June 1992 to September 1995.

Edward M. Grab (47), Senior Vice President, Chief Actuary. Mr. Grab has served
as Senior Vice President since March 2000. He is responsible for actuarial
services and staff underwriting functions which includes underwriting policy and
risk management services. Prior to serving as Senior Vice President, Mr. Grab
served as Vice President, Chief Actuary from October 1999 to March 2000. Before
joining the Company, he was Vice President and Actuary for Zurich Financial
Services from March 1996 to June 1999 where he directed the actuarial department
in support of four strategic business units with a combined book of $1 billion.

Verice M. Mason (51), Senior Vice President and General Counsel. Ms. Mason has
served as Senior Vice President and General Counsel since June 2002. She is
responsible for all legal and regulatory matters involving The MIIX Group. Inc.
and its subsidiaries. Prior to serving as Senior Vice President and General
Counsel, Ms. Mason served as Senior Vice President. Legal and Regulatory Affairs
from February 2002 to June 2002. Prior to being named Senior Vice President,
Legal and Regulatory Affairs. Ms. Mason served as Vice President, Legal and
Regulatory Affairs from June 1999 to February 2002 and Assistant Vice President.
Associate General Counsel from June 1995 to June 1999.

James P. Roynan (43), Senior Vice President, Information Systems. Mr. Roynan has
served as Senior Vice President since December 2002. He is responsible for
strategy and implementation for all process improvement, information technology,
systems and integration, network administration, software development and
technical support activity. Prior to serving as Senior Vice President Mr. Roynan
served as Vice President, Information Systems from December 2001 to December
2002. Prior to joining the Company Mr. Roynan served as Executive Vice President
and CIO of Xyan, Inc. from September 2000 to May 2001. From February 2000 to
August 2000 Mr. Roynan served as Executive Vice Presient and COO of WePlayIt,
Inc. From January 1992 to January 2000 Mr. Roynan served as Vice President,
Technology Solutions of Reed Technologies and Information Services.

Allen G. Sugerman (51), Interim Chief Financial Officer. Mr. Sugerman has served
as Interim Chief Financial Officer since July 2002. Mr. Sugerman has been a
principal of Altila Corporation, a health care management consulting firm since
1990. He has more than 25 years of diversified financial and operational
experience.

Catherine E. Williams (41), Senior Vice President, Business Development and
Corporate Secretary. Ms. Williams has served as Senior Vice President since
December 2001. She is responsible for business development, corporate
governance, shareholder relations, human resources and facilities management.
Prior to serving as Senior Vice President, Ms. Williams served as Vice
President, Corporate Secretary from August 1990 to December 2001 and as
Assistant Corporate Secretary from May 1997 to August 1999.

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. The lease agreement, which expires on September 30,
2003,includes an option to renew for a term of two years on October 1, 2003, and
a separate option to renew for a term of three years on October 1, 2005, and
terminating on September 30, 2008. The Company is currently assessing its home
office space requirements. During 2002, the Company closed its two


                                       27
<PAGE>

regional offices where it rented office space in Indianapolis (5,000 square
feet) and Dallas (5,000 square feet).

ITEM 3.   LEGAL PROCEEDINGS

Death Benefit Plan. In October 1999, a former Underwriters Board member filed an
action in the Superior Court of New Jersey against the Medical Inter-Insurance
Exchange of New Jersey, Underwriters, The MIIX Group and Daniel Goldberg, former
CEO of the Company, seeking damages arising out of the unanimous decision of the
Exchange and Underwriters Boards in July 1998 to terminate a Death Benefit Plan
that was adopted 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 appealed this decision. By Order
dated March 18, 2003, the Superior Court of New Jersey, Appellate Division,
ruled on the Slobodien v. Medical Inter-Insurance Exchange case. The court
overturned the Law Division ruling and held that, under the terms of the
agreement, the Death Benefit Plan could be terminated by the Board of Directors
at any time, and that plaintiff had no right to the cash value of the insurance
policy. The court, therefore, reversed and remanded the matter to the lower
court for entry of judgment in favor of the defendants.

Two subsequent actions by other Plan participants, one styled as a class action
on behalf of all Plan participants, were filed in the Superior Court of New
Jersey against the Company on November 7, 2000 and December 11, 2001. These
actions were stayed pending the outcome of the appeal in the first action and
the Company's outside counsel believes their disposition will be affected by the
appellate decision.

Glasser v. The MIIX Group, Inc., et al. On February 5, 2003, a shareholder of
the Company instituted a putative class action in the United States District
Court for the District of New Jersey against the Company, its directors and
officers, Medical Society of New Jersey and Fox-Pitt, Kelton, Inc., which acted
as financial advisor to the Company. The complaint alleges that the Company and
its directors and officers engaged in securities fraud, breaches of fiduciary
duty and violations of New Jersey antitrust laws in connection with the MIIX
Advantage transaction and alleged misrepresentations and omissions of material
fact in various SEC filings by the Company. The complaint demands unspecified
compensatory damages, treble damages, rescission of the sale of shares in the
Company's initial public offering, attorney fees and other relief. The Company
and external counsel believe the Company has valid defenses to the plaintiff's
claims.

The outcome of the Glasser suit could have a material adverse effect on the
Company's financial condition and results of operations.

Fox-Pitt Kelton v. The MIIX Group, Inc. On February 10, 2003, Fox-Pitt Kelton
("FPK"), which had been engaged as financial advisor to the Company, instituted
suit against the Company in the Supreme Court of New York to recover fees
allegedly due from the Company as a result of the investment banking services it
rendered in connection with the Company's efforts to dispose of assets or obtain
capital and the agreements entered into between the Company and MIIX Advantage.

The Company and external counsel believe the Company has valid defenses to FPK's
claims.

Weisfeld v. The MIIX Group, Inc., et al. On November 20, 2002, a former
executive of the Medical Society of New Jersey (MSNJ) filed suit against MSNJ
and certain of its officers, including MSNJ officers who were also MIIX Group
board members, alleging wrongful discharge and defamation. On March 19, 2003,
plaintiff filed pleadings amending the Complaint to include MIIX Group as a
defendant, alleging that MIIX Group tortiously interfered with his employment
relationship and that its alleged influence over MSNJ was a causative factor in
his discharge. The Company and external counsel believe plaintiff's claims lack
merit and the Company intends to vigorously defend this action.

The Company may be a party to litigation from time to time in the ordinary
course of business.


                                                                              28
<PAGE>

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

Not Applicable.

PART II

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

PRICE RANGE OF COMMON STOCK

The MIIX Group 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 during 2002 and 2001:

                                                             Common Stock
                                                         High          Low

     2002
     First Quarter                                      $13.50        $ 2.46
     Second Quarter                                     $ 2.48        $ 0.73
     Third Quarter                                      $ 1.75        $ 0.60
     Fourth Quarter                                     $ 2.03        $ 1.00

     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

On March 21, 2003, the closing price of the The MIIX Group stock was $0.70.

The MIIX Group stock is thinly traded and the stock price has been extremely
volatile in the last calendar quarter and fiscal year. For these reasons, there
can be no assurance that an active market will be available in which to trade
The MIIX Group stock, which could affect a stockholder's ability to sell the
MIIX Group shares and could depress the market price of its shares. In addition,
the NYSE has notified The MIIX Group that it no longer satisfies one of its
listing criteria. As a result, there is a substantial likelihood that The MIIX
Group stock will be delisted from the NYSE in 2003. If so, The MIIX Group may
qualify to trade its Common Stock on the OTC Bulletin Board or in the "pink
sheets" maintained by the National Quotation Bureau, Inc. Delisting from the
NYSE will likely significantly decrease the liquidity of the Common Stock and
make it more difficult for stockholders to sell The MIIX Group Common Stock.
This lack of liquidity could further reduce the trading price and increase the
transaction costs of trading your shares. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Risks and
Uncertainties -- The MIIX Group Common Stock May be Delisted From the New York
Stock Exchange."

Calculation of Aggregate Market Value of Non-Affiliate Shares

For the purpose of calculating the aggregate market value of the shares of The
MIIX Group Common Stock held by non-affiliates, as shown on the cover page of
this Report, it has been assumed that all the outstanding shares were held by
non-affiliates except for the shares held by directors. However, this should not
be deemed to constitute an admission that all directors of the Company are, in
fact, affiliates of the Company. Further information concerning shareholdings of
officers, directors and principal stockholders is included or incorporated by
reference in Item 12: Security Ownership of Certain Beneficial Owners and
Management.

SHAREHOLDERS OF RECORD

The number of stockholders of record of The MIIX Group Common Stock as of March
21, 2003 was 6,110. That number excludes the beneficial owners of shares held in
"street" names or held through participants in depositories.


                                                                              29
<PAGE>

DIVIDENDS

The MIIX Group's Board of Directors (the "Board") declared a cash dividend of
$0.05 per share on its common stock in each quarter of 2001 and 2000. During
2002, the Board suspended dividend payments to its stockholders. 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 the insurance company subsidiaries which are
subject to regulatory approval and general business conditions. The Company does
not expect to pay dividends for the foreseeable future.

The MIIX Group 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 recent limitations imposed on MIIX
currently affects its ability to declare and pay dividends sufficient to support
The MIIX Group's dividend policy and suspended the payment of dividends to
shareholders during 2002. See "Notes to Consolidated Financial Statements - Note
9" 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's 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.

ITEM 6.  SELECTED FINANCIAL DATA


                                                                              30
<PAGE>

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,
                                ---------------------------------------------------------------------------
                                    2002            2001            2000            1999            1998
<S>                             <C>             <C>             <C>             <C>             <C>
INCOME STATEMENT DATA:
Total premiums written ......   $    96,209     $   231,946     $   226,126     $   257,100     $   231,858
                                -----------     -----------     -----------     -----------     -----------
Net premiums earned .........   $   100,220     $   146,852     $   184,062     $   187,845     $   162,501
Net investment income .......        60,838          80,193          85,158          75,661          65,107
Realized investment gains
   (losses) .................        (3,521)         (2,184)         (4,156)         (6,770)         36,390
Other revenue ...............         7,439           8,439           7,452           8,323             891
                                -----------     -----------     -----------     -----------     -----------
       Total revenues .......       164,976         233,300         272,516         265,059         264,889
                                -----------     -----------     -----------     -----------     -----------
Losses and loss adjustment
   expenses .................       196,487         250,768         279,224         174,986         155,868
Underwriting expenses .......        33,125          47,121          38,560          42,618          42,063
Funds held charges ..........        54,209          42,476           7,502          14,338          13,420
Other expenses ..............         3,454           3,404           5,828           3,333               0
Restructuring charge ........         2,552               0               0           2,409               0
Impairment of capitalized
   system development costs .             0               0               0               0          12,656
                                -----------     -----------     -----------     -----------     -----------
       Total expenses .......       289,827         343,769         331,114         237,684         224,007
                                -----------     -----------     -----------     -----------     -----------
Income (loss) before income
   taxes ....................      (124,851)       (110,469)        (58,598)         27,375          40,882
Income tax expense (benefit)        (11,240)         41,892         (22,140)          6,617          11,154
Cumulative effect of an
   accounting change, net of
   tax (1) ..................        (2,373)         (5,283)              0               0               0
                                -----------     -----------     -----------     -----------     -----------
       Net income (loss) ....   $  (115,984)    $  (157,644)    $   (36,458)    $    20,758     $    29,728
                                ===========     ===========     ===========     ===========     ===========

BALANCE SHEET DATA (AT END OF
PERIOD):
   Total investments ........   $ 1,056,304     $ 1,228,058     $ 1,259,312     $ 1,182,943     $ 1,165,698
   Total assets .............     1,616,863       1,895,863       1,897,353       1,837,158       1,674,262
   Total liabilities ........     1,575,597       1,764,377       1,607,912       1,518,454       1,351,419
   Total shareholders' equity        41,266         131,486         289,441         318,704         322,843
ADDITIONAL DATA:
GAAP ratios:
   Loss ratio ...............         196.1%          170.8%          151.7%           93.1%           95.9%
   Expense ratio ............          33.1%           32.1%           21.0%           22.7%           25.9%
                                -----------     -----------     -----------     -----------     -----------
   Combined ratio ...........         229.2%          202.9%          172.7%          115.8%          121.8%
                                -----------     -----------     -----------     -----------     -----------

Statutory surplus ...........   $    21,054     $   125,485     $   231,498     $   268,445     $   253,166

Basic and Diluted earnings
   (loss) per share (2) .....   $     (8.67)    $    (11.66)    $     (2.59)    $      1.54     $      2.47
                                ===========     ===========     ===========     ===========     ===========
Dividend per share ..........   $      0.00     $      0.20     $      0.20     $      0.10     $      0.00
                                ===========     ===========     ===========     ===========     ===========
Book value per share ........   $      3.08     $      9.75     $     21.34     $     20.94     $     26.90
                                ===========     ===========     ===========     ===========     ===========
</TABLE>

(1)   On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
      Intangible Assets." 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. SFAS No. 142 requires that goodwill be tested for
      impairment at least annually, or more frequently as a result of an event
      or change in circumstances that would indicate impairment may be
      necessary. On January 1, 2002, the Company recorded a $2.4 million
      impairment related to goodwill, net of $0 tax ($0.18 per diluted share).
      If SFAS No. 142 were in effect beginning January 1, 2001, the financial
      statement impact would have been approximately $444,000, net of tax,
      ($0.03 per diluted share) for the 12 months ended December 31, 2001.

      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.


                                                                              31
<PAGE>

(2)   Basic and diluted loss per share of Common Stock for the year ended
      December 31, 2002 is computed using the weighted average number of common
      shares outstanding during the year of 13,385,124.

      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. 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 2002 include the
accounts and operations of The MIIX Group and its wholly-owned subsidiaries.

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 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.

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 ALAE 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


                                       32
<PAGE>

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 adjust its valuation allowance, which
would impact the financial position and results of operations. A valuation
allowance has been established for approximately the full value of the net
deferred tax assets at December 31, 2002.

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
losses 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 Company's determination of loss and LAE reserves involved the projection of
ultimate loss and ALAE through the following actuarial techniques:

o     Incurred Development Method
o     Bornhuetter-Ferguson Method
o     Frequency-Severity Method
o     ALAE-to-Indemnity Ratio Method
o     Audit Method

ULAE reserves are projected through a Paid-to-Paid Ratio Method.

For a brief description of each of these techniques, refer to "Business - Loss
and LAE Reserves."

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 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 policy forms, which generally
provide, at no additional charge, continuing 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.

Investments. The Company has designated its entire investment portfolio as
available-for-sale. As such, all investments are carried at their fair values.
The fair value of securities is based upon quoted market prices when available.
Where market prices or broker quotations are not available, the fair value is
estimated based upon discounted cash flow, applying current interest rates for
similar financial instruments with comparable terms and credit quality. The
estimated fair value of a financial instrument may be significantly different
from the amount that could be realized if the security were sold immediately.

The Company has no securities classified as "trading" or "held-to-maturity."
Investments are recorded at the trade date.


