MIIX GROUP INC, S-1/A, 1999-04-23

MIIX GROUP INC
S-1/A, 1999-04-23
ACCIDENT & HEALTH INSURANCE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999.

REGISTRATION NO. 333-64707

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549
------------------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE MIIX GROUP, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

TWO PRINCESS ROAD

LAWRENCEVILLE, NEW JERSEY 08648
(609) 896-2404
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

DANIEL GOLDBERG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE MIIX GROUP, INCORPORATED
TWO PRINCESS ROAD
LAWRENCEVILLE, NJ 08648
(609) 896-2404, EXT. 1274
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

WITH COPIES TO:

<TABLE>
<S> <C>
JAMES J. MARINO, ESQ. ALLAN G. SPERLING, ESQ.
CHRISTOPHER G. KARRAS, ESQ. CLEARY, GOTTLIEB, STEEN & HAMILTON
DECHERT PRICE & RHOADS ONE LIBERTY PLAZA
997 LENOX DRIVE NEW YORK, NY 10006
BUILDING #3, SUITE 210 (212) 225-2260
LAWRENCEVILLE, NJ 08648
(609) 620-3200
</TABLE>

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED APRIL 23, 1999

PROSPECTUS

3,000,000 SHARES

THE MIIX GROUP, INCORPORATED
COMMON STOCK
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All of the shares (the "Shares") of common stock, par value $.01 per share
("Common Stock"), offered hereby are being sold by The MIIX Group, Incorporated
("The MIIX Group").

The Shares will be issued concurrently with the distribution of shares of
Common Stock pursuant to a plan of reorganization (the "Plan of Reorganization,"
and together with the transactions contemplated thereby, the "Reorganization")
pursuant to which the Medical Inter-Insurance Exchange of New Jersey, a New
Jersey reciprocal insurer (the "Exchange"), will reorganize as a stock insurer
and become a wholly owned subsidiary of The MIIX Group. In connection with the
Reorganization, up to 12,000,000 shares of Common Stock will be issued to
eligible current and former members of the Exchange. See "The Reorganization."
The consummation of the offering made hereby (the "Offering") is conditioned on
the consummation of the Reorganization. This Prospectus relates solely to the
Offering and does not constitute an offer to sell, or a solicitation of an offer
to buy, Common Stock in the Reorganization. Common Stock to be offered pursuant
to the Reorganization is offered only by means of a separate prospectus.

Prior to the Offering, there has been no public market for the Common
Stock. It is anticipated that the initial public offering price (the "Offering
Price") will be between $12.00 and $14.00 per share. See "Underwriting" for
information relating to the factors considered in determining the initial public
offering price.

The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange (the "NYSE") under the symbol "MHU."

SEE "RISK FACTORS" COMMENCING ON PAGE 12 HEREIN FOR CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT THE MIIX GROUP(1)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(2) $ $ $
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</TABLE>

(1) Before deducting expenses of the Offering payable by The MIIX Group,
estimated to be approximately $1,000,000.

(2) The MIIX Group has granted to the Underwriters an option, exercisable within
30 days after the date hereof, to purchase up to an aggregate of 450,000
additional shares of Common Stock at the Price to Public, less Underwriting
Discount, solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discount, and Proceeds to The MIIX Group will be $ , $ and
$ , respectively. See "Underwriting."

The Shares are offered subject to receipt and acceptance by the
Underwriters, to prior sale, and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel, or modify the offer without notice.
It is expected that delivery of the Shares will be made at the offices of
, or through the facilities of The Depository Trust Company, on or
about , 1999.

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

FIRST UNION CAPITAL MARKETS CORP.

FRIEDMAN BILLINGS RAMSEY

MCDONALD INVESTMENTS INC.

HOEFER & ARNETT INCORPORATED

, 1999

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FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS DOCUMENT.

STATE INSURANCE HOLDING COMPANY LAWS AND REGULATIONS APPLICABLE TO THE MIIX
GROUP IN GENERAL PROVIDE THAT NO PERSON MAY ACQUIRE CONTROL OF THE MIIX GROUP,
AND THUS INDIRECT CONTROL OF ITS INSURANCE SUBSIDIARIES, UNLESS SUCH PERSON HAS
PROVIDED CERTAIN REQUIRED INFORMATION TO, AND SUCH ACQUISITION IS APPROVED (OR
NOT DISAPPROVED) BY, THE APPROPRIATE INSURANCE REGULATORY AUTHORITIES.
GENERALLY, ANY PERSON ACQUIRING BENEFICIAL OWNERSHIP OF 10% OR MORE OF THE
COMMON STOCK WOULD BE PRESUMED TO HAVE ACQUIRED SUCH CONTROL, UNLESS THE
APPROPRIATE INSURANCE REGULATORY AUTHORITIES UPON ADVANCE APPLICATION DETERMINE
OTHERWISE.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY OVER-ALLOTMENT, ENTERING INTO STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

THIS PROSPECTUS RELATES SOLELY TO THE OFFERING AND DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, COMMON STOCK PURSUANT TO
THE REORGANIZATION. COMMON STOCK OFFERED PURSUANT TO THE REORGANIZATION IS
OFFERED ONLY BY MEANS OF A SEPARATE PROSPECTUS.

FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Discussions concerning such forward-looking
statements may be found in the material set forth under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as the Prospectus generally.
These forward-looking statements include the plans and objectives of management
for future operations, including plans and objectives relating to the products
and future economic performance of the Company (as defined under "Prospectus
Summary" below). The forward-looking statements set forth in this Prospectus
include or relate to, but are not limited to: (i) the Company having sufficient
liquidity and working capital; (ii) the Company's strategy to seek consistent
profitable growth; (iii) the Company's ability to increase its market share;
(iv) the Company's ability to diversify its product lines; (v) the Company's
ability to expand into additional states; (vi) the Company's avoidance of any
material loss on collection of reinsurance recoverables; and (vii) the continued
adequacy of the Company's loss and LAE reserves.

The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
competitively price and market its insurance products, appropriately reserve for
losses and LAE and successfully handle claims; that competitive conditions will
not change materially or adversely; that demand for the Company's products will
be strong; that the market will accept the Company's new products and services;
that the Company will retain existing agents and key management personnel; that
the Company's reinsurers will remain solvent; and that there will be no material
adverse change in the Company's operations or business. Assumptions relating to
the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the

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assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in forward-looking statements will be realized.
Budgeting, reserving and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based on
actual experience and business developments, the impact of which may cause the
Company to alter its marketing, capital expenditures or other budgets, which may
in turn affect the Company's results of operations. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Financial data and ratios set forth in
this Prospectus have been presented in accordance with generally accepted
accounting principles ("GAAP"), unless otherwise indicated. Except as otherwise
specified, all information in this Prospectus assumes that the over-allotment
option granted in connection with the Offering is not exercised. See "Glossary
of Selected Insurance Terms" and "Glossary of Reorganization Terms" for
definitions of certain terms used in this Prospectus.

As explained below, New Jersey State Medical Underwriters, Inc., a New
Jersey corporation (the "Attorney-in-Fact"), carries out all the Exchange's
operations pursuant to a management agreement. Upon the consummation of the
Reorganization, the assets and liabilities of the Exchange (except for the
Common Stock and cash to be distributed in the Reorganization) will be assumed
by MIIX Insurance Company, a newly formed New Jersey stock insurer ("MIIX
Insurance"), and MIIX Insurance and the Attorney-in-Fact will become
wholly-owned subsidiaries of The MIIX Group. Therefore, for purposes of
discussing business, strategies, risk factors, and other operational issues,
throughout this Prospectus, the term "Company" refers (i) at all times prior to
the closing date of the Reorganization (the "Closing Date"), to the Exchange and
its subsidiaries and the Attorney-in-Fact and its subsidiaries, collectively,
and (ii) at all times after the Closing Date, to The MIIX Group and its
subsidiaries. However, the Exchange and the Attorney-in-Fact are currently
distinct entities. When discussing historical financial information, throughout
this Prospectus, the term "Company" includes the Exchange and its subsidiaries
but excludes the Attorney-in-Fact and its subsidiaries. The historical financial
results of the Attorney-in-Fact are not significant in relation to the
historical financial results of the Exchange.

For purposes of this Prospectus, the term "Insurance Subsidiaries" refers,
at all times prior to the Closing Date, to Lawrenceville Property and Casualty
Co., Inc. ("LP&C"), MIIX Insurance Company of New York ("MIIX New York") and
Lawrenceville Re, Ltd. ("Lawrenceville Re") and, at all times on or after the
Closing Date, to MIIX Insurance, LP&C, Lawrenceville Re and MIIX New York. The
structure of the Company before and after the Reorganization is set forth on
page 8.

THE COMPANY

Based on direct premiums written in 1997, the Company is the leading
provider of medical professional liability insurance in New Jersey and is ranked
10th among medical professional liability insurers in the United States. The
Company currently insures approximately 16,500 physicians and other medical
professionals who practice alone, in medical groups, clinics or in other health
care organizations. The Company also insures more than 195 hospitals, extended
care facilities, health maintenance organizations ("HMOs") and other managed
care organizations (collectively, "health care institutions"). The Company's
business has historically been concentrated in New Jersey but has expanded to
other states in recent years. The Company currently writes policies in 20 states
and the District of Columbia. In 1998, approximately 50% of the Company's total
direct premiums written were generated outside of New Jersey. In addition to the
Company's medical malpractice insurance operations, the Company also offers a
broad range of complementary insurance products to its insureds and operates
several fee-based consulting and other businesses.