                                                                              33
<PAGE>

A significant estimation inherent in the valuation of investments is the
evaluation of other-than-temporary impairments. The Company regularly evaluates
the carrying value of its investments based on current economic conditions, past
credit loss experience, the length of time and the extent to which the fair
value has been less than book value, and other circumstances. Additionally, for
certain securitized financial assets with contractual cash flows, Emerging
Issues Task Force ("EITF") 99-20, "Recognition of Interest Income and Impairment
on Purchased and Retained Beneficial Interest in Securitized Financial Assets,"
require the Company to periodically update its best estimate of cash flows over
the life of the security. If the Company estimates that the fair value of its
securitized financial asset is less than its carrying amount and there has been
a decrease in the present value of the estimated cash flows since the last
revised estimate, then an other-than-temporary impairment charge is recognized.

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. 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.

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.

RISKS AND UNCERTAINTIES

The Company's business is subject to a number of risks and uncertainties,
including the following:

The New Jersey Insurance Commissioner Currently Has the Authority to Place MIIX
in Supervision, Rehabilitation or Liquidation.

During the quarter ended December 31, 2002, the Company recorded an adjustment
of $20.5 million to net loss and LAE reserves. The effect of the latest reserve
adjustment was to further erode MIIX's Risk Based Capital ("RBC") to $18.7
million, which is substantially below the Mandatory Control Level specified in
the New Jersey insurance statutes. At the Mandatory Control Level, the Insurance
Commissioner of the New Jersey Department of Banking and Insurance is authorized
to place MIIX in supervision, rehabilitation or liquidation. The Company's
insurance subsidiary, MIIX, is in discussions with the New Jersey Insurance
Commissioner about potential additional regulatory actions. The Company cannot
determine the form of the regulatory supervision that may be instituted by the
Commissioner.

If the Company Establishes Inadequate Loss and LAE Reserves, MIIX and LP&C May
Face Further Regulatory Action, Including Supervision, Rehabilitation or
Liquidation of MIIX.

The Company's reserves for losses and LAE are estimates of amounts needed to pay
reported and unreported claims and related LAE. If the Company experiences
greater than expected severity or frequency of claims, or both, there is a risk
that currently established reserves will prove inadequate. The Company's
reserves are set based upon a number of assumptions, including that the
Company's loss experience does not further deteriorate. If these assumptions
prove wrong, reserves will be inadequate. If reserves are inadequate, this could
lead to further regulatory action, including the supervision, rehabilitation or
liquidation of the Company. As a result of increased loss severity and frequency
of claims, the Company has increased reserves in each of the last three fiscal
years. If an additional reserve adjustment is required in the future, the
Company will likely be insolvent.

Indemnity Payments in Medical Professional Liability Cases are Rising and There
is a Risk that a Very High Jury Award Could be Rendered Against the Company.

During the past several years, the Company has experienced very high jury
verdicts and settlements against its insureds and its insureds will, in all
likelihood, continue to be subject to high awards in the future. High jury
awards lead to high settlement amounts, and both result in increased losses to
the Company. This risk is heightened by the failure of states in which the
Company does business, particularly New Jersey and Pennsylvania, to


                                       34
<PAGE>

enact meaningful tort reform. During 2000, for example, the Company paid two
claims of at least $2.0 million in New Jersey. During 2001, the Company paid
five claims of at least $2.0 million in New Jersey. During 2002, the Company
paid eight claims of at least $2.0 million in New Jersey. These payments
indicate a worsening in severity of the New Jersey physician book of business.

The Volatility of the Capital Markets May Further Erode the Value of the
Company's Investment Portfolio.

The Company has recognized net investment losses in its investment portfolio of
$3.5 million and $2.2 million, respectively, in each of 2002 and 2001 due to
declines in investment values of securities held in the portfolio. The Company
has also experience reduced investment income due to lower market yields. In
addition, the Company began repositioning the portfolio in 2002 to manage the
runoff of the Company's insurance subsidiaries. As a result of selling in a
declining market, the Company recognized losses on some of the securities it
sold. In addition, approximately $263.0 million has been invested in short-term
investments to provide for an expected acceleration of claims. If claim payments
continue at current levels these short-term investments will be inadequate and
the investment portfolio will be diminished faster than anticipated. Further
declines in the value of its investment portfolio could impact on the Company's
statutory surplus and result in further regulatory action with respect to the
Company, including rehabilitation or liquidation of the Company.

The Company's Reinsurance Coverage Could be Impacted By Continued Operating
Losses or Additional Loss and ALAE Reserve Adjustments.

The Company has entered into a number of aggregate reinsurance contracts. The
contracts in effect provide reinsurance for policies written during 1995 through
September 1, 2002 and contain certain provisions related to funds held balances
or surplus level that obligate the Company to accept additional reinsurance
coverage if the stipulated levels are not maintained. Continued operating losses
could result in the Company falling below the stipulated levels and require the
Company to accept additional reinsurance coverage. Additional loss and loss
reserve adjustments could exceed maximum losses that can be ceded under the
terms of the contract in a particular calendar year. The Company would be liable
for the full amount of losses and ALAE above the maximum covered by the
aggregate reinsurance contracts.

The MIIX Group Common Stock May be Delisted From the New York Stock Exchange.

In March 2003, the New York Stock Exchange ("NYSE") notified The MIIX Group that
it no longer satisfied one of the applicable listing criteria and that its stock
was subject to delisting. MIIX Group is now below criteria as its total market
capitalization is less than $50 million over a 30 trading day period and its
stockholder equity is now less than $50 million. The Company is currently
subject to oversight by the NYSE as a result of failing to meet the stock price
and minimum capitalization requirements in 2002. The Company believes that there
is a substantial likelihood that it will not be able to cure these latest
deficiencies and that its Common Stock will be delisted from the NYSE in the
coming year. If so, The MIIX Group may qualify to trade its Common Stock on the
OTC Bulletin Board or in the "pink sheets" maintained by the National Quotation
Bureau, Inc. Delisting from the NYSE would likely significantly decrease the
liquidity of The MIIX Group Common Stock and make it more difficult for
stockholders to sell their Common Stock, which could reduce the trading price
and increase transaction costs of trading their shares.

The Company May Not be able to Execute its Business Plan to Diversify its
Business.

At the current time, the Company is attempting to diversify its business by
providing third party administration and consulting services to medical
malpractice companies and other health care organizations. There is no assurance
that the Company will be successful in obtaining new customers in connection
with their new service business. At the current time, the Company only has one
customer, MIIX Advantage, for these services. Even if the Company was to obtain
more customers for these services, the Company is required to obtain the
approval of the New Jersey Insurance Commissioner. The Company may not receive
the Insurance Commissioner's approval of its business strategy.

The Company May Not Be Able to Retain the Key Employees Necessary to Operate the
Company.

It is essential that the Company retain qualified key employees to manage the
runoff of its insurance subsidiaries, if allowed to continue to do so, and to
service MIIX


                                       35
<PAGE>

Advantage. The loss of any of its key executives and/or senior managers may
materially, adversely impact the Company's ability to continue to manage its
business effectively.

The Company May Not Be Able to Maintain Adequate Cash Flow and Liquidity.

The Company's cash flow has declined significantly over the past two years as a
result of increased losses and loss of premium revenue. The Company expects that
its cash flow will continue to decline substantially. In addition, given that
MIIX's RBC is below the Mandatory Control Level, the New Jersey Insurance
Commissioner could take further regulatory action that would have the effect of
reducing the Company's cash flow. The Company currently does not have any
sources of liquidity other than the revenues from MIIX Advantage, net investment
income, proceeds from the sales of securities and reinsurance recoverables. It
does not maintain any credit facilities and it is unlikely that it could access
the capital markets in the foreseeable future. Any further significant reduction
in the Company's cash flow would have a material adverse effect on the Company's
financial condition, and could result in bankruptcy or insolvency of the
Company. Based on current information, the Company believes that it will have
sufficient cash to operate its business this year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources."

The Company is Subject to Litigation That Could Have a Material Adverse Effect
on Its Financial Condition.

In 2002, a stockholder of the Company filed a putative class action suit against
the Company, among other plaintiffs, alleging securities fraud, breaches of
fiduciary duty, violations of New Jersey antitrust laws and alleged
misrepresentations and omissions of material facts in various of the Company's
filings with the SEC. See "Legal Proceedings."

Because of the foregoing risks and uncertainties, the Company's financial
statements and the discussion that follows in Management's Discussion and
Analysis of Financial Condition and Results of Operation should not be relied
upon by investors as predictive of future results.

GENERAL

The following is an overview of the Company's insurance business, which is now
in runoff. The Company believes it will assist stockholders in understanding the
Company's results of operations, liquidity and capital resources.

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.

LOSS AND LAE RESERVES

The determination of loss and LAE reserves involves the projection of ultimate
losses through quarterly actuarial analyses 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 $161.2 million and
$117.9 million in 2002 and 2001, respectively. If prior trends continue, the
Company may have to increase gross reserves again in 2003, which could
materially adversely impact the Company's financial position and result in the
rehabilitation or liquidation of MIIX.

The Company offered traditional occurrence coverage from 1977 through 1986 and
offered a form of occurrence-like coverage, "modified claims made," from 1987 to
August 31, 2002. Occurrence and modified claims made coverages constituted the
majority of the Company's business throughout its history. In recent years,
however, the Company increased its


                                       36
<PAGE>

claims made business. Development of losses and LAE is longer and slower for
occurrence business than claims made business.

Reserves for incurred but not reported claims ("IBNR reserves") have
consistently represented the majority of total loss and LAE reserves held by the
Company. At December 31, 2002 and 2001, gross IBNR reserves composed 60.5% and
60.1%, respectively, of total gross loss and LAE reserves. The increase in the
proportion of IBNR in 2002 is the result of many factors; most notable among
them was increased loss severities during 2002. Gross loss and LAE reserves on
claims made medical malpractice policies amounted to $395.8 million, or 34.4% of
total gross loss and LAE reserves at December 31, 2002, compared to gross loss
and LAE reserves on claims made policies of $357.5 million, or 29.9% of total
gross loss and LAE reserves at December 31, 2001.

REINSURANCE

The Company currently reinsures its risks primarily under six reinsurance
contracts, five Facultative Contracts and an Aggregate Excess of Loss Contract
("Aggregate Contract"). During January 2002, the Company renewed five
institutional policies with Facultative Reinsurance Contracts, which reduced the
amount of risk that MIIX retained on each policy. The contracts are on a quota
share basis; therefore MIIX shares a portion of the premium and loss on each
Facultative Reinsurance Contract. The quota share amount that MIIX retains
ranges between 25% and 50%.

The Aggregate Contract in 2002 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 65% 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 $100 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 ALAE. Interest charges are credited
on funds withheld at predetermined contractual rates. 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 or its
predecessor, Medical Inter-Insurance Exchange of New Jersey, fall below B+. On
March 22, 2002, A.M. Best lowered the rating of MIIX, to C+ and MIIX withdrew
from the interactive rating process with A.M. Best. As a result of the
downgrade, reinsurers requested that assets supporting the funds withheld
account be placed in a trust. The Company has established the required trust
accounts in accordance with these contract provisions. Each of the aggregate
excess reinsurance contracts also contains a provision allowing reinsurers to
offer additional reinsurance coverage that MIIX 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. As of December
31, 2002, 2001 and 2000, no funds withheld balances were below $500,000 or in a
loss position.

UNDERWRITING EXPENSES

The Company's underwriting expenses decreased during 2002 primarily due to the
Company having ceased insurance operations resulting in reduced commissions,
premium taxes, and a reduction in compensation and benefits resulting from
downsizing actions taken during 2002.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002, COMPARED TO YEAR ENDED DECEMBER 31, 2001

NET PREMIUMS EARNED. Net premiums earned were $100.2 million in 2002 compared to
$146.9 million in 2001, a decrease of approximately $46.7 million or 31.8%. This
net decrease is composed of decreased direct, assumed and ceded premiums earned.
Direct premiums earned decreased $54.4 million or 25.4% to $159.5 million in
2002 from $213.9 million in 2001 primarily due to ceasing insurance operations,
commutations and cancellation activity during the last nine months of 2002.
Direct earned premiums were impacted by the return of


                                       37
<PAGE>

approximately $4.9 million associated with the commutation of a large
institutional policy during the fourth quarter of 2002. Assumed premiums earned
decreased by $0.4 million or 100.0% to $0 from $0.4 million in 2001 primarily
due to nonrenewal of a large poorly performing excess of loss reinsurance
contract effective January 1, 2001. Ceded premiums earned decreased by $8.1
million or 12.1% to $59.3 million in 2002 from $67.5 million in 2001 primarily
due to lower direct earned premium, offset by additional ceded premiums of $44.8
million associated with the reserve adjustment during 2002 as compared to $40.1
million associated with the reserve adjustment during 2001.

Total premiums written in 2002 were $96.2 million, a decrease of $135.7 million,
or 58.5% from total premiums written of $231.9 million in 2001. The net decrease
in total premiums written is primarily due to the Company's cessation of writing
or renewing premiums in all states, in accordance with each state's specific
non-renewal requirements.

The Company will earn substantially less premiums in 2003 because it has ceased
writing new insurance policies other than endorsements and tail coverage as of
September 1, 2002.

NET INVESTMENT INCOME. Net investment income decreased $19.4 million, or 24.2%,
to $60.8 million in 2002 from $80.2 million in 2001. The decrease was primarily
attributable to the combined effects of lower market yields and a decrease in
average invested assets resulting mainly from claims payments and a
corresponding increase in average short-term investments held during 2002.
Because two of the Company's insurance subsidiaries, MIIX and LP&C, are in
solvent runoff, the Company is modifying its investment portfolio to (1) manage
an expected increase in accelerated claims and a lower invested asset base and
(2) improve the overall average credit quality of the portfolio. This
modification involves selling the portfolio's longer duration securities,
opportunistically selling below investment grade holdings and using the proceeds
to acquire shorter duration, high quality securities. The Company is attempting
to modify the duration and credit quality of the portfolio, however, at a time
when the market is extremely volatile. Accordingly, the Company has experienced
and may potentially experience losses primarily in the sale of its below
investment-grade securities.

Average invested assets at amortized cost decreased to approximately $1.15
billion in 2002 from $1.26 billion in 2001. The average pre-tax yield on the
investment portfolio decreased to 5.31% in 2002 from 6.38% in 2001 primarily as
the result of lower market yields and an increase in short-term investments held
during 2002 for the reasons set forth above.

REALIZED INVESTMENT GAINS AND LOSSES. Net realized investment losses increased
$1.3 million, or 61.2%, to net realized investment losses of $3.5 million in
2002 compared to net realized investment losses of $2.2 million in 2001. In
2002,net realized gains of approximately $13.4 million were recognized primarily
due to sales of fixed maturity investments as a result of investment portfolio
modifications and recognized approximately $16.9 million of losses related to
other-than-temporary declines in investment values, of which $8.9 million was
attributable to collateralized bond obligations and $4.8 million was associated
with United Airlines corporate bonds. 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.

OTHER REVENUE. Other revenue decreased $1.0 million, or 11.8%, to $7.4 million
in 2002 compared to $8.4 million in 2001. This net decrease is composed of (1) a
decrease of approximately $2.4 million due to the sale of substantially all of
the assets of the Company's leasing subsidiary, HNL, effective April 30, 2002,
(2) an increase of $1.7 million associated with management services and related
contracts with MIIX Advantage, which commenced insurance operations on September
1, 2002 and (3) a net decrease of approximately $0.3 million attributable to
other non-insurance business activity.

LOSS AND LOSS ADJUSTMENT EXPENSES (LAE). Losses and LAE decreased $54.3 million,
or 21.6%, to $196.5 million in 2002 from $250.8 million in 2001. Losses and LAE
were net of ceded losses and LAE of $115.3 million in 2002 and $97.5 million in
2001. The ratio of net losses and LAE to net premiums earned increased to 196.1%
in 2002 from 170.8% in 2001.

As a result of a reserve study conducted by the Company and the annual external
actuarial review, the Company recorded a $20.5 million net adjustment to loss
and LAE reserves


                                                                              38
<PAGE>

for the fourth quarter ended December 31, 2002 to maintain the loss and LAE
reserve at management's best estimate levels. Loss and LAE reserve for the
quarter ended December 31, 2002 included an increase to direct and assumed loss
and LAE reserves of $85.1 million reduced by ceded loss and ALAE reserves of
$64.6 million. Adjustments to direct and assumed loss and LAE reserves included
a net increase in Pennsylvania hospitals of $42.0 million, a net increase to New
Jersey physicians business of $34.7 million, a decrease to Pennsylvania
physicians of $6.1 million and a net increase to all other states hospitals and
physicians business of $10.1 million and $4.4 million, respectively. The net
adjustment primarily reflects adverse severity trends, and to a certain extent
acceleration of claims, particularly with respect to Pennsylvania hospital
claims and to New Jersey physicians for coverage years prior to 1999.

Through the nine months ended September 30, 2002, reserve adjustments had been
made to maintain the loss and LAE reserve at management's best estimate levels.
The reserve adjustments recorded for the three months ending September 30, 2002
followed from an internal study conducted by the Company. Loss and LAE reserves
for the quarter ended September 30, 2002 included a net increase to direct and
assumed loss and ALAE reserves of $30.7 million and a net decrease to ULAE
reserves of $24.1 million. Ceded loss and ALAE reserves were increased by $11.2
million. Adjustments to direct and assumed loss and ALAE reserves included a net
increase in Pennsylvania hospital reserves of $23.5 million, a net decrease in
Pennsylvania physician reserves of $9.5 million, a net decrease in New Jersey
physician reserves of $0.8 million, and a net increase in reserves held on all
other business, written primarily in Texas and Ohio, of $17.5 million. The net
adjustment primarily reflected adverse severity trends, particularly with
respect to Pennsylvania hospital claims, somewhat offset by better than expected
activity in the 2002 coverage year. The net adjustment to ULAE reserves
primarily reflected the greater level of claims activity associated with claims
made business written in recent years. Claims made business generally has a
shorter development tail than occurrence policies, so the duration of
anticipated future claim handling activity, and claim activity costs per dollar
of indemnity payment, diminished.

For the three months ending March 31, 2002, the Company strengthened loss
reserves based on updated actuarial information, which became available as of
March 31, 2002. The Company recorded a $29.5 million net adjustment to loss and
LAE reserves as of March 31, 2002. Prior year gross and ceded loss and LAE
reserves were increased by $54.5 million and $25.0 million, respectively. The
strengthening in prior year gross loss and LAE reserves consists of $31.3
million attributable to physician business written by LP&C for the coverage
years of 1998-2001, $31.3 million related to New Jersey physicians primarily for
business earned during 1994-1996, and other increases of $8.0 million relating
primarily to Pennsylvania institutional business for the 1999-2001 coverage
years. These increases were partly offset by reductions in prior year gross loss
and LAE reserves of $9.5 million related to Pennsylvania physician business
earned primarily during 1998 and 1999 and $6.6 million related to New Jersey
physician business earned during 2001, reflecting the Company's recent
improvements in underwriting, risk selection and pricing disciplines.

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 LAE
reserves as of December 31, 2001. During 2001, the Company increased direct and
assumed prior year loss and LAE 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 LAE 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 LAE reserves resulted
primarily from increased severity levels and reduced profitability indications
from prior accident years.

UNDERWRITING EXPENSES. Underwriting expenses decreased $14.0 million, or 29.7%,
to $33.1 million in 2002 from $47.1 million in 2001. This decrease is primarily
due to the effects of discontinued insurance operations, with reduced
commissions, premium taxes and a reduction in compensation and benefits
resulting from downsizing actions taken during 2002. The ratio of underwriting
expenses to net premiums earned increased to 33.1% in 2002 from 32.1% in 2001.
The increase resulted primarily from lower net earned premiums which was
impacted by additional ceded premiums associated with additional losses ceded
under the Company's aggregate reinsurance contracts.


                                                                              39
<PAGE>

FUNDS HELD CHARGES. Funds held charges increased $11.7 million, or 27.6%, to
$54.2 million in 2002 from $42.5 million in 2001. Funds held charges relate to
the Company's ceded aggregate reinsurance contracts, and represent balances due
to reinsurers which are withheld as collateral for losses and ALAE ceded under
the contracts. Funds held charges increased $30.0 million resulting from
adjustments made to ceded loss and ALAE reserves and ceded premiums recorded
during the first, third and fourth quarters of 2002. In 2001 funds held charges
increased $19.8 million resulting from changes to loss reserves, ceded losses
and ceded premiums during 2001.

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 increased $0.1 million, or 1.5%, to $3.5 million
in 2002 from $3.4 million in 2001. This net increase is primarily due to
increased costs resulting from management services provided to MIIX Advantage,
which commenced operations on September 1, 2002, offset by the sale of
substantially all the assets of the Company's leasing subsidiary, HNL, effective
April 30, 2002.

RESTRUCTURING CHARGE. The Company announced in March, 2002 that LP&C's
operations would be placed into runoff and recorded a restructuring charge of
$2.6 million during the first quarter of 2002 relating to the reduction of
regional and home office staff and the closing of regional offices in Dallas and
Indianapolis. No such event occurred during 2001.

CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE, NET OF TAX. On January 1, 2002, the
Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which
requires that goodwill no longer be amortized as an expense, but instead
reviewed and tested for impairment under a fair value approach. The cumulative
effect of adopting SFAS No. 142 was a charge of $2.4 million on January 1, 2002.
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 benefit of $11.2 million was recorded in 2002, as
compared to an income tax expense of $41.9 million in 2001. The tax benefit
resulted from the recognition of a net operating loss carryback due to a tax law
change enacted during 2002. This benefit was net of an increase in the valuation
allowance of $29.7 million during 2002. At December 31, 2001, the Company
recorded a $95.1 million valuation allowance 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 full value.

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


                                                                              40
<PAGE>

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 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 LAE
as of December 31, 2001. During 2001, the Company increased direct and assumed
prior year loss and LAE 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 LAE 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 LAE reserves resulted
primarily from increased severity levels and reduced profitability indications
from prior accident years.

During 2000, loss and LAE 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 LAE 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 LAE


                                       41
<PAGE>

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.

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 LAE 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.

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 revenues from its
non-insurance operations. 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. In that regard, because of losses recorded as of December 31, 2002,
MIIX's RBC is currently at the Mandatory Control Level. At that level, the
Insurance Commissioner of the New Jersey Department of Banking and Insurance is
authorized to place MIIX in supervision, rehabilitation or liquidation.


                                       42
<PAGE>

Insurance regulations permit the Insurance Commissioner to allow an insurer,
like MIIX, that is writing no new insurance policies and which is running off
its existing insurance policies to continue its runoff under the supervision of
the Commissioner. However, no assurance can be given that the Commissioner will
allow MIIX to continue to runoff its business. The Company's other insurance
subsidiaries are organized and subject to similar provisions and restrictions.
No significant amounts are currently available for payment of dividends by the
Company's other insurance subsidiaries without prior approval of the applicable
insurance department. During the first quarter of 2002, the New Jersey
Department of Banking and Insurance approved a $2.1 million dividend payment
from MIIX to the MIIX Group. The MIIX Group does not expect that MIIX will have
the ability to declare and pay dividends to the MIIX Group to meet its operating
needs, except to the extent that the New Jersey Department of Banking and
Insurance specifically approves dividend payments in the future. The Company
cannot provide assurance that the Department will approve further dividend
payments. If it does not, the Company may not be able to continue in business.

The New Jersey Department of Banking and Insurance on May 3, 2002 approved
MIIX's new business plan which provided for the Company to be placed into
voluntary solvent runoff effective May 3, 2002. The Virginia Bureau of Insurance
placed LP&C in solvent runoff effective February 22, 2002 and approved its plan
on May 10, 2002. MIIX and LP&C ceased writing business in all states in
accordance with each state's specific withdrawal requirements. As a result, the
Company expects that cash flow from operations in the future will continue to be
negative, as payments of outstanding claims and expenses exceed its revenues
from MIIX Advantage and net investment income. In 2002, the Company entered into
a management contract and other financial arrangements with a newly formed
physician-supported medical malpractice insurance company. The revenues from
these agreements and investment income will be the Company's only source of
revenues in the foreseeable future. The Company plans to grow its consulting
business by providing similar services to self-insured entities and other health
care provider owned insurers. In order to do so, it will need the approval of
the New Jersey Department of Banking and Insurance. The Company cannot assure
stockholders that such approval will be forthcoming.

On May 23, 2002, the Company repaid the $9.1 million loan balance under a credit
facility with Amboy National Bank largely with the proceeds from the sale of
substantially all the net assets of HNL. Thereafter, the credit facility closed.
The Company's $9.1 million fixed-maturity investments in Amboy National Bank
matured and the funds were reinvested in short-term securities. The Company
currently does not have any bank financing.

The primary sources of the Company's liquidity are net investment income,
proceeds from the maturity or sale of invested assets, recoveries from
reinsurance, revenues from non-insurance operations and unearned premium. Funds
are used to pay losses and LAE, operating expenses, reinsurance premiums and
taxes. The Company's net cash flow (used in)/provided by operating activities
were approximately ($180.6) million, ($23.6) million and $59.3 million for the
years ended December 31, 2002, 2001 and 2000, respectively. The decrease in cash
flow during 2002 was primarily the result of increased loss payments, reflecting
both the maturation of the Company's expansion book of business and the
settlement of several higher severity cases, lower investment income and a
decrease in premium collection reflecting the decrease in written premium
offset, in part, by a federal income tax refund and proceeds from the sale of
substantially all of the assets of HNL. 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. Because the Company ceased writing insurance
policies, cash flow is expected to decrease substantially. The Company's cash
flow could be further impacted adversely as a result of MIIX being subject to
mandatory control. The Company cannot determine the impact on cash flow of
further regulatory actions by the New Jersey Department of Banking and
Insurance. See "Business - Recent Developments" and ""Management's Discussion
and Analysis of Financial Condition and Results of Operation - Risks and
Uncertainties."

The Company, through the normal course of operations, entered into contractual
obligations relating to leases for premises and equipment. The following table
details the Company obligations for the years presented.


                                                                              43
<PAGE>

                                   Less Than 1      1-3 Years      More Than 3
                         Total         Year                            Years
  Operating leases:
   (in thousands)

     Equipment           $  391       $  293           $ 98             $0
     Premises               793          767             26              0
  Total                  $1,184       $1,060           $124             $0

The Company's cash flow could be further impacted by actions taken by the
insurance department regulators of New Jersey and Virginia. See "Recent
Developments" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation - Risks and Uncertainties." See "Business - Business
Strategy" and "Business - Regulation - Risk-Based Capital."

The Company investments consist primarily of fixed-maturity securities. The
Company's current investment strategy seeks to maximize after-tax income through
holding an investment grade, intermediate term, diversified, taxable bond
portfolio, while maintaining an adequate level of liquidity. The Company
currently plans to continue this strategy. Approximately $263.0 million has been
set aside in short-term investments to provide for acceleration of claims. If
claim payments continue at current levels these funds will be inadequate and the
investment portfolio will be diminished faster than anticipated. Any diminution
of the investment portfolio will reduce net investment income. At December 31,
2002, the portfolio had an average credit quality of "AA," an average duration
of 3.5 years, and an annualized yield of 5.3%.

At December 31, 2002 and 2001, the Company held collateral of $332.7 million and
$374.2 million, respectively, in the form of funds held, and $161.2 million and
$166.5 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. Under the
contracts, and as a result of the downgrade of the Company's A.M. Best rating to
below B+ during the first quarter of 2002, reinsurers requested that assets
supporting the funds withheld account be placed in trust. The Company has
established the required trust accounts 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 6.0% to 8.6%, which is
recorded as an expense in the year incurred.

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. No stock was repurchased under
the stock repurchase program during 2001 or during 2002. The Company does not
expect to repurchase any additional common stock under this program.

During 2001, The MIIX Group repurchased 84,178 shares at a value of
approximately $0.7 million related to the resignation of a former executive
officer of the Company. During 2002, certain current and former officers
tendered 110,061 shares in the aggregate of The MIIX Group Common Stock and
exercised 101,591 stock appreciation rights, which were designated as phantom
stock options in the respective agreements. These tenders and additional loan
repayments reduced the stock purchase and loan balances of the officers by
approximately $1.8 million in the aggregate. All transactions were recorded at
the fair market value of the MIIX Group Common Stock on the effective date of
the respective transactions.

MARKET RISK OF FINANCIAL INSTRUMENTS

Market risk represents the potential for loss due to adverse changes in the fair
value of financial instruments. Through the Company's investment portfolio, it
is exposed to risks related to unforeseen changes in interest rates, credit
quality, prepayments and valuations. The Company uses analytical tools and
monitoring systems to continually assess and react to each of these elements of
market risk.


                                                                              44
<PAGE>

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, 2002 and 2001, 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, 2002:

<TABLE>
<CAPTION>
                                                     Expected Maturity Date
                        ----------------------------------------------------------------------------------     Total
                                                         (In thousands)                                       Principal
                            2003          2004           2005          2006          2007       Thereafter     Amounts    Fair Value
                        -----------   -----------    -----------   -----------   -----------    ----------   ----------   ----------
<S>                     <C>           <C>            <C>           <C>           <C>            <C>          <C>          <C>
Government & Agency     $     8,066   $    15,780    $     3,195   $    14,645   $    14,515    $   53,930   $  110,131   $  119,850
- Average Yield ...            4.30%         3.60%          2.97%         3.81%         3.43%         5.36%        4.38%
Corporate .........     $     8,475   $    18,600    $    11,750   $    19,625   $    23,900    $  217,279   $  299,629   $  285,183
- Average Yield ...            7.62%         6.79%          5.16%         5.24%         4.45%         5.95%        5.82%
Mortgage-Backed ...     $         0   $         0    $        54   $     2,688   $         0    $  171,970   $  174,712   $  181,347
- Average Yield ...            0.00%         0.00%          6.73%         5.60%         0.00%         6.10%        6.10%
Asset-Backed ......     $         0   $       212    $         0   $     6,411   $     1,637    $  191,605   $  199,865   $  202,200
- Average Yield ...            0.00%         5.84%          0.00%         5.01%         6.89%         6.21%        6.19%
                        -----------   -----------    -----------   -----------   -----------    ----------   ----------   ----------
TOTALS ............     $    16,541   $    34,592    $    14,999   $    43,369   $    40,052    $  634,784   $  784,337   $  788,580
</TABLE>

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
</TABLE>

At December 31, 2002, the Company had net after-tax unrealized gains on its
fixed maturity investment portfolio of $17.3 million. The net after-tax
unrealized gains of $17.3 million on the fixed maturity portfolio represented
73.7% of total shareholders' equity gross of net after-tax unrealized losses on
investments. The net unrealized gains were the result of the decline in market
interest rates during 2002, 2001 and 2000.