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

In 1997, total medical professional liability direct premiums written in
the United States were approximately $5.9 billion, of which $299.3 million were
written in New Jersey, according to data compiled by A.M. Best Company, Inc.
("A.M. Best"), an insurance rating agency. The Company's market share of such
direct premiums written was 2.8% in the United States and 40% in New Jersey
according to A.M. Best. In

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1998, medical malpractice insurance accounted for approximately 97% of the
Company's direct premiums written.

The Company had total revenues and net income of $190.4 million and $29.1
million, respectively, for 1997 and $264.9 million and $29.7 million,
respectively, for 1998. As of December 31, 1998, the Company had total assets of
$1.7 billion and total equity of $322.8 million.

BUSINESS STRATEGY

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

- continue to expand geographically by increasing the number of states in
which the Company writes policies;

- enhance product offerings to facilitate "one-stop shopping" for the
Company's extensive customer base;

- expand distribution channels;

- maintain underwriting discipline to seek to assure that profitability,
rather than premium volume, is emphasized;

- take advantage of strategic acquisition opportunities; and

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

This strategy is designed to capitalize on the Company's strengths that have
enabled it to achieve its current market position, including (i) its experience
with, commitment to and focus on medical professional liability insurance, (ii)
its history of providing a stable premium environment to its customers, (iii)
the high level of service it delivers to insureds, including the aggressive
defense of claims on their behalf, (iv) its "A (Excellent)" rating by A.M. Best,
(v) its capacity on a per insured basis, (vi) its ability to customize product
features and programs to fit the needs of different customers and (vii) its
close relationship with the medical community.

Expand Geographically. From its inception in 1977 through 1990, all of the
Company's business was written in New Jersey. In 1991, the Company began to
write business in Pennsylvania and in 1996 began its expansion to other states.
Since 1996, the Company has expanded its operations significantly and currently
writes policies in 20 states and the District of Columbia. As a result of this
expansion, the proportion of the Company's direct business written in states
other than New Jersey has grown from approximately 11% in 1996 to 50% in 1998.
In order to facilitate continued geographic expansion, the Company is in the
process of obtaining authority to write medical professional liability policies
in 10 other states. Over time, the Company intends to become licensed to write
insurance in all 50 states, although the Company may choose not to write
insurance in certain states based on market or regulatory conditions. In
addition, the Company has opened four regional sales and customer support
offices to assist its marketing efforts outside of New Jersey.

Enhance Product Offerings. In addition to its core medical professional
liability insurance products, the Company has developed other products and
services for health care institutions. Additional products currently offered
include comprehensive liability coverage for medical offices, directors and
officers, managed care errors and omissions, employment practices, fiduciary,
property and worker's compensation. Most of these coverages are underwritten by
the Company; several products are marketed by the Company and underwritten by
other insurance carriers with which the Company has developed strategic
alliances. The Company has also introduced the option for large health care
institutions to purchase excess insurance coverage on a multi-year basis for a
guaranteed prepaid premium. The Company intends to continue to increase the
number of products it offers to its customer base in order to be able to provide
them with a full range of coverages.

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Expand Distribution Channels. The Company has traditionally written
insurance on a direct basis in New Jersey. In connection with the Company's
expansion outside New Jersey, the Company has increasingly utilized brokers and
agents. In 1998, 63% of the Company's direct premiums written were generated
through independent brokers and agents. By increasing its use of this
distribution channel, the Company will be better positioned to achieve growth.
In order to expand its distribution channels further, the Company intends to
develop additional relationships with selected brokers and agents who have
demonstrated expertise in the medical malpractice insurance market.

Maintain Underwriting Discipline. The Company's experience with,
commitment to and focus on medical professional liability insurance for over 20
years has allowed it to develop strong knowledge of the market and to build an
extensive database of medical malpractice claims experience. The Company takes
advantage of this specialized expertise in medical professional liability
insurance to set premiums that it believes are appropriate for exposures being
insured. As the Company expands its business, the Company intends to maintain
underwriting discipline and emphasize profitability over premium growth.

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

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

The Company's principal executive offices are located at Two Princess Road,
Lawrenceville, New Jersey 08648. The telephone number of the Company's principal
executive offices is (609) 896-2404.

OVERVIEW OF THE TRANSACTIONS

The Company is contemplating two different transactions -- the
Reorganization and the Offering.

- Reorganization. Pursuant to the Plan of Reorganization, the Exchange
will reorganize from a reciprocal insurer to a stock corporation. When
the Reorganization is consummated, Distributees (as defined in the
"Glossary of Reorganization Terms") will receive Common Stock or, in
certain cases, cash. The Reorganization will not be consummated unless
several conditions precedent are satisfied. See "-- The Reorganization
and Distribution."