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, 2002 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 deteriorating quality. The Company manages these issues by
limiting the amount of higher risk corporate obligations (determined, among
other variables, by credit rating assigned by private rating agencies) in which
it invests.

Approximately 49% of the investment portfolio is concentrated in mortgage-backed
and asset-backed securities. 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


                                       45
<PAGE>

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, 2002,
the cost and fair value of equity investments was $4.8 million and $5.2 million,
respectively. At December 31, 2001, the cost and fair value of equity
investments was $7.1 million and $6.6 million, respectively. A 10% decline in
value of the equity investments at December 31, 2002 would result in after-tax
accumulated unrealized gains on equity investments of $0.4 million or 1.6% of
total stockholders' equity gross of net after-tax unrealized gains 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 Operation."

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a)   Directors of the Company.

      This information is incorporated by reference to the Proxy Statement under
      the heading "Election of Directors."

(b)   Executive Officers of the Company.

      See Part I of this Form 10-K.

(c)   Section 16(a) Beneficial Ownership Reporting Compliance.

      This information is incorporated by reference to the Proxy Statement under
      the heading "Section 16(a) Beneficial Ownership Reporting Compliance."

ITEM 11.  EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the Proxy
Statement under the headings "Executive Compensation" and "Compensation
Committee Report on Executive Compensation."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS


                                                                              46
<PAGE>

Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the Proxy Statement under the heading
"Stock Ownership of Directors, Executive Officers and Certain Beneficial
Owners."

The following table provides certain information with respect to the Company's
equity compensation plans in effect as of December 31, 2002:

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                                                                           (c)
                                                                                  Number of securities
                                                                                  remaining available
                                          (a)                                     for future issuance
                                   Number of securities           (b)               under equity
                                    to be issued upon       Weighted-average      compensation plans
                                       exercise of          exercise price of          (excluding
                                   outstanding options,    outstanding options,   securities reflected
Plan Category                      warrants and rights     warrants and rights        in column (a))
-------------                      -------------------     -------------------        --------------
<S>                                      <C>                     <C>                     <C>
Equity compensation plans
approved by security holders             848,962*                $8.28                   1,367,536

Equity compensation plans
not approved by security holders               0                     0                           0
                                         -------                 -----                   ---------

Total                                    848,962*                $8.28                   1,367,536
</TABLE>

* Does not include outstanding restricted stock awards

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14.  CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, and with the participation of
management, The MIIX Group's Chief Executive Officer and Interim Chief Financial
Officer carried out an evaluation of the effectiveness of the design and
operation of The MIIX Group's disclosure controls and procedures (as defined in
Securities Exchange Act Rule 15d-14). Based upon that evaluation, the Chief
Executive Officer and Interim Chief Financial Officer have concluded that The
MIIX Group's disclosure controls and procedures are effective in providing them
with timely material information that is required to be disclosed in reports The
MIIX Group files under Section 15(d) of the Securities Exchange Act.

There were no significant changes in The MIIX Group's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the evaluation.

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

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

      The required schedules filed as part of this Report are identified on the
      Index to Financial Statements on page F-1 of this Report. The financial
      statements filed as part of this report are listed on the Index to
      Financial Statements on page F-1. 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:


                                                                              47
<PAGE>

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
          June 12, 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)).

10.1      Lease By and Between the Medical Society of New Jersey and New Jersey
          State Medical Underwriters, Inc. dated October 1, 2000 (incorporated
          by reference to the exhibit filed with the registrant's Annual Report
          on Form 10-K for the year ended December 31, 2001, as filed with the
          Securities and Exchange Commission on April 1, 2002 (file no.
          001-14593)).

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)).


                                                                              48
<PAGE>

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 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)).

10.22*    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)).


                                                                              49
<PAGE>

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)).

10.41     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)).


                                                                              50
<PAGE>

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 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)).

10.53     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)).

10.55*    Employment Agreement among The MIIX Group, Incorporated, New Jersey
          State Medical Underwriters, Inc. and Catherine E. Williams, dated
          October 31, 2001 (incorporated by reference to the exhibit filed with
          the registrant's Annual Report on Form 10-K for the year ended
          December 31, 2001 as filed with the Securities and Exchange Commission
          on March 31, 2002 (file no. 001-14593)).

10.56*    Employment Agreement among The MIIX Group, Incorporated, New Jersey
          State Medical Underwriters, Inc. and Patricia A. Costante, dated
          December 19, 2001 (incorporated by reference to the exhibit filed with
          the registrant's Annual Report on Form 10-K for the year ended
          December 31, 2001 as filed with the Securities and Exchange Commission
          on March 31, 2002 (file no. 001-14593)).

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
          (incorporated by reference to the exhibit filed with the registrant's
          Annual Report on Form 10-K for the year ended December 31, 2001 as
          filed with the Securities and Exchange Commission on March 31, 2002
          (file no. 001-14593)).


                                                                              51
<PAGE>

10.60     First Amendment to Lease Agreement between Medical Society of New
          Jersey and New Jersey State Medical Underwriters, Inc. effective
          February 5, 2002 (incorporated by reference to the exhibit filed with
          the registrant's Annual Report on Form 10-K for the year ended
          December 31, 2001 as filed with the Securities and Exchange Commission
          on March 31, 2002 (file no. 001-14593)).

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
          (incorporated by reference to the exhibit filed with the registrant's
          Annual Report on Form 10-K for the year ended December 31, 2001 as
          filed with the Securities and Exchange Commission on March 31, 2002
          (file no. 001-14593)).

10.64*    First Amendment and Allonge to Note between the MIIX Group,
          Incorporated and Edward M. Grab, entered into March 5, 2002
          (incorporated by reference to the exhibit filed with the registrant's
          Annual Report on Form 10-K for the year ended December 31, 2001 as
          filed with the Securities and Exchange Commission on March 31, 2002
          (file no. 001-14593)).

10.65*    Stock Loan Repayment Agreement by and between Patricia A. Costante and
          The MIIX Group, Incorporated, entered into March 5, 2002 (incorporated
          by reference to the exhibit filed with the registrant's Annual Report
          on Form 10-K for the year ended December 31, 2001 as filed with the
          Securities and Exchange Commission on March 31, 2002 (file no.
          001-14593)).

10.66*    Stock Loan Repayment Agreement by and between Edward M. Grab and The
          MIIX Group, Incorporated, entered into May 5, 2002 (incorporated by
          reference to the exhibit filed with the registrant's Annual Report on
          Form 10-K for the year ended December 31, 2001 as filed with the
          Securities and Exchange Commission on March 31, 2002 (file no.
          001-14593)).

10.67*    Employment Agreement among The MIIX Group, Incorporated, New Jersey
          State Medical Underwriters, Inc. and William G. Davis, Jr., dated
          March 19, 2002 (incorporated by reference to the exhibit filed with
          the registrant's Quarterly Report on Form 10-Q for the quarter ended
          March 31, 2002 as filed with the Securities and Exchange Commission on
          May 15, 2002 (file no. 001-14593)).

10.68*    Employment Agreement among The MIIX Group, Incorporated, New Jersey
          State Medical Underwriters, Inc. and Verice M. Mason, dated March 19,
          2002 (incorporated by reference to the exhibit filed with the
          registrant's Quarterly Report on Form 10-Q for the quarter ended March
          31, 2002 as filed with the Securities and Exchange Commission on May
          15, 2002 (file no. 001-14593)).

10.69*    Non-Qualified Deferred Compensation Agreement by and between The MIIX
          Group, Incorporated, New Jersey State Medical Underwriters, Inc. and
          William G. Davis, Jr., entered into and effective March 19, 2002
          (incorporated by reference to the exhibit filed with the registrant's
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 as
          filed with the Securities and Exchange Commission on May 15, 2002
          (file no. 001-14593)).

10.70*    Non-Qualified Deferred Compensation Agreement by and between The MIIX
          Group, Incorporated, New Jersey State Medical Underwriters, Inc. and
          Verice M. Mason, entered into and effective March 19, 2002
          (incorporated by reference to the exhibit filed with the registrant's
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 as
          filed with the Securities and Exchange Commission on May 15, 2002
          (file no. 001-14593)).

10.71     Severance Agreement between The MIIX Group, Incorporated, New Jersey
          Medical Underwriters, Inc. and Stewart J. Gerson dated July 3, 2002
          (incorporated by reference to the exhibit filed with the registrant's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 as
          filed with the Securities and Exchange Commission on August 14, 2002
          (file no. 001-14593)).


                                                                              52
<PAGE>

10.72     Combined Quota Share and Aggregate Excess of Loss Reinsurance
          Agreement made and entered into by and between MIIX Insurance Company
          and Hannover Reinsurance (Ireland) Limited/ E + S Reinsurance
          (Ireland) Limited (incorporated by reference to the exhibit filed with
          the registrant's Quarterly Report on Form 10-Q for the quarter ended
          September 30, 2002 as filed with the Securities and Exchange
          Commission on November 14, 2002 (file no. 001-14593)).

10.73     Commutation and Release Agreement by and between Health Care
          Indemnity, Inc. and Lawrenceville Property & Casualty Company and MIIX
          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, 2002 as filed with the Securities and Exchange
          Commission on November 14, 2002 (file no. 001-14593)).

10.74     Employment Agreement between and among The MIIX Group, Incorporated,
          New Jersey State Medical Underwriters, Inc. and Allen G. Sugerman
          dated October 16, 2002 (incorporated by reference to the exhibit filed
          with the registrant's Quarterly Report on Form 10-Q for the quarter
          ended September 30, 2002 as filed with the Securities and Exchange
          Commission on November 14, 2002 (file no. 001-14593)).

10.75*+   Employment Agreement among The MIIX Group, Incorporated, New Jersey
          State Medical Underwriters, Inc., and James P. Roynan.

10.76*+   Non-Qualified Deferred Compensation Agreement by and between The MIIX
          Group, Incorporated, New Jersey State Medical Underwriters, Inc. and
          James P. Roynan.

10.77+    Trust Agreement among MIIX Insurance Company, Eisen Und Stahl
          Reinsurance and Mellon Bank, N.A., entered into May 13, 2002.

10.78+    Trust Agreement among MIIX Insurance Company, Underwriters Reinsurance
          Company (Barbados) Inc., and Mellon Bank, N.A., entered into May 7,
          2002.

10.79+    Trust Agreement among MIIX Insurance Company, London Life and Casualty
          Reinsurance Corporation, and Mellon Bank, N.A., entered into May 7,
          2002.

10.80+    Trust Agreement among MIIX Insurance Company, Hannover Reinsurance
          (Ireland) Ltd., and Mellon Bank, N.A., entered into May 7, 2002.

10.81+    Trust Agreement among MIIX Insurance Company, Swiss Reinsurance
          America Corporation, and Mellon Bank, N.A., entered into May 7, 2002.

10.82     Management Services Agreement, dated as of August 28, 2002 by and
          among the MIIX Group, Inc., New Jersey State Medical Underwriters,
          Inc., MIIX Advantage Holdings, Inc. and MIIX Advantage Insurance
          Company of New Jersey (incorporated by reference to Exhibit 99.1 to
          the registrant's Current Report on Form 8-K as filed with the
          Securities and Exchange Commission on September 12, 2002 (file no.
          001-14593)).

10.83     Non-Competition and Renewal Rights Agreement, dated as of August 28,
          2002 by and among the MIIX Group, Inc., MIIX Insurance Company, New
          Jersey State Medical Underwriters, Inc., MIIX Advantage Holdings, Inc.
          and MIIX Advantage Insurance Company of New Jersey (incorporated by
          reference to Exhibit 99.2 to the registrant's Current Report on Form
          8-K as filed with the Securities and Exchange Commission on September
          12, 2002 (file no. 001-14593)).

10.84     Intellectual Property License Agreement, dated as of August 28, 2002
          by and among New Jersey State Medical Underwriters, Inc., MIIX
          Advantage Holdings, Inc. and MIIX Advantage Insurance Company of New
          Jersey (incorporated by reference to Exhibit 99.3 to the registrant's
          Current Report on Form 8-K as filed with the Securities and Exchange
          Commission on September 12, 2002 (file no. 001-14593)).


                                                                              53
<PAGE>

10.85+    Reimbursement Agreement dated as of August 28, 2002 by and among MIIX
          Advantage Insurance Company of New Jersey, MIIX Advantage Holdings,
          Inc. and MIIX Insurance Company.

11        No statement regarding the 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.

99.1+     Certification of Chief Executive Officer under Section 906 of the
          Sarbanes-Oxley Act of 2002.

99.2+     Certification of Interim Chief Financial Officer under Section 906 of
          the Sarbanes-Oxley Act of 2002.

*     Represents a management contract or compensatory plan or arrangement.

+     Filed herewith.

(b)   Reports on Form 8-K

      A current report on Form 8-K, dated November 14, 2002, was filed by the
      Company to provide a current Financial Supplement.

                                   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
                                           Chairman and Chief Executive Officer

                                                     March 31, 2003

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            Chairman and Chief Executive
---------------------------         Officer
Patricia A. Costante                (principal executive officer)      March 31, 2003

/s/ ALLEN G. SUGERMAN
----------------------------        Interim Chief Financial Officer
Allen G. Sugerman                   (principal financial and
                                    accounting officer)                March 31, 2003

/s/ ANGELO S. AGRO                  Director
----------------------------
Angelo S. Agro, M.D.                                                   March 31, 2003
</TABLE>


                                                                              54
<PAGE>

<TABLE>
<S>                                 <C>                                <C>
/s/ HARRY M. CARNES                 Director
----------------------------
Harry M. Carnes, M.D.                                                  March 31, 2003

/s/ PAUL J. HIRSCH                  Director
----------------------------
Paul J. Hirsch, M.D.                                                   March 31, 2003

/s/ A. RICHARD MISKOFF              Director
----------------------------
A. Richard Miskoff, D.O.                                               March 31, 2003

/s/ CARL RESTIVO, JR.               Director
----------------------------
Carl Restivo, Jr., M.D.                                                March 31, 2003

/s/ MARTIN L. SORGER                Director
----------------------------
Martin L. Sorger, M.D.                                                 March 31, 2003

/s/ BESSIE M. SULLIVAN              Director
----------------------------
Bessie M. Sullivan, M.D.                                               March 31, 2003
</TABLE>


                                                                              55
<PAGE>

                              CERTIFICATION OF THE
                             CHIEF EXECUTIVE OFFICER

I, Patricia A. Costante, certify that:

1.    I have reviewed this annual report on Form 10-K of The MIIX Group,
      Incorporated;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
      have:

      a)    Designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      b)    Evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      c)    Presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date.

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of the registrant's board of directors (or persons performing
      the equivalent functions):

      a)    All significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officer and I have indicated in this
      annual report whether there were significant changes in internal controls
      or in other factors that could significantly affect internal controls
      subsequent to the date of our most recent evaluation, including any
      corrective actions with regard to significant deficiencies and material
      weaknesses.

Date: March 31, 2003                    /s/ Patricia A. Costante
                                        ----------------------------------------
                                        Chairman and Chief Executive Officer


                                                                              56
<PAGE>

                              CERTIFICATION OF THE
                             CHIEF FINANCIAL OFFICER

I, Allen G. Sugerman, certify that:

1.    I have reviewed this annual report on Form 10-K of The MIIX Group,
      Incorporated;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
      have:

      a)    Designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      b)    Evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      c)    Presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date.

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of the registrant's board of directors (or persons performing
      the equivalent functions):

      a)    All significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officer and I have indicated in this
      annual report whether there were significant changes in internal controls
      or in other factors that could significantly affect internal controls
      subsequent to the date of our most recent evaluation, including any
      corrective actions with regard to significant deficiencies and material
      weaknesses.

Date: March 31, 2003                    /s/ Allen G. Sugerman
                                        ----------------------------------------
                                        Interim Chief Financial Officer


                                                                              57
<PAGE>

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

                                                                            PAGE
                                                                            ----

Report of Independent Auditors..............................................F- 2
Consolidated Balance Sheets as of December 31, 2002 and 2001................F- 3
Consolidated Statements of Operations for the years ended
  December 31, 2002, 2001 and 2000..........................................F- 4
Consolidated Statements of Stockholders' Equity for the three years
  ended December 31, 2002...................................................F- 5
Consolidated Statements of Cash Flows for the years ended
  December 31, 2002, 2001 and 2000..........................................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, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2002. Our audits also
included the financial statement schedules referred to at Item 15(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, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, 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. 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 LAE, 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,(including but not
limited to the litigation discussed in Note 8)could cause insolvency. The
potential consequences of these conditions and those described in Note 1 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 Note 1. 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 2002 the Company
changed its method of accounting for goodwill, and during 2001 the Company
changed its method of accounting for certain investments.

                                        ERNST & YOUNG LLP

New York, New York
March 21, 2003


                                                                             F-2
<PAGE>

                          THE MIIX GROUP, INCORPORATED

                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 2002          2001
                                                              ----------    ----------
<S>                                                           <C>           <C>
                                     ASSETS

Securities available-for-sale:
  Fixed maturity investments, at fair value (amortized cost:
     2002 - $771,414; 2001 - $1,061,499)....................  $  788,580    $1,054,934
  Equity investments, at fair value (cost: 2002 - $4,804;
     2001 - $7,081).........................................       5,187         6,623
  Short-term investments, at cost which approximates fair
     value..................................................     262,537       166,501
                                                              ----------    ----------
      Total investments.....................................   1,056,304     1,228,058
Cash........................................................       4,667         2,029
Accrued investment income...................................       8,339        13,261
Premium receivable, net.....................................       7,602        20,546
Reinsurance recoverable on unpaid losses....................     457,005       463,275
Prepaid reinsurance premiums................................       3,053        16,067
Reinsurance recoverable on paid losses, net.................      31,822        51,632
Deferred policy acquisition costs...........................       1,016         4,416
Net investment in direct financing leases...................           0        32,101
Other assets................................................      47,055        64,478
                                                              ----------    ----------
      Total assets..........................................  $1,616,863    $1,895,863
                                                              ==========    ==========

                LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES

Unpaid losses and loss adjustment expenses..................  $1,151,635    $1,196,998
Unearned premiums...........................................      25,262        88,598
Premium deposits............................................         209        18,928
Funds held under reinsurance treaties.......................     332,741       374,156
Notes payable and other borrowings..........................           0        10,699
Other liabilities...........................................      65,750        74,998
                                                              ----------    ----------
      Total liabilities.....................................   1,575,597     1,764,377

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,(2002 - 13,382,173
   shares outstanding; 2001 - 13,479,760 shares outstanding)         166           166
Additional paid-in capital..................................      53,909        53,927
Retained earnings...........................................      13,323       129,307
Treasury stock, at cost (2002 - 3,155,832 shares;
    2001 - 3,058,245 shares)................................     (40,199)      (39,631)
Stock purchase loans and unearned stock compensation........      (3,662)       (5,444)
Accumulated other comprehensive income (loss)...............      17,729        (6,839)
                                                              ----------    ----------
      Total stockholders' equity............................      41,266       131,486
                                                              ----------    ----------
      Total liabilities and stockholders' equity............  $1,616,863    $1,895,863
                                                              ==========    ==========
</TABLE>

                             See accompanying notes


                                      F-3
<PAGE>

                          THE MIIX GROUP, INCORPORATED

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

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               2002        2001        2000
                                                             --------    --------    --------
<S>                                                         <C>         <C>         <C>
REVENUES
Net premiums earned........................................ $ 100,220   $ 146,852   $ 184,062
Net investment income......................................    60,838      80,193      85,158
Realized investment losses.................................    (3,521)     (2,184)     (4,156)
Other revenue..............................................     7,439       8,439       7,452
                                                            ---------   ---------   ---------
          Total revenues...................................   164,976     233,300     272,516
EXPENSES
Losses and loss adjustment expenses........................   196,487     250,768     279,224
Underwriting expenses......................................    33,125      47,121      38,560
Funds held charges.........................................    54,209      42,476       7,502
Other expenses.............................................     3,454       3,404       5,828
Restructuring charge.......................................     2,552           0           0
                                                            ---------   ---------   ---------
          Total expenses...................................   289,827     343,769     331,114
                                                            ---------   ---------   ---------
Loss before income taxes...................................  (124,851)   (110,469)    (58,598)
Income tax provision (benefit).............................   (11,240)     41,892     (22,140)
     Net loss before cumulative effect of an                ---------   ---------   ---------
       accounting change...................................  (113,611)   (152,361)    (36,458)
     Cumulative effect of an accounting change,
       net of tax..........................................    (2,373)     (5,283)          0
                                                            ---------   ---------   ---------
          Net loss......................................... $(115,984)  $(157,644)  $ (36,458)
                                                            =========   =========   =========
Basic and diluted loss per share before cumulative
     effect of an accounting change........................  $ (8.49)    $(11.27)     $(2.59)
Cumulative effect of an accounting change..................    (0.18)      (0.39)       0.00
                                                             -------     -------      ------
Basic and diluted loss per share of common stock...........  $ (8.67)    $(11.66)     $(2.59)
                                                             =======     =======      ======

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

                             See accompanying notes


                                                                             F-4
<PAGE>

                          THE MIIX GROUP, INCORPORATED

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                   For the Three Years Ended December 31, 2002
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                                      Stock      Accumu-
                                                                                                     Purchase     lated
                                         Number                                                      Loans       Other
                                           of                                                         and       Compre-     Total
                                         Shares               Additional                            Unearned     hensive    Stock-
                                          Out-       Common    Paid-In     Retained    Treasury      Stock       Income     holders'
                                        standing      Stock    Capital     Earnings     Stock     Compensation   (Loss)     Equity
                                        ----------   -------   -------     --------    --------     -------     --------   --------
<S>                                     <C>         <C>       <C>         <C>         <C>          <C>         <C>         <C>
 Balance at January 1, 2000........     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
   Net loss........................                                        (115,984)                                       (115,984)
   Other comprehensive income (loss),
      net of tax...................
      Net unrealized appreciation on
        securities available-for-
        sale, net of deferred taxes                                                                               24,568     24,568
   Stock purchase and loan agreement
       activities..................       (110,061)                                        (729)      1,782                   1,053
   Stock compensation and treasury
      stock activity...............         12,474                 (18)                     161                                 143
                                        ----------   -------   -------     --------    --------     -------     --------   --------
 Balance at December 31, 2002......     13,382,173   $   166   $53,909     $ 13,323    $(40,199)    $(3,662)    $ 17,729   $ 41,266
                                        ==========   =======   =======     ========    ========     =======     ========   ========
</TABLE>

                             See accompanying notes


                                                                             F-5
<PAGE>

                          THE MIIX GROUP, INCORPORATED

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                         -------------------------------------
                                                            2002          2001         2000
                                                         ----------    ----------    ---------
<S>                                                      <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss...............................................  $ (115,984)   $ (157,644)   $ (36,458)
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
    Cumulative effect of an accounting change, net
       of tax..........................................       2,373         5,283            0
    Unpaid losses and loss adjustment expenses.........     (45,363)       54,468       88,933
    Unearned premiums..................................     (63,336)       17,565       (4,400)
    Premium deposits...................................     (18,719)        3,310      (12,295)
    Premium receivable, net............................      12,944       (10,781)       8,609
    Reinsurance balances, net..........................      (2,321)       (3,085)       8,921
    Deferred policy acquisition costs..................       3,400        (1,390)         139
    Realized investment losses.........................       3,521         2,184        4,156
    Depreciation, accretion and amortization...........      (1,134)       (2,482)      (3,948)
    Accrued investment income..........................       4,922         2,813       (1,755)
    Net investment in direct financing leases..........      32,101        (5,104)      (1,929)
    Other assets.......................................      15,046        53,467       26,344
    Other liabilities..................................      (8,050)       17,807      (16,924)
                                                         ----------    ----------    ---------
Net cash provided by (used in) operating activities....    (180,602)      (23,589)      59,393

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed maturity investment sales..........     859,469       503,153       72,476
Proceeds from fixed maturity investments matured,
  called or prepaid....................................     157,157       115,121       85,755
Proceeds from equity investment sales..................       2,484         2,132        6,578
Cost of investments acquired...........................    (729,135)     (505,880)    (210,669)
Change in short-term investments, net..................     (96,036)      (84,210)      10,453
Net payable for securities.............................           0             0         (205)
                                                         ----------    ----------    ---------
Net cash provided by (used in) investing activities....     193,939        30,316      (35,612)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and other borrowings.......           0         3,199       18,476
Repayment of notes payable and other borrowings........     (10,699)       (7,232)     (20,205)
Purchase of treasury stock.............................           0             0      (19,648)
Cash dividends to stockholders.........................           0        (2,704)      (2,784)
Subordinated loan certificates redeemed................           0          (152)          (3)
                                                         ----------    ----------    ---------
Net cash used in financing activities..................     (10,699)       (6,889)     (24,164)
                                                         ----------    ----------    ---------

Net change in cash.....................................       2,638          (162)        (383)
Cash, beginning of year................................       2,029         2,191        2,574
                                                         ----------    ----------    ---------
Cash, end of year......................................  $    4,667    $    2,029    $   2,191
                                                         ==========    ==========    =========
</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"), Lawrenceville
Holdings, Inc. ("LHI"), Lawrenceville Property and Casualty Company ("LP&C"),
MIIX Insurance Company of New York ("MIIX New York") and New Jersey State
Medical Underwriters, Inc. and its wholly-owned subsidiaries ("Underwriters"),
collectively (the "Company").

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.

Until September 1, 2002, the Company provided a wide range of insurance products
to the medical profession and health care institutions. The primary business of
the Company prior to September 1, 2002 was medical professional liability
insurance and it issued claims made, modified claims made with prepaid extended
reporting endorsements and occurrence basis policies.

As a result of unexpected and unprecedented increases in loss and Loss
Adjustment Expense ("LAE") reserves during the past three years, the Company has
been subjected to a number of adverse developments. As a result of significant
adjustments to loss and LAE reserves, the Company's capitalization has
significantly weakened and the Company has, among other things:

o     Ceased writing insurance in all states and placed the insurance operations
      of MIIX into voluntary solvent runoff and LP&C's operations into solvent
      runoff;
o     Withdrawn from the A.M. Best Rating System;
o     Closed its operations in Dallas and Indianapolis and implemented a
      workforce reduction program;
o     Engaged investment bankers to seek offers for any or all of the Company's
      assets and properties;
o     Sold renewal rights to certain of its business to a newly formed New
      Jersey insurance company, MIIX Advantage;
o     Licensed the "MIIX" name and certain trademarks to MIIX Advantage;
o     Begun the process to revise its business plan to become a consulting and
      management services provider to the insurance industry and other
      healthcare providers, subject to regulatory approval.

The Company has requested approval from the New Jersey Department of Banking and
Insurance to discount loss and LAE reserves and to merge LP&C into MIIX as of
December 31, 2002. Similarly, the Company has requested approval from the
Virginia Bureau of Insurance to merge LP&C into MIIX. Pending a decision on
these requests, the New Jersey Department of Banking and Insurance and the
Virginia Bureau of Insurance have granted extensions for the filing of the
annual statutory financial statements for MIIX and LP&C. (Also see Note 9,
"Statutory Accounting Practices," for additional discussion.)

On February 19, 2003, MIIX agreed to certain operating limitations with the New
Jersey Department of Banking and Insurance. The limitations include a
requirement for approval by the New Jersey Department of Banking and Insurance
prior to MIIX incurring new debt, paying dividends or investing in below
investment grade assets. Upon completion of the annual statutory financial
statements it is probable that the New Jersey Department of Banking and
Insurance will initiate additional regulatory statutory actions.

On July 19, 2002, the Company was advised by the New York Stock Exchange
("NYSE") that it had no longer satisfied two of the applicable listing criteria
and that its common stock was subject to delisting. In response, the Company
submitted a business plan to the NYSE and has since received the NYSE's approval
of the plan. However, the Company remains subject to oversight by the NYSE for
the next 18 months and could be delisted if its stock price deteriorates or it
is unable to complete its business plan successfully. In March 2003, the NYSE
notified the Company that it failed to satisfy one of its listing criteria -- a
minimum of $50 million in average market capitalization over a 30-


                                                                             F-7
<PAGE>

day trading period and stockholders' equity of not less than $50 million. The
Company believes that there is a substantial likelihood that it will not be able
to cure these latest deficiencies and that its common stock will be delisted
from the NYSE in the coming year.

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"). The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and
operations of The MIIX Group and its wholly-owned subsidiaries, MIIX and
Underwriters. MIIX owns 100% of LHI, a property and casualty insurance holding
company, which owns 100% of LP&C and MIIX New York. Underwriters' principal
wholly-owned subsidiaries include Medical Brokers, Inc., an insurance agency,
Reinsurance Services, Inc. (formerly Pegasus Advisors, Inc.), an inactive
reinsurance intermediary, Administrative and Information Management Services,
Inc. (formerly Hamilton National Leasing Corporation "HNL"), MIIX Healthcare
Group, a healthcare consulting firm, and Lawrenceville Re, Ltd., a
Bermuda-domiciled reinsurance company. Effective April 30, 2002, the Company
sold substantially all the assets of HNL. 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 on 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 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.


                                                                             F-8
<PAGE>

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, the length of time and
the extent to which the fair value has been less than book value 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.

Premium Receivable

Premium receivable is net of an allowance for doubtful accounts as of December
31, 2002 and 2001 of $0 and $132,675, respectively. Net amounts
(recovered)/charged in 2002, 2001 and 2000 were $338,064, $74,994 and
$(269,696), respectively.

Deferred Policy Acquisition Costs

Policy acquisition costs (primarily commissions and premium tax expenses), that
vary with and are directly related to the production of business, are
capitalized and amortized over the effective period of the related policies.

Premium Deficiency Reserves

Premium deficiency reserves are established for the amount of the anticipated
losses, LAE, commissions and other acquisition costs and maintenance costs that
have not previously been expensed. At December 31, 2002 and 2001, the Company
determined that the premium deficiency reserve was zero.

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 of $753,411. Amounts charged to expense in 2002
and 2001 were $701,100 and $460,000, respectively.

Intangible Assets

Intangible assets consist primarily of goodwill, resulting from the acquisition
of subsidiaries. On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets." 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 at least annually, or more frequently as a result of an
event or change in circumstances that would indicate impairment may be
necessary. On January 1, 2002, the Company recorded a $2.4 million impairment
related to goodwill, net of $0 tax ($0.18 per diluted share). If SFAS No. 142
were in effect beginning January 1, 2000, the financial statement impact would
have been approximately $743,000 net of $260,000 tax, ($0.03 per diluted share)
and $444,000, net of $239,000 tax, ($0.03 per diluted share) for the year ended
December 31, 2000 and 2001, respectively.