- Offering. The Offering is made by this Prospectus. The Company intends
to consummate the Reorganization and the Offering simultaneously;
however, the Reorganization could be consummated without the Offering
being consummated.

These transactions are described in greater detail below.

THE REORGANIZATION AND DISTRIBUTION

The Exchange is currently organized as a New Jersey reciprocal insurer, and
accordingly has no stockholders. Since the Exchange's inception, the business of
the Exchange has been managed by the Attorney-in-Fact, which is a wholly owned
subsidiary of the Medical Society of New Jersey (the "Medical Society"), under
the supervision of the Board of Governors of the Exchange (the "Board of
Governors"). On October 15, 1997, the Board of Governors adopted the Plan of
Reorganization. The Plan of Reorganization

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was approved by Members (as defined in the Glossary of Reorganization Terms) of
the Exchange at a special meeting held on March 17, 1999. The key components of
the Plan of Reorganization are set forth below.

- The Exchange has formed a new subsidiary, The MIIX Group. The purpose of
The MIIX Group is to act, when the Reorganization is consummated, as a
holding company for MIIX Insurance and the Exchange's other subsidiaries,
and for the Attorney-in-Fact and its subsidiaries. The MIIX Group is the
entity that will issue Common Stock in the Reorganization and the
Offering.

- The MIIX Group has formed a new subsidiary, MIIX Insurance. MIIX
Insurance was formed to assume, when the Reorganization is consummated,
all of the Exchange's assets and liabilities (except for the Common Stock
and cash to be distributed pursuant to the Reorganization), including
insurance policies written by the Exchange. After consummation of the
Reorganization, MIIX Insurance will continue the Exchange's business of
writing insurance policies and the Exchange will be dissolved. In
consideration of the foregoing assignments by the Exchange to MIIX
Insurance, The MIIX Group will issue the Reorganization Shares (as
defined below) to the Exchange.

- The MIIX Group will acquire the Attorney-in-Fact from the Medical Society
for $11 million worth of Common Stock and $100,000 in cash.

- When the Exchange is dissolved, up to 12,000,000 shares of Common Stock
(the "Reorganization Shares") will be distributed to the Distributees.
The distribution of the Reorganization Shares is registered under a
separate registration statement.

- The Reorganization Shares will be allocated to Distributees in the
proportion that direct premiums earned by the Exchange attributable to
each Distributee, less return premiums, over the three years prior to
October 15, 1997, bear to direct premiums earned by the Exchange
attributable to all Distributees, less return premiums, over the same
period. The total amount of direct premiums earned by the Exchange
attributable to all Distributees, less return premiums, over such
period, was approximately $350 million.

- If a Distributee is allocated fewer than 100 shares of Common Stock, or
if such Distributee's address as shown on the records of the Exchange
is outside the United States or is an address to which mail is
undeliverable, such Distributee will receive cash in lieu of Common
Stock. Distributees who receive cash in lieu of Common Stock will
receive an amount of cash equal to the product of (i) the number of
shares of Common Stock which they would otherwise be entitled to
receive and (ii) the Conversion Value. The "Conversion Value" means
either (i) the price at which the Common Stock is offered to the public
in the event the Offering is consummated simultaneously with the
Reorganization, or (ii) if the Offering is not so consummated, then the
economic value of the Common Stock as determined in good faith by the
Board of Governors. If a Distributee's address as shown on the records
of the Exchange is an address to which mail is undeliverable, the
Company will hold such Distributee's cash distribution and will
endeavor to contact such Distributee using any other information in the
Company's possession. If the Company is unable to contact such
Distributee, the Company will continue to hold the cash for the
Distributee, subject to any escheat laws that may apply.

- To the extent that a Distributee receives cash in lieu of Common Stock,
the Common Stock otherwise distributable to such Distributee will not
be distributed to other Distributees. Thus, fewer than 12,000,000
shares of Common Stock will be distributed to the Distributees pursuant
to the Reorganization. The Company currently estimates that
approximately 11,900,000 shares of Common Stock will be distributed to
the Distributees pursuant to the Reorganization. Assuming that the
Conversion Value is equal to $13.00, approximately $1.3 million will be
distributed to Distributees in lieu of Common Stock. Cash payments will
be made from the Company's existing cash reserves.

Thus, when the Reorganization is consummated, (i) the Exchange will be
dissolved, (ii) the Distributees will receive Common Stock or cash, (iii) MIIX
Insurance will assume the assets and liabilities of the Exchange (except for the
Common Stock and cash to be distributed pursuant to the Reorganization), and
(iv) The MIIX Group will be the holding company for MIIX Insurance and the other
subsidiaries of the

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Exchange, and for the Attorney-in-Fact and its subsidiaries. These steps will
occur simultaneously and are described in greater detail below under "The
Reorganization."