The Company completed its annual assessment of goodwill during the fourth
quarter of 2002, and no further impairments were indicated.

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 LAE 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.


                                                                             F-9
<PAGE>

The Company offered pure occurrence coverage from 1977 through 1986 and a form
of occurrence coverage, "modified claims made," from 1987 to August 31, 2002
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 offered traditional claims-made and occurrence coverages, which are
reserved on a claims-made or occurrence basis, as appropriate.

Premiums

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

Reinsurance

Reinsurance premiums, losses and LAE 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
LAE 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.

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 2002
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. 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 on the
weighted-average number of common shares outstanding.


                                                                            F-10
<PAGE>

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 offered, through August
31, 2002, three products: occurrence policies, claims made policies with prepaid
tail coverage and claims made policies, varying by market. The Company
distributed its products both directly to the insureds and through
intermediaries.

Recent Accounting Pronouncements

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
the current practice of recognizing those costs at the date of a commitment to
exit or disposal plan. The provisions of SFAS No. 146 are to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
Adoption of SFAS No. 146 is not expected to have a material impact on the
Company's financial condition or results of operations.

In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
compensation -- Transition and Disclosure." This Statement, which amends
Statement No. 123, "Accounting for Stock-Based Compensation," provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, it
requires more prominent and more frequent disclosures in financial statements
about the effects of stock-based compensation. These additional disclosures may
be found in Note 14 of Notes to Consolidated Financial Statements.

3. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Activity in the liability for unpaid losses and LAEs is summarized as follows:

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                                            ----------------------------------
                                                               2002        2001        2000
                                                            ----------  ----------  ----------
                                                                      (In thousands)
<S>                                                         <C>         <C>         <C>
Balance as of January 1, net of reinsurance recoverable
  of $463.3 million, $432.0 million and $406.4 million,
  respectively............................................. $  733,723  $  710,484  $  647,188

Incurred related to:
  Current year.............................................    146,619     203,975     227,921
  Prior years..............................................     49,868      46,793      51,303
                                                            ----------  ----------  ----------
Total incurred.............................................    196,487     250,768     279,224

Paid related to:
  Current year.............................................      2,648       2,571       4,535
  Prior years..............................................    232,932     224,958     211,393
                                                            ----------  ----------  ----------
Total paid.................................................    235,580     227,529     215,928
                                                            ----------  ----------  ----------
Balance as of December 31, net of reinsurance
  recoverable..............................................    694,630     733,723     710,484
Reinsurance recoverable....................................    457,005     463,275     432,046
                                                            ----------  ----------  ----------
Balance, gross of reinsurance.............................. $1,151,635  $1,196,998  $1,142,530
                                                            ==========  ==========  ==========
</TABLE>

The Company increased prior year net reserves in the amounts of $49.9 million,
$46.8 million and $51.3 million during 2002, 2001 and 2000, respectively.

At December 31, 2002, 2001 and 2000, reserves for gross losses and LAE on
incurred but not reported claims amounted to $696.3 million, $719.3 million and
$689.4 million, respectively, of which $572.8 million, $532.8 million and $458.2
million related to prior years.

Loss and LAE 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.


                                                                            F-11
<PAGE>

During 2002, loss and LAE reserves were adjusted to reflect adverse development,
primarily caused by increased loss severities, on occurrence, occurrence-like
and claims made policies. The increases in loss severities were mainly
associated with institution business in Pennsylvania and all other markets and
associated with physician business in New Jersey, Texas and Ohio. While
management believes that the almost exponential increase in severities will not
continue, if it does the Company may experience further significant adverse
development which could significantly impact the Company's surplus. ULAE
reserves were decreased during 2002 as a result of an internal study conducted
by the Company and primarily reflects the greater level of claims activity
associated with claims made business written in recent years. Claims made
business generally has a shorter development tail than occurrence policies, so
the duration of anticipated future claim handling activity, and claim activity
costs per dollar of indemnity payment, has diminished. During the fourth quarter
of 2002, the Company commuted a large Pennsylvania institutional policy. As a
result of the commutation, the Company recorded an adjustment to loss and LAE
reserves and returned premiums of approximately $5.3 million and $4.9 million,
respectively. The commutation of this policy resulted in net income of $0.4
million in the fourth quarter of 2002.

During 2001, loss and LAE 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 LAE
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.

The Company maintains aggregate excess reinsurance contracts that provide
coverage, above aggregate retentions for most losses and ALAE associated with
years 1993 to 1999 and for most losses and ALAE on occurrence and
occurrence-like policies associated with years 2002, 2001 and 2000. The
aggregate excess reinsurance contracts, therefore, have the effect of holding
net incurred losses and ALAE on subject business at a constant level as long as
losses and ALAE remain within the coverage limits, which occurred for the years
ended December 31, 2002, 2001 and 2000. The adjustments to net reserves in 2002
generally resulted from increased loss severities associated with institution
business in Pennsylvania and all other markets and associated with physician
business in New Jersey, Texas and Ohio. The adjustments to net reserves in 2001
generally resulted from increased loss severity and frequency primarily
associated with coverage year 2000 on business other than New Jersey and
Pennsylvania physician business, reserves held on 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 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 ULAE reserves which are also not
subject to the aggregate excess reinsurance contracts.

4. RELATED PARTY TRANSACTIONS

The Company leases 47,000 square feet for its home office from the Medical
Society of New Jersey pursuant to a lease agreement dated June 29, 1981 and
extended on July 7, 1999. The lease agreement, which expires on September 30,
2003, has a three-year renewable option. The Company is currently assessing its
home office space requirements. Annual lease payments were $777,735 in 2002,
$760,512 in 2001 and $772,173 in 2000. The Company held a note receivable of
$2.1 million, included in other assets, at December 31, 2001 from the Medical
Society of New Jersey collateralized by the building in which the Company
maintains its home office. The note provided for monthly payments of $40,000
which included annual interest of 9.1% until September 1, 2004 and reduced
payments


                                                                            F-12
<PAGE>

thereafter until June 1, 2009. In August, 2002, the Medical Society of New
Jersey repaid the $1.8 million note balance and the funds were reinvested in
short-term securities.

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. The credit
facility, which terminated May 17, 2002, had a fixed interest rate of 8.0% per
annum. The Company had pledged 100% of the MIIX stock as collateral under the
credit facility. As of May 17, 2002, 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, and incurred interest
expense on the loan of approximately $286,000 during 2002. As of May 17, 2002,
the Company had fixed-maturity investments in Amboy National Bank of
approximately $9.1 million earning a fixed interest rate of 6% per annum. A
former CEO of the Company 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 were as fair to the Company as could have been obtained from an
unaffiliated third party. The Company, on May 23, 2002, repaid the $9.1 million
loan balance largely with the proceeds from the sale of substantially all the
net assets of HNL and the credit facility was closed. The Company's $9.1 million
fixed-maturity investments in Amboy National Bank matured and the funds were
reinvested in short-term securities.

In addition, the Company made annual contributions to the Medical Society of New
Jersey in 2001 and 2000. No contributions were made in 2002. Angelo S. Agro,
M.D. is a Trustee and Bessie M. Sullivan, M.D. is Trustee and Secretary 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.

Currently eight of the Company's nine Directors are directors of MIIX Holdings
and MIIX Advantage. The service of members of the Company's Directors on the
MIIX Holdings and MIIX Advantage boards of directors shall be limited as
follows: no more than eight (8) in 2003, no more than seven (7) in 2004, no more
than six (6) in 2005 and no more five (5) in 2006.

MIIX Advantage currently provides medical malpractice insurance coverage to two
members of the Company's Board. Five additional members of the Company's Board
have subscribed for insurance coverage from MIIX Advantage as of the date their
current policies expire. Six Executive Officers of the Company also serve,
without additional compensation, as Executive Officers of MIIX Holdings and MIIX
Advantage.

On August 28, 2002, the Company and certain of its affiliates entered into a
series of contracts with MIIX Holdings and MIIX Advantage, relating to, among
other things, the transfer of insurance policy renewal rights to MIIX Advantage
and the use of the "MIIX" name and associated marks by MIIX Holdings and MIIX
Advantage. In connection with the transaction, the Company also agreed to
provide certain management services to MIIX Advantage. The material contracts
involved in the transaction include a: (a) Management Services Agreement, (b)
Non-Competition and Renewal Rights Agreement and (c) Intellectual Property
License Agreement (together, the "Agreements").

On July 17, 2002, the Company entered into an agreement with Altila Corporation
("Altila") under which Altila provides a leased employee to serve as Interim
Chief Financial Officer of the Company. Under the agreement, the Company pays
Altila $302,000 per year for his service, plus reimbursement of reasonable out
of pocket expenses. During 2002, the Company paid Altila $180,619 under this
agreement and an additional $220,689 under a separate agreement, for services
prior to July 17, 2002. The Company's interim chief financial officer is a
principal owner of Altila Corporation.

The Company believes that the terms of the transactions described above were
negotiated at arms length and are fair to the Company.

5.  INVESTMENTS

The Company's current investment strategy focuses primarily on the purchase of
intermediate-term, investment-grade securities. Prior to 2002, the Company's
investment strategy included an allocation to below investment-grade (i.e., high
yield) fixed maturity investments not to exceed 7.5% of invested assets. At
December 31, 2002 and 2001, the average credit quality of the fixed income
portfolio was AA.


                                                                            F-13
<PAGE>

The actual or amortized cost and estimated market value of the Company's
available-for-sale securities as of December 31, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                                GROSS UNREALIZED     ESTIMATED
                                                  AMORTIZED     -----------------      MARKET
                                                     COST        GAINS     LOSSES      VALUE
                                                  ----------    -------    ------    ----------
                                                                  (In thousands)
<S>                                               <C>           <C>       <C>        <C>
2002
U.S. Treasury securities and obligations of
  U.S. government corporations and agencies.....  $  108,725    $ 3,774   $     0    $  112,499
Foreign securities - U.S. dollar denominated....       6,946        405         0         7,351
Corporate securities............................     280,152     13,150     8,119       285,183
Mortgage-backed and other asset-backed
  securities....................................     375,591     12,654     4,698       383,547
                                                  ----------    -------   -------    ----------
Total fixed maturity investments................     771,414     29,983    12,817       788,580
Equity investments..............................       4,804        383         0         5,187
                                                  ----------    -------   -------    ----------
          Total investments (excluding
             short-term)........................  $  776,218    $30,366   $12,817    $  793,767
                                                  ==========    =======   =======    ==========
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
                                                  ==========    =======   =======    ==========
</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, 2002 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.

                                                                      ESTIMATED
                                                        AMORTIZED        FAIR
                                                           COST         VALUE
                                                        ----------    ---------
                                                             (In thousands)

Due in one year or less...............................  $   16,593   $   16,932
Due after one year through five years.................     125,777      129,945
Due after five years through ten years................     179,127      180,366
Due after ten years...................................      74,325       77,790
Mortgage-backed and other asset-backed securities.....     375,592      383,547
                                                        ----------   ----------
          Total fixed maturity investments............  $  771,414   $  788,580
                                                        ==========   ==========


                                                                            F-14
<PAGE>

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

                                                      YEARS ENDED DECEMBER 31,
                                                   -----------------------------
                                                    2002        2001       2000
                                                   -------    -------    -------
                                                          (In thousands)

Fixed maturity investments.......................  $59,120    $75,675    $78,410
Equity investments...............................       84        195        258
Short-term investments...........................    3,534      5,455      7,584
Other............................................      314        669        644
                                                   -------    -------    -------
          Subtotal...............................   63,052     81,994     86,896
Investment expenses..............................    2,214      1,801      1,738
                                                   -------    -------    -------
Net investment income............................  $60,838    $80,193    $85,158
                                                   =======    =======    =======

The Company held fixed maturity investments of $7.7 million at December 31, 2002
and 2001 that were non-income producing. 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:

                                                    YEARS ENDED DECEMBER 31,
                                                 -----------------------------
                                                  2002        2001       2000
                                                 -------    -------    -------
                                                        (In thousands)

Fixed maturity investments
  Gross realized gains.........................  $23,362    $22,489    $   490
  Gross realized losses........................  (26,493)   (23,819)    (4,214)
Net realized losses on fixed maturity            -------    -------    -------
  investments..................................   (3,131)    (1,330)    (3,724)

Equity investments
  Gross realized gains.........................      143          0        241
  Gross realized losses........................     (533)      (854)      (673)
                                                 -------    -------    -------
Net realized losses on equity investments......     (390)      (854)      (432)
                                                 -------    -------    -------
Net realized losses on investments.............  $(3,521)   $(2,184)   $(4,156)
                                                 =======    =======    =======

Realized capital losses include $16.9 million, $21.8 million and $1.1 million
related to securities that have experienced an other-than-temporary decline in
value in 2002, 2001 and 2000, respectively. The change in the Company's
unrealized appreciation (depreciation) on fixed maturity investments was $23.7
million, $6.3 million and $41.3 million for the years ended December 31, 2002,
2001 and 2000, respectively. The corresponding amounts for equity investments
were $841,000, $585,000 and $(268,000), respectively.

At December 31, 2002 and 2001, investments in fixed maturity investments with a
carrying amount of approximately $5.3 million and $8.0 million, respectively,
were on deposit with state insurance departments to satisfy regulatory
requirements.


                                                                            F-15
<PAGE>

6.  REINSURANCE

Certain premiums, losses and ALAE are ceded to other Reinsurance companies under
various reinsurance agreements in-force during 2002, 2001 and 2000. These
reinsurance agreements protect the underwriting and operating results from
unexpected increases in frequency, severity, and acceleration of the payments of
losses and ALAE, and contain the following significant terms:

<TABLE>
<CAPTION>
                               COVERAGE                      COVERAGE
              CONTRACT           TYPE         RETENTION        LIMIT                  OTHER
              --------           ----         ---------        -----                  -----
<S>      <C>                  <C>          <C>               <C>             <C>
2002     Facultative for      Quota Share  25% of Quota      $25 million     25% participating, no
         Excess $10 million                Share             Excess $10      aggregate deductible
         Limit                                               million

2002     Aggregate Excess     Aggregate    65% loss and      75% loss and    Aggregate limit
                                           ALAE ratio        ALAE ratio

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
</TABLE>

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

<TABLE>
<CAPTION>
                               2002                    2001                    2000
                       --------------------    --------------------    --------------------
                       WRITTEN      EARNED     WRITTEN      EARNED     WRITTEN      EARNED
                       --------    --------    --------    --------    --------    --------
<S>                    <C>         <C>         <C>         <C>         <C>         <C>
Direct...............  $ 96,209    $159,545    $231,550    $213,944    $212,154    $216,595
Assumed..............         0           0         396         437      13,971      13,930
Ceded................   (59,868)    (59,325)    (67,131)    (67,529)    (38,043)    (46,463)
                       --------    --------    --------    --------    --------    --------
Net premiums.........  $ 36,341    $100,220    $164,815    $146,852    $188,082    $184,062
                       ========    ========    ========    ========    ========    ========
</TABLE>

During 2002, 2001 and 2000, approximately $115.3 million, $97.5 million and
$44.2 million, respectively, of losses and ALAE 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, 2002 and 2001, the Company
held collateral under related reinsurance agreements for all unpaid losses and
LAE ceded in the form of funds withheld of $332.7 million and $374.2 million and
letters of credit of $161.2 million and $166.5 million, respectively.

The Company was a reinsurer on a large excess of loss reinsurance contract
providing medical professional liability coverage on an institutional account
from January 1, 1999 to December 31, 2000. Effective July 1, 2002, the Company
commuted this treaty and recorded assumed paid losses of approximately $31.1
million and reduced assumed loss and LAE reserves of approximately $31.1 million
to $0. The commutation of this treaty had no impact on the Company's financial
condition or results of operations.

During 2002, the Company partially commuted several ceded reinsurance treaties
with certain reinsurers. The Company recognized the amounts received from
reinsurers as a reduction to losses and ALAE paid of $35.1 million, increased
its loss and ALAE reserves by $36.9 million and recognized a reduction of funds
held charges of $0.9 million. The net effect of the commutations resulted in a
net loss of $0.9 million. There were no commutations during 2001.

In accordance with the provisions of the aggregate excess reinsurance contracts,
the funds withheld are credited with interest at contractual rates ranging from
6.0% 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

                                                                            F-16
<PAGE>

allowing reinsurers to offer additional reinsurance coverage that MIIX 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. As of December
31, 2002, 2001 and 2000, 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 or its predecessor, Medical Inter-Insurance
Exchange of new Jersey, fall below B+. On March 22, 2002, A.M. Best lowered the
rating of MIIX to C+ and MIIX withdrew from the interactive rating process with
A.M. Best. As a result of the downgrade, reinsurers requested that assets
supporting the funds withheld account be placed in trust. The Company has
established the required trust accounts 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, 2002, 2001 and 2000 totaled $294,060, $327,448 and
$395,094, 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:

                                                    YEARS ENDED DECEMBER 31,
                                                  ----------------------------
                                                   2002       2001       2000
                                                  ------     ------     ------
                                                         (In thousands)

Service cost..................................   $   412     $  341     $  392
Interest cost.................................       743        607        596
Expected return on plan assets................      (961)    (1,006)      (964)
Amortization of:
   Transition asset...........................       (22)       (22)       (22)
   Prior service cost(1)......................        93        (45)       (34)
   Actuarial gain.............................       (97)      (336)      (401)
Settlement/curtailment expense................       139          0          0
                                                 -------     ------     ------
Net periodic pension expense (benefit)........   $   307     $ (461)    $ (433)
                                                 =======     ======     ======

(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.


                                                                            F-17
<PAGE>

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

                                                       YEARS ENDED DECEMBER 31,
                                                       -----------------------
                                                          2002         2001
                                                        -------      -------
                                                           (In thousands)

Change in Benefit Obligation
Net benefit obligation at beginning of year...........  $ 9,605      $ 8,344
Service cost..........................................      412          341
Interest cost.........................................      743          607
Amendments(2).........................................    1,053            0
Actuarial loss........................................       24          514
Gross benefits paid...................................     (215)        (201)
Settlement/Curtailment................................      (93)           0
                                                        -------      -------
Net benefit obligation at end of year.................   11,529        9,605

Change in Plan Assets
Fair value of plan assets at beginning of year........   11,464       11,516
Actual return on plan assets..........................     (922)         149
Gross benefits paid...................................     (215)        (201)
                                                        -------      -------
Fair value of plan assets at end of year..............   10,327       11,464
                                                        -------      -------

Funded status.........................................   (1,202)       1,860
Unrecognized actuarial gain(loss).....................      245       (1,758)
Unamortized prior service cost........................      500         (230)
Unrecognized net transition asset.....................      (25)         (47)
                                                        -------      -------
Accrued pension expense...............................  $  (482)     $  (175)
                                                        =======      =======

(2)     Effective January 1, 2002, the Plan was amended to grandfather 11
        additional employees under the pre-April 1, 2000 Pension Plan
        provisions.

A minimum pension liability is required when the actuarial present value of
accumulated benefits exceeds plan assets and accrued pension liabilities. The
minimum liability adjustment, less allowance for intangible assets, net of tax
benefit, is reported as an expense in the statement of operations.

Amounts recognized in the statement of
  operations consists of
    Accrued benefit liability.........................  $  (626)     $  (175)
    Intangible asset..................................      144            0
                                                        -------      -------
Accrued pension expense...............................  $  (482)     $  (175)
                                                        =======      =======

                                                   YEARS ENDED DECEMBER 31,
                                                 ----------------------------
                                                  2002       2001       2000
                                                 ------     ------     ------

Weighted-average assumptions
   Discount rate..............................    6.75%      7.25%      7.50%
   Expected return on plan assets.............    9.00%      9.00%      9.00%
   Rate of compensation increase..............    4.00%      4.00%      4.00%

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 2002,
2001 and 2000 was $3.1 million, $2.6 million and $2.1 million, respectively,
including rent paid to the Medical Society of New Jersey of $777,735, $760,512
and $772,173 in 2002, 2001 and 2000, respectively. Minimum future rental
obligations for leases currently in effect are as follows (in thousands):


                                                                            F-18
<PAGE>

              2003                                      1,060
              2004                                        113
              2005                                         11
              Thereafter                                    0

                                                       $1,184

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, are reflected as an other asset and an other liability in the
consolidated balance sheets, totaled $22.9 million and $22.6 million as of
December 31, 2002 and 2001, respectively. The Company becomes liable only in the
event that an insurance company cannot meet its obligations under existing
agreements and state guaranty funds are not available. To minimize its exposure
to such losses, the Company only utilized insurance companies with an A.M. Best
rating of "A+" or better. At December 31, 2002, all insurance companies utilized
by the Company were rated "A-" or better.

Legal proceedings not in the ordinary course of business at December 31, 2002
included the following court actions.

Death Benefit Plan. In October 1999, a former Underwriters Board member filed an
action in the Superior Court of New Jersey against the Medical Inter-Insurance
Exchange of New Jersey, Underwriters, The MIIX Group and Daniel Goldberg, former
CEO of the Company, seeking damages arising out of the unanimous decision of the
Exchange and Underwriters Boards in July 1998 to terminate a Death Benefit Plan
that was adopted 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 appealed this decision.

By Order dated March 18, 2003, the Superior Court of New Jersey, Appellate
Division, ruled on the Slobodien v. Medical Inter-Insurance Exchange case. The
court overturned the Law Division ruling and held that, under the terms of the
agreement, the Death Benefit Plan could be terminated by the Board of Directors
at any time, and that plaintiff had no right to the cash value of the insurance
policy. The court, therefore, reversed and remanded the matter to the lower
court for entry of judgment in favor of the defendants.

Two subsequent actions by other Plan participants, one styled as a class action
on behalf of all Plan participants, were filed in the Superior Court of New
Jersey against the Company on November 7, 2000 and December 11, 2001. These
actions were stayed pending the outcome of the appeal in the first action and
the Company's outside counsel believes their disposition will be affected by the
appellate decision.

Glasser v. The MIIX Group, Inc., et al. On February 5, 2003, a shareholder of
the Company instituted a putative class action lawsuit in the United States
District Court for the District of New Jersey against the Company, its directors
and officers, Medical Society of New Jersey and Fox-Pitt, Kelton, Inc., which
acted as financial advisor to the Company. The complaint alleges that the
Company and its directors and officers engaged in securities fraud, breaches of
fiduciary duty and violations of New Jersey antitrust laws in connection with
the MIIX Advantage transaction and alleged misrepresentations and omissions of
material fact in various SEC filings by the Company. The complaint demands
unspecified compensatory damages, treble damages, rescission of the sale of
shares in the Company's initial public offering, attorney fees and other relief.
The Company believes it has valid defenses to the plaintiff's claims. The
outcome of the Glasser suit could have a material adverse effect on the
Company's financial condition and results of operations.

Fox-Pitt Kelton v. The MIIX Group, Inc. On February 10, 2003, Fox-Pitt Kelton
("FPK"), which had been engaged as financial advisor to the Company, instituted
suit against the Company in the Supreme Court of New York to recover fees
allegedly due from the Company as a result of the investment banking services it
rendered in connection with the Company's efforts to dispose assets or obtain
capital and the agreements entered into


                                                                            F-19
<PAGE>

between the Company and MIIX Advantage. The Company believes it has valid
defenses to FPK's claims.

Weisfeld v. The MIIX Group, Inc., et al. On November 20, 2002, a former
executive of the Medical Society of New Jersey (MSNJ) filed suit against MSNJ
and certain of its officers, including MSNJ officers who were also MIIX Group
board members, alleging wrongful discharge and defamation. On March 19, 2003,
plaintiff filed pleadings amending the Complaint to include MIIX Group as a
defendant, alleging that MIIX Group tortiously interfered with his employment
relationship and that its alleged influence over MSNJ was a causative factor in
his discharge. The Company and external counsel believe plaintiff's claims lack
merit and the Company intends to vigorously defend this action.

The Company may be a party to litigation from time to time in the ordinary
course of business.

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 Bureau of Insurance, the New York State Insurance Department and
the Bermuda Registrar of Companies, respectively. "Prescribed" statutory
accounting practices include state laws, regulations, and general administrative
rules, as well as a variety of publications of 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 was 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 prepared
in accordance with the domiciliary insurance departments or permitted statutory
accounting practices for these companies, which does not significantly differ
from the statutory surplus and net income that would have been reported had NAIC
statutory accounting practices been followed, are summarized as follows:

                                                  YEARS ENDED DECEMBER 31,
                                              --------------------------------
                                                2002        2001        2000
                                              --------    --------    --------
                                                      (In thousands)

Statutory net loss for the year........... $(109,196)   $(87,172)   $(39,914)
Statutory surplus at year-end............. $  21,054    $125,485    $229,150

The Company has requested approval from the New Jersey Department of Banking and
Insurance to discount loss and LAE reserves and to merge LP&C into MIIX as of
December 31, 2002. Similarly, the Company has requested approval from the
Virginia Bureau of Insurance to merge LP&C into MIIX. Pending a decision on
these requests the New Jersey Department of Banking and Insurance and the
Virginia Bureau of Insurance have granted the Company extensions for the filing
of the annual statutory financial statements for MIIX and LP&C.

On February 19, 2003, MIIX agreed to certain operating limitations with the New
Jersey Department of Banking and Insurance. The limitations include a
requirement for approval by the New Jersey Department of Banking and Insurance
approval prior to MIIX incurring new debt, paying dividends or investing in
below investment grade assets. Upon completion of the annual regulatory
financial statements it is probable that the New Jersey Department of Banking
and Insurance will initiate additional statutory actions.

The NAIC has established, and the state insurance departments have adopted, 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 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


                                                                            F-20
<PAGE>

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
             REGULATORY EVENT                       (LESS THAN OR EQUAL TO)

         Company action level                                 2.0
         Regulatory action level                              1.5
         Authorized control level                             1.0
         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. Insurance regulations permit the
            Commissioner to allow an insurer that is writing no business and
            running-off its existing business to continue its run-off under the
            Commissioner's supervision.

At December 31, 2002, MIIX's RBC was $18.7 million, which is below the Mandatory
Control Level, at approximately 22% of Authorized Control Level ($85.7 million).
At this level, the Insurance Commissioner of the New Jersey Department of
Banking and Insurance is authorized to place MIIX in supervision, rehabilitation
or liquidation. In the case of an insurer, like MIIX, that is writing no new
business and which is running off its existing business, insurance regulations
permit the Insurance Commissioner to allow the insurer to continue its runoff
under the supervision of the Commissioner. However, no assurance can be given
that the commissioner will allow MIIX to continue to runoff its business. While
the Company requested approval from the New Jersey Department of Banking and
Insurance to discount loss and LAE reserves, the final determination of the
Company's RBC level will not be impacted by the discounting of loss and LAE
reserves as NAIC standards do not permit the use of discounting of reserves in
the determination of RBC. However, if LP&C is not permitted to merge into MIIX,
LP&C's statutory surplus will be included in the final determination of RBC for
MIIX. At December 31, 2002, LP&C's RBC was $23.7 million, at approximately 276%
of Authorized Control Level ($8.6 million) is well above the acceptable level
under RBC rules.

At December 31, 2001, MIIX's Total Adjusted RBC was $122.0 million, which is
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 New Jersey Department of Banking and Insurance on May
3, 2002 approved MIIX's new business plan which provided for the Company to be
placed into voluntary solvent runoff effective May 3, 2002. The Virginia Bureau
of Insurance placed LP&C in solvent runoff effective February 22, 2002 and
approved its plan on May 10, 2002. The Company ceased writing new business in
all states in accordance with state's specific nonrenewal requirements. It
continued to renew New Jersey physician business through August 31, 2002.
Included in MIIX's statutory surplus and RBC at December 31, 2001 is an $18.1
million inter-company note receivable from HNL. Effective April 30, 2002, the
Company sold substantially all the assets of HNL and the $18.1 million
intercompany note receivable with MIIX was


                                                                            F-21
<PAGE>

repaid. See "Business - Recent Developments" and "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Risks and
Uncertainties."

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.

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 Company does not expect that MIIX will have the ability
to declare and pay dividends to the Company to meet its operating needs.

At December 31, 2002 and 2001, the Company had restricted net assets of
$45,744,112 and $132,974,436, respectively, which represented its investments in
its insurance subsidiaries.

10. RESTRUCTURING CHARGE

The Company undertook a restructuring during the first quarter of 2002 which
includes a charge of approximately $2.6 million composed primarily of severance
and the write-off of remaining lease commitments associated with the closure of
the Company's offices in Dallas and Indianapolis, and the decision to put LP&C
into runoff. The Company communicated these initiatives during the first quarter
of 2002. During 2002, the Company paid approximately $2.1 million related to
this restructuring.

11. INCOME TAXES

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

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

                                                    YEARS ENDED DECEMBER 31,
                                                 -----------------------------
                                                   2002       2001       2000
                                                 -------    -------    -------
                                                        (In thousands)

Current income tax............................  $(11,157)  $(14,977)  $(21,654)
Deferred income tax...........................       (83)    56,869       (486)
                                                --------   --------   --------
Total income tax (benefit) expense............  $(11,240)  $ 41,892   $(22,140)
                                                ========   ========   ========


                                                                            F-22
<PAGE>

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:

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                    -----------------------------
                                                      2002        2001      2000
                                                    -------     -------    -------
                                                           (In thousands)
<S>                                                 <C>        <C>        <C>
Expected annual effective federal income tax
  benefit at 35%................................... $(43,698)  $(38,664)  $(20,509)
Increase (decrease) in taxes resulting from:
  Establishment of valuation allowance, net of
     reduction of tax contingency reserves.........   32,389     82,297        612
  Tax-exempt interest..............................     (444)    (1,695)    (2,478)
  Other............................................      513        (46)       235
                                                    --------   --------   --------
          Total income tax (benefit) expense....... $(11,240)  $ 41,892   $(22,140)
                                                    ========   ========   ========
</TABLE>

The income tax benefit of $11.2 million resulted from the recognition of a net
operating loss carryback due to a tax law change enacted during the first
quarter of 2002.