Set forth below is an illustration of the Company's structure both before
and after the proposed Reorganization and Offering:

[REORGANIZATION CHART]
- ---------------
* Includes LP&C and MIIX New York.
** Includes Hamilton National Leasing Corporation, Pegasus Advisors, Inc., MIIX
Healthcare Group, Inc., Lawrenceville Re, Ltd. and certain other
subsidiaries.

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On March 5, 1998, the Commissioner (the "Commissioner") of the New Jersey
Department of Banking and Insurance (the "New Jersey Department") approved the
Plan of Reorganization, subject to two conditions. See "-- Regulatory
Approvals." The consummation of the Reorganization is also subject to certain
other conditions precedent. See "The Reorganization -- Conditions to
Consummation of the Reorganization."

THE OFFERING

Concurrently with the consummation of the Reorganization on the Closing
Date, but as a separate transaction, The MIIX Group intends to issue and sell
Common Stock through the Offering. The consummation of the Offering is
conditioned on the consummation of the Reorganization. However, the consummation
of the Reorganization is not conditioned on the consummation of the Offering.

Set forth below is a summary of certain terms of the Offering.

Common Stock Offered by the
Company Pursuant to the
Offering.................... 3,000,000 Shares.

Common Stock to be Outstanding
Immediately After the
Reorganization and the
Offering.................... Approximately 15,926,155 shares. (Assumes that
(i) 3,000,000 shares of Common Stock are issued
in connection with the Offering, (ii)
11,900,000 shares of Common Stock are issued to
Distributees in connection with the
Reorganization, (iii) $11 million worth of
Common Stock, or approximately 846,154 shares
based on an assumed Offering Price of $13.00
per share, are issued to the Medical Society in
connection with the purchase of the
Attorney-in-Fact, (iv) 180,001 shares of Common
Stock are sold to certain members of the
Company's management pursuant to the Stock
Purchase and Loan Agreements (as defined below)
and (v) the Underwriters do not exercise their
over-allotment option. Based on these
assumptions, after the consummation of the
Reorganization and the Offering, (i)
Distributees will own approximately 75%, (ii)
purchasers in the Offering will own
approximately 19%, (iv) management will own
approximately 1% and (v) the Medical Society
will own approximately 5%, of the outstanding
Common Stock.)

Voting Rights................. The Common Stock has one vote per share. For a
description of the rights of holders of Common
Stock, see "Description of Capital Stock."

Market for the Common Stock... The Company has received approval, subject to
official notice of issuance, to have the Common
Stock listed on the NYSE under the symbol
"MHU." Prior to the Offering, there has been no
public market for the Common Stock and there
can be no assurance that an active and liquid
market for the Common Stock will develop in the
foreseeable future. Even if a market develops,
there can be no assurance that after completion
of the Offering, stockholders will be able to
sell their shares at or above the price for
which they purchased Common Stock in the
Offering.

Use of Proceeds............... The net proceeds of the Offering will be used
for general corporate purposes which may
include, without limitation, capitalizing the

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<PAGE> 11

Company's subsidiaries in order to support
their continued growth and for financing
potential acquisitions.

Dividend Policy............... The MIIX Group currently intends to pay regular
quarterly cash dividends. The MIIX Group
initially expects to pay a quarterly cash
dividend of $.05 per share commencing with the
first full calendar quarter following the
Closing Date. The declaration and payment of
dividends to holders of Common Stock will be at
the discretion of The MIIX Group Board of
Directors ("The MIIX Group Board") and will
depend upon the Company's financial condition,
results of operations, cash requirements,
future prospects, regulatory restrictions on
the payment of dividends to The MIIX Group by
the Insurance Subsidiaries and other factors
deemed relevant by The MIIX Group Board. There
can be no assurance that The MIIX Group will
declare and pay any dividends. See
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

NYSE Symbol................... "MHU."

RISK FACTORS

Potential investors should carefully consider the factors set forth herein
under "Risk Factors" commencing on page 12, as well as other information
contained in this Prospectus.

REGULATORY APPROVALS

The consummation of the Reorganization requires the approval of the
Commissioner. This approval was granted on March 5, 1998, subject to two
conditions. First, the Commissioner must approve the formation of MIIX
Insurance. This approval was obtained on August 3, 1998. Second, the
Reorganization must be approved by the affirmative vote of not less than
two-thirds of those Members voting in person or by proxy. This approval was
obtained on March 17, 1999. On January 14, 1999, the New Jersey Department
approved an amendment to the Plan of Reorganization extending the time for its
consummation to September 5, 1999.

Pursuant to the Plan of Reorganization, MIIX Insurance is to assume all the
assets of the Exchange (except for the Common Stock and cash to be distributed
in the Reorganization). However, insurance licenses cannot be transferred.
Accordingly, MIIX Insurance must obtain regulatory approval to become an
admitted carrier in each of the eight states other than New Jersey in which the
Exchange is currently licensed. These states are Connecticut, Delaware,
Kentucky, Maryland, Michigan, Pennsylvania, Vermont and West Virginia. MIIX
Insurance has obtained such approval in Pennsylvania, Delaware, Vermont,
Michigan and West Virginia. These states (except Michigan) must also approve
MIIX Insurance's rates, rules and policy forms, which the Company expects
initially will be a continuation of those currently used by the Exchange.
Delaware has approved MIIX Insurance's policy forms, and Pennsylvania has
approved MIIX Insurance's rates, rules and policy forms. In addition, Virginia,
which is LP&C's state of domicile, must approve the change in LP&C's ultimate
parent from the Exchange to The MIIX Group, and New York, which is MIIX New
York's state of domicile, must approve the change in the ultimate parent of MIIX
New York from the Exchange to The MIIX Group. Such approval has been obtained in
Virginia. See "Business -- Regulation." Finally, Connecticut, Delaware and West
Virginia approvals and the consent of the reinsurers will be required in
connection with the assignment to MIIX Insurance of the various reinsurance
agreements under which the Exchange cedes risk. See "The
Reorganization -- Transfer of Assets and Liabilities to MIIX Insurance." Such
approval has been obtained in Connecticut and Delaware. All necessary reinsurer
consents have been obtained. Other miscellaneous approvals may be required in a
number of states.

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<PAGE> 12

SUMMARY FINANCIAL AND OPERATING DATA

The following table sets forth selected consolidated financial and
operating data for the Company. The income statement data set forth below for
each of the years in the four year period ended December 31, 1998 and the
balance sheet data as of December 31, 1998, 1997 and 1996 are derived from the
consolidated financial statements of the Company audited by Ernst & Young LLP,
independent auditors and should be read in conjunction with, and are qualified
by reference to, such statements and the related notes thereto. The income
statement data for the year ended 1994, and the balance sheet data as of
December 31, 1994 and 1995, are derived from unaudited consolidated financial
statements of the Company which management believes incorporate all of the
adjustments necessary for the fair presentation of the financial condition and
results of operations for such periods. All selected financial data are
presented in accordance with GAAP, except for the item entitled "statutory
surplus," which is presented in accordance with Statutory Accounting Principles
("SAP"). See "Glossary of Selected Insurance Terms." The statutory surplus
amounts are derived from the audited statutory financial statements of the
Company and, in the opinion of management, fairly reflect the specified data for
the periods presented.

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Direct premiums written................................... $ 127,647 $ 137,291 $ 143,218 $ 162,430 $ 230,314
========== ========== ========== ========== ==========
Net premiums earned....................................... $ 85,992 $ 105,256 $ 107,887 $ 123,330 $ 162,501
Net investment income..................................... 47,765 51,896 49,135 53,892 65,107
Realized investment gains (losses)........................ (11,030) 13,149 5,832 10,296 36,390
Other revenue............................................. 2,385 2,807 3,164 2,884 891
---------- ---------- ---------- ---------- ----------
Total revenues.......................................... 125,112 173,108 166,018 190,402 264,889
---------- ---------- ---------- ---------- ----------
Losses and loss adjustment expenses....................... 55,687 107,889 110,593 120,496 155,868
Underwriting expenses..................................... 12,777 14,743 17,553 25,415 42,063
Funds held charges........................................ 4,669 6,996 10,273 13,361 13,420
Impairment of capitalized system development costs........ -- -- -- -- 12,656
---------- ---------- ---------- ---------- ----------
Total expenses.......................................... 73,133 129,628 138,419 159,272 224,007
---------- ---------- ---------- ---------- ----------
Income before income taxes................................ 51,979 43,480 27,599 31,130 40,882
Income tax expense........................................ 16,327 11,402 10,004 2,006 11,154
---------- ---------- ---------- ---------- ----------
Net income.............................................. $ 35,652 $ 32,078 $ 17,595 $ 29,124 $ 29,728
========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Total investments......................................... $ 788,465 $ 895,146 $ 916,330 $1,026,971 $1,165,698
Total assets.............................................. 1,014,664 1,173,681 1,295,441 1,446,559 1,674,262
Total liabilities......................................... 827,659 919,050 1,033,129 1,136,585 1,351,419
Total equity.............................................. 187,005 254,631 262,312 309,974 322,843
ADDITIONAL DATA:
GAAP ratios:
Loss ratio................................................ 64.8% 102.5% 102.5% 97.7% 95.9%
Expense ratio............................................. 14.9% 14.0% 16.3% 20.6% 25.9%
---------- ---------- ---------- ---------- ----------
Combined ratio............................................ 79.7% 116.5% 118.8% 118.3% 121.8%
========== ========== ========== ========== ==========
Statutory surplus........................................... $ 156,246 $ 184,651 $ 208,478 $ 242,395 $ 253,166
========== ========== ========== ========== ==========
Earnings per share (pro forma)(1)........................... $ 1.97
==========
</TABLE>

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

(1) Gives effect to the assumed aggregate issuance of 11,900,000 shares of
Common Stock to Distributees, the sale of 3,000,000 shares of Common Stock
in the Offering and the sale of 180,001 shares of Common Stock to certain
officers of the Company pursuant to the Stock Purchase and Loan Agreements
based on an assumed Offering Price of $13.00 per share. See "Executive
Compensation -- Stock Purchase and Loan Agreements." Excludes the issuance
of shares of Common Stock to the Medical Society in connection with the
acquisition of the Attorney-in-Fact.

11
<PAGE> 13

RISK FACTORS

The following risk factors, in addition to other information set forth in
this Prospectus, should be carefully considered by potential investors in making
an investment decision regarding the Common Stock.

CONCENTRATION OF BUSINESS

Substantially all of the Company's direct premiums written are generated
from medical malpractice insurance policies issued to physicians, medical groups
and health care entities. As a result, negative developments in the economic,
competitive, or regulatory conditions affecting the medical malpractice
insurance industry, particularly as such developments might affect medical
malpractice insurance for physicians, could have a material adverse effect on
the Company's financial condition and results of operations.

In 1998, approximately 50% of the Company's 1998 direct premiums were
written in New Jersey. The revenues and profitability of the Company are
therefore subject to prevailing regulatory, economic, competitive and other
conditions in New Jersey. See "-- Competition" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."

There can be no assurance that the Company will be successful in
implementing its strategy to expand and diversify its geographic market. See
"-- Expansion into New Markets."

MEDICAL MALPRACTICE INSURANCE INDUSTRY FACTORS

Many factors influence the financial results of the medical malpractice
insurance industry, some of which are beyond the control of the Company and can
adversely affect the Company's results of operations. These factors include,
among other things, (i) aggressive pricing by competitors, pricing cycles and
overcapacity that result in downward pressure on rates, (ii) greater than
expected severity and frequency of claims, (iii) regulatory actions that reduce
the Company's discretion with respect to the pricing of its products, (iv)
changes in inflation and interest rates that make it difficult for the Company
to make adequate provision for loss and LAE reserves, and (v) judicial and
legislative decisions relating to insurance coverage issues and the amount of
compensation payable with respect to injuries that undermine insurers'
expectations with respect to the level of risk being assumed in a number of
ways, including expansive coverage interpretations, eliminating coverage
exclusions, multiplying limits of coverage, and creating rights for
policyholders not set forth in the insurance contract.

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 investment and
perceived premium rate adequacy. Historically, the financial performance of the
medical malpractice industry has tended to fluctuate in cyclical patterns
characterized by periods of greater competition in pricing and underwriting
terms and conditions (a "soft insurance market") followed by periods of capital
shortage and lesser competition (a "hard insurance market"). In a soft insurance
market, competitive conditions could result in premium rates and underwriting
terms and conditions which may be below profitable levels. For a number of
years, the medical malpractice insurance industry in New Jersey and in many
other states has experienced a soft insurance market. There can be no assurance
as to whether or when industry conditions will improve or the extent to which
any improvement in industry conditions may improve the Company's results of
operations.

LOSS AND LAE RESERVES

The reserves for losses and loss adjustment expenses ("LAE") established by
the Company represent management's best estimates of the remaining costs of
settling all incurred claims. The estimates are based on assumptions related to
the ultimate cost of settling such claims based on facts and interpretation of
circumstances then known, predictions of future events, estimates of future
trends in claims frequency and severity, judicial theories of liability,
legislative activity, and other factors. Establishment of appropriate reserves
is, however, an inherently uncertain process involving estimates of future
losses, and there can be no

12
<PAGE> 14

assurance that currently established reserves will prove adequate in light of
subsequent actual experience. The outcome and frequency of clusters of cases,
such as breast implant or "Fen-Phen" cases, cannot be predicted by the Company.
In addition, the Company's recent expansion into states other than New Jersey
and its utilization of new distribution channels together with changes in the
practice of medicine and health care delivery, such as the emergence of new,
larger medical groups that do not have an established claims history and
additional claims resulting from restrictions on treatment by managed care
organizations, may require the Company to adjust its underwriting and reserving
practices. See "-- Changes in Health Care."

There are significant inherent uncertainties in estimating ultimate losses
in the casualty insurance business and these uncertainties are increased in
periods when a company is expanding into new markets with new distribution
channels. The uncertainties are even greater for companies writing long-tail
casualty insurance, such as medical malpractice insurance, and in particular the
occurrence or occurrence-like coverages that substantially make up the Company's
current reserves. These additional uncertainties are due primarily to the longer
period of time during which an insured may seek coverage for a claim in respect
of an occurrence or occurrence-like policy as opposed to a claims made policy.
With the longer claim reporting and development period reserves are more likely
to be impacted by, among other factors, changes in judicial liability standards
and interpretation of insurance contracts, changes in the rate of inflation and
changes in the propensities of individuals to file claims. The Company offered
traditional occurrence coverage from 1977 through 1986 and has offered a form of
occurrence-like coverage, "modified claims made," from 1987 to the present. The
Company's modified claims made policy is called the Permanent Protection Plan
(the "PPP"). Under the PPP, coverage is provided for claims reported to the
Company during the policy period arising from incidents since inception of the
policy. The PPP includes "tail coverage" for claims reported after expiration of
the policy for occurrences during the policy period and thus is reserved on an
occurrence basis. Loss and LAE reserves carried for this policy and traditional
occurrence policies constitute approximately 87% of the Company's gross loss and
LAE reserves at December 31, 1998. See "Business -- Product Offerings." See
"Business -- Loss and LAE Reserves."

The Company's reserves are evaluated quarterly and annually and are
adjusted thereafter as circumstances warrant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Loss and LAE
Reserves." There can be no assurance that management will accurately interpret
claim data in evaluating its loss and LAE reserves.

There can be no assurance that the Company's ultimate losses and LAE will
not deviate, perhaps substantially, from the estimates reflected in the
Company's financial statements. If the Company's reserves should prove
inadequate, the Company would be required to increase its loss and LAE reserves,
which would cause a corresponding reduction in earnings in the period that such
reserves are increased. This could have a material adverse effect on the
Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Loss
and LAE Reserves" and "Business -- Loss and LAE Reserves."

INVESTMENT PORTFOLIO RISKS AND FLUCTUATIONS OF RESULTS

The Company's investment portfolio consists substantially of fixed maturity
securities. The fair market value of these assets and the investment income from
such assets fluctuate depending on general economic and market conditions. With
respect to the Company's investments in fixed maturity securities, the fair
market value of such investments generally increases or decreases in an inverse
relationship with fluctuations in interest rates while net investment income
realized by the Company from future investments in fixed maturity securities
will generally increase or decrease with interest rates. In addition, actual net
investment income and/or cash flows from investments that carry prepayment risk
(such as mortgage-backed and other asset-backed securities) may differ from
those anticipated at the time of investment as a result of interest rate
fluctuations. Because all of the Company's fixed maturities are classified as
available for sale, changes in the fair market value of the Company's fixed
maturities and equity securities are reflected in the Company's financial
statements. Similar treatment is not available for liabilities. Therefore,
interest rate fluctuations could adversely affect the Company's GAAP equity,
total comprehensive income and/or cash flows. See "Business -- Investment
Portfolio" and "Business -- Market Risk".

13
<PAGE> 15

ACTIONS OPPOSING THE PLAN OF REORGANIZATION

Challenge to the New Jersey Insurance Commissioner's Order. A group of
current and previous policyholders of the Company has retained a law firm that
filed a motion for rehearing with the New Jersey Department and the
Commissioner, an action designed to rescind regulatory approval of the Plan of
Reorganization. The motion challenged the authority of the Commissioner to
approve the actions contemplated under the Reorganization, the fairness of the
proposed allocation of Common Stock, and other key elements of the
Reorganization. The New Jersey Department denied the motion, and the group
("Appellants") filed a notice of appeal (the "Appeal") with the Appellate
Division of the Superior Court of New Jersey (the "Appellate Court"). The issues
raised by the Appeal are (i) whether the Commissioner had the authority to
approve the Plan of Reorganization in the absence of any statute expressly
permitting reciprocal insurers to engage in the type of transaction contemplated
by the Plan of Reorganization, (ii) whether adequate notice was given to members
of the Exchange regarding the Reorganization, (iii) whether sufficient evidence
was presented to the Commissioner to support the terms of the Plan of
Reorganization, including the fairness of the proposed allocation of Common
Stock and (iv) whether the New Jersey Department should have granted the request
for a rehearing. The Appellants also filed with the New Jersey Department a
motion to stay (i) the Commissioner's order approving the Plan of Reorganization
and (ii) the denial of the Appellants' motion for rehearing, pending disposition
of the Appeal. The New Jersey Department denied this motion. Following the
denial of the Appellants' motion to stay the effectiveness of the order
approving the Plan of Reorganization, the Appellants filed a motion with the
Appellate Court to stay the order and for a remand of the proceeding to the New
Jersey Department for rehearing. This motion was opposed by the Company and by
the Medical Society, which was allowed to intervene in the Appeal, and both the
Company and the Medical Society filed motions with the Appellate Court for
summary disposition of the Appeal. The Appellants subsequently filed a motion
with the Appellate Court to (i) name certain additional current or former
policyholders as Appellants, (ii) allow certain additional current or former
policyholders to intervene as Appellants, (iii