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

                                                                 DECEMBER 31,
                                                              ------------------
                                                               2002       2001
                                                              -------    -------
                                                                (In thousands)
Deferred tax assets:
  Net operating loss carryforwards.......................... $ 63,681    $26,843
  Discounting of loss reserves..............................   47,597     49,857
  Unearned premium reserve..................................    1,965      6,660
  Unrealized losses and other-than-temporary declines
      on investments........................................   10,060     11,939
  Other.....................................................    3,549      3,620
                                                             --------    -------
          Total deferred tax assets.........................  126,852     98,919
                                                             --------    -------
   Less valuation allowance.................................  124,828     95,129
                                                             --------    -------
           Deferred tax asset after valuation allowance.....    2,024      3,790

Deferred tax liabilities-Other..............................    1,536      3,380
                                                             --------    -------
Net deferred tax assets..................................... $    488    $   410
                                                             ========    =======

At December 31, 2002 and 2001 the Company established a valuation allowance of
$124.8 million and $95.1 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 20 years, and the
different tax and book treatment of discounting of loss reserves, unrealized
losses and other-than-temporary 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, 2002 and 2001. The increase in the valuation allowance of $29.7
million and $94.5 million during 2002 and 2001, respectively, impacted the
Company's income tax provision and other comprehensive income which was included
in unrealized appreciation (depreciation), net of tax.


                                                                            F-23
<PAGE>

At December 31, 2002, the Company had $1.8 million income taxes payable included
in other liabilities. 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, 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 amount of federal income taxes paid in 2001 and 2000 was $7.2 million and
$2.3 million, respectively. The Company did not pay federal income taxes in
2002.

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, 2002,
2001 and 2000.

                                                2002        2001       2000
                                              --------    --------   --------
                                                       (In thousands)

Balance at beginning of period..............  $  4,416    $  3,026   $  3,165
Cost deferred during the period.............     4,920      15,086     12,576
Amortization expense........................    (8,320)    (13,696)   (12,715)
                                              --------    --------   --------
Balance at end of period....................  $  1,016    $  4,416   $  3,026
                                              ========    ========   ========

13. COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss), net of related tax, for the years
ended December 31, 2002, 2001 and 2000 were as follows:

<TABLE>
<CAPTION>
                                                           2002          2001         2000
                                                         ---------    ---------    ---------
                                                                  (In thousands)
<S>                                                      <C>          <C>          <C>
Net loss .............................................   $(115,984)   $(157,644)   $ (36,458)

Other comprehensive income (loss):

Unrealized holding appreciation (depreciation) arising
    during period (net of tax of $0, $0 and $13,821,
    respectively) ....................................      21,047       (4,272)      27,146

  Reclassification adjustment for losses realized in
    net income (net of tax of $0, $3,609 and
    $1,455, respectively) ............................       3,521        6,703        2,701
                                                         ---------    ---------    ---------
  Net unrealized appreciation arising during the
    period at December 31, (net of tax of $0, $3,609
    and $15,276, respectively ........................   $  24,568    $   2,431    $  29,847
                                                         ---------    ---------    ---------
Comprehensive loss ...................................   $ (91,416)   $(155,213)   $  (6,611)
                                                         =========    =========    =========
</TABLE>

14. STOCK BASED COMPENSATION

Pursuant to stock purchase and loan agreements, the Company, upon Board
approval, made loans to certain officers of the Company, which the officers used
to purchase unregistered shares of the MIIX Group common stock at the Offering
Price. The Company had loans outstanding to certain officers of the Company of
$2.9 million and $3.8 million as of December 31, 2002 and 2001, respectively.
The loans, five 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. During 2002, certain current and former officers tendered 110,061
shares of The MIIX Group common stock and exercised 101,591 stock appreciation
rights, which are designated as phantom stock options in the respective
agreement. These tenders and

                                                                            F-24
<PAGE>

additional loan repayments reduced the stock purchase and loan balances by
approximately $1.8 million. All transactions were recorded at the fair market
value of the Company common stock on the effective date of the respective
transactions.

The Company, upon board approval, grants restricted shares of the Company's
common stock to certain officers of the Company. The Company had 10,000 and
18,560 non-vested restricted shares outstanding as of December 31, 2002 and
2001, respectively. 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.
During 2002, 10,000 restricted shares of The MIIX Group common stock were
granted, having a per share market value of $2.88 and 166,746 options to
purchase shares of The MIIX Group common stock at exercise prices ranging from
$1.26 to $1.80 were granted, of which 65,496 shares were immediately
exercisable. During the 12 months ended December 31, 2002, 171,379 options and
10,000 shares of non-vested restricted stock were cancelled and 12,474 options
were exercised with exercise prices ranging from $7.45 to $11.91.

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, 2002
have exercise prices ranging from $1.26 to $16.06.

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

<TABLE>
<CAPTION>
                                                          2002                               2001
                                            -------------------------------    -------------------------------

                                             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.............................       866,069          $10.13             531,435          $12.88
Granted during year....................       166,746            1.69             707,800            8.12
Exercised during year..................        12,474           11.47                 431            7.45
Forfeited during the year..............        80,086            9.41             307,535            9.67
Expired during the year................        91,293           12.46              65,200           12.86
                                              -------                             -------
Options outstanding at end of year.....       848,962           $8.28             866,069          $10.13
                                              =======           =====             =======          ======

Options exercisable....................       550,825            9.38             412,087           11.29
                                              =======           =====             =======          ======
</TABLE>

The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No.
123, "Accounting for Stock-Based Compensation to Stock-Based Employee
Compensation for the years Ended December 31."

<TABLE>
<CAPTION>
                                                                2002               2001              2000
                                                             ---------          ----------         ---------
(In thousands, except per share amounts)
<S>                                                          <C>                <C>                <C>
   Net loss, as reported                                     $(115,984)         $(157,644)         $(36,458)
   Total stock-based employee compensation expense
     determined under fair value based method for all
     awards, net of related tax effects
                                                                  (301)              (194)             (261)
   Pro forma net loss                                        $(116,285)         $(157,838)         $(36,719)
   Basic/diluted earnings per share:
     As reported                                                $(8.67)           $(11.66)           $(2.59)
     Pro forma                                                   (8.69)            (11.67)            (2.60)
   Estimated weighted average of the fair value of
     options granted                                            $ 0.49            $  2.36            $ 3.56
</TABLE>

The per share weighted-average 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 0% 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.


                                                                            F-25
<PAGE>

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, 2002, 2001 and 2000 is computed using the
weighted-average number of common shares outstanding during these periods of
13,385,124, 13,524,959 and $14,100,043, respectively.

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

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                            -----------------------------------
                                                              2002         2001         2000
                                                            ---------    ---------    ---------
                                                                      (In thousands)
<S>                                                         <C>          <C>          <C>
Numerator for basic and diluted earnings (loss) per share
   of common stock:
   Net loss before cumulative effect of an
     accounting change ..................................   $(113,611)   $(152,361)   $ (36,458)
   Cumulative effect of an accounting change,
     net of tax .........................................      (2,373)      (5,283)           0
                                                            ---------    ---------    ---------

   Net loss .............................................   $(115,984)   $(157,644)   $ (36,458)
                                                            =========    =========    =========

Denominator:
  Denominator for basic earnings (loss) per share of
  common stock - weighted-average shares outstanding ....      13,385       13,525       14,100

  Effect of dilutive securities:
    Stock options and non-vested restricted stock .......          25           81           17
                                                            ---------    ---------    ---------
    Denominator for diluted earnings (loss) per share of
    common stock adjusted - weighted-average shares
    outstanding .........................................      13,410       13,606       14,117
                                                            =========    =========    =========

Basic and diluted loss per share of common stock
   before cumulative effect of an accounting change .....   $   (8.49)   $  (11.27)   $   (2.59)
Cumulative effect of an accounting change ...............       (0.18)       (0.39)        0.00
                                                            ---------    ---------    ---------

Basic and diluted loss per share of common stock ........   $   (8.67)   $  (11.66)   $   (2.59)
                                                            =========    =========    =========
</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


                                                                            F-26
<PAGE>

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.

17. UNAUDITED QUARTERLY FINANCIAL DATA

The following is a summary of unaudited quarterly results of operations for 2002
and 2001:

<TABLE>
<CAPTION>
                                                                    2002
                                                  -----------------------------------------
                                                    1ST         2ND        3RD        4TH
                                                  --------    -------    -------    -------
                                                                (In thousands)
<S>                                               <C>        <C>        <C>       <C>
Total written premiums..........................  $ 95,526   $  6,510   $ (2,311) $  (3,516)
Net premiums earned.............................    37,153     49,083     23,727     (9,743)
Net investment income...........................    18,249     16,158     13,710     12,721
Realized investment losses......................    (1,503)       222       (591)    (1,649)
Losses and loss adjustment expenses.............    81,804     54,497     21,219     38,967
Net income (loss)...............................  $(45,366)  $ (6,120)  $    885  $ (65,383)

Basic and diluted earnings (loss) per share.....  $  (3.38)  $  (0.45)  $   0.07  $   (4.89)
                                                  ========   ========   ========  =========
Dividend per share of common stock..............  $   0.00   $   0.00   $   0.00  $    0.00
                                                  ========   ========   ========  =========

<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
                                                  ========   ========   ========  =========
</TABLE>


                                                                            F-27
<PAGE>

                                   SCHEDULE I

       SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
                                DECEMBER 31, 2002
                          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..................................  $  283,493    $  293,846      $  293,846

  Foreign securities--U.S. dollar denominated.........       6,946         7,351           7,351
  All other corporate bonds...........................     480,975       487,383         487,383
                                                        ----------    ----------      ----------
     Total fixed maturities...........................  $  771,414    $  788,580      $  788,580
                                                        ----------    ----------      ----------
Equity securities:
  Common stock:
     Banks, trusts and insurance companies............       2,193         2,219           2,219
     All other corporate stock........................       2,611         2,968           2,968
                                                        ----------    ----------      ----------
     Total equity securities..........................  $    4,804    $    5,187      $    5,187
                                                        ----------    ----------      ----------
Short-term investments................................  $  262,537    $  262,537      $  262,537
                                                        ----------    ----------      ----------

Total investments.....................................  $1,038,755    $1,056,304      $1,056,304
                                                        ==========    ==========      ==========
</TABLE>


                                                                            F-28
<PAGE>

                                   SCHEDULE II

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                             --------------------
                                                               2002        2001
                                                             --------   ---------
<S>                                                          <C>         <C>
                                     ASSETS
  Investments
  Equity investments, at fair value
     (cost: 2002 - $0; 2001 - $2,614)....................... $      0    $  1,846
  Short-term investments, at cost which approximates
     fair value.............................................    1,327         108
  Investment in subsidiaries................................   50,447     145,474
                                                             --------    --------
          Total investments.................................   51,774     147,428

  Cash......................................................        8          (5)

  Other assets..............................................      837         533
                                                             --------    --------
          Total assets...................................... $ 52,619    $147,956
                                                             ========    ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

  LIABILITIES
  Due to subsidiaries....................................... $ 10,276    $  4,413
  Loan Payable..............................................        0       9,050
  Other liabilities.........................................    1,077       3,007
                                                             --------    --------
          Total liabilities.................................   11,353      16,470

  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
     (2002 - 13,382,173 shares outstanding;
     2001 - 13,479,760 shares outstanding)..................      166         166
  Additional paid-in capital................................   53,909      53,927
  Retained earnings.........................................   13,323     129,307
  Treasury stock, at cost (2002 - 3,155,832 shares;
     2001 - 3,058,245 shares)...............................  (40,199)    (39,631)
  Stock purchase loans and unearned stock compensation......   (3,662)     (5,444)
  Accumulated other comprehensive income (loss).............   17,729      (6,839)
                                                             --------    --------
          Total stockholders' equity........................   41,266     131,486
                                                             --------    --------

          Total liabilities and stockholders' equity........ $ 52,619    $147,956
                                                             ========    ========
</TABLE>


                                                                            F-29
<PAGE>

                                   SCHEDULE II

           CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)

                          The MIIX Group, Incorporated
                       Condensed Statements of Operations

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                        -----------------------------------
                                                          2002         2001         2000
                                                        ---------    ---------    ---------
                                                                   (In thousands)
<S>                                                     <C>          <C>          <C>
  Net investment income .............................   $   2,205    $     285    $     382
  Other Income ......................................         267           10            0
Realized investment gains (losses) ..................        (518)           0         (345)
  Other expenses ....................................      (2,506)      (2,371)        (858)
                                                        ---------    ---------    ---------
  Loss before federal income taxes and equity
    in income of subsidiaries .......................        (552)      (2,076)        (821)

  Tax provision (benefit) ...........................      (3,394)       1,556         (475)
                                                        ---------    ---------    ---------

  Earnings (loss) before equity in income of
    subsidiaries ....................................       2,842       (3,632)        (346)
  Equity in loss of subsidiaries ....................    (118,826)    (154,012)     (36,112)
                                                        ---------    ---------    ---------
          Net loss ..................................   $(115,984)   $(157,644)   $ (36,458)
                                                        =========    =========    =========
</TABLE>


                                                                            F-30
<PAGE>

                                   SCHEDULE II

           CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)

                          The MIIX Group, Incorporated
                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                            -----------------------------------
                                                                              2002         2001         2000
                                                                            ---------    ---------    ---------
                                                                                      (In thousands)
<S>                                                                         <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................................   $(115,984)   $(157,644)   $ (36,458)

Adjustments to reconcile net income to net cash provided by operating
   activities:
  Realized investment losses ............................................         518            0          345
  Change in payable to subsidiaries .....................................       5,863        2,035        2,016
  Net change in other assets and liabilities ............................      (1,041)       2,713       (1,652)
  Equity in undistributed income of subsidiaries ........................     118,826      154,012       36,112
                                                                            ---------    ---------    ---------
Net cash provided by operating activities ...............................       8,182        1,116          363
                                                                            ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from equity sales ..............................................           0            0        2,860
Cash dividends received from subsidiary .................................       2,100            0            0
Change in short-term investments, net ...................................      (1,219)          23       11,719
                                                                            ---------    ---------    ---------
Net cash provided by (used in) investing activities .....................         881           23       14,579
                                                                            ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock ..............................................           0            0      (19,648)
Cash dividends paid to stockholders .....................................           0       (2,704)      (2,784)
Notes payable and other borrowings ......................................      (9,050)       1,550        7,500
                                                                            ---------    ---------    ---------

Net cash used in financing activities ...................................      (9,050)      (1,154)     (14,932)
                                                                            ---------    ---------    ---------

Net change in cash ......................................................          13          (15)          10
Cash, beginning of period ...............................................          (5)          10            0
                                                                            ---------    ---------    ---------

Cash, end of period .....................................................   $       8    $      (5)   $      10
                                                                            =========    =========    =========
</TABLE>


                                                                            F-31
<PAGE>

                                   SCHEDULE II

           CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)

                          The MIIX Group, Incorporated

                     Notes to Condensed Financial Statements
                                December 31, 2002

1.    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
the 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-32
<PAGE>

                                   SCHEDULE V

                          The MIIX Group, Incorporated

                        Valuation and Qualifying Accounts
                                 (in thousands)

<TABLE>
<CAPTION>
                                       Balance at
                                      beginning of       Charged                                            Balance at
                                          period         to costs       Charged to                             end of
                                       January 1,          and            other                                period
          Description                     2002           expenses        accounts       Deductions      December 31, 2002
---------------------------------    ----------------   -----------    ------------   --------------    -------------------
<S>                                      <C>                <C>                <C>              <C>          <C>
Deferred tax valuation
    allowance...................         95,129 (a)         29,699             0                0            124,828(a)

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

Premium receivable..............            133 (a)              0             0              133                  0
</TABLE>

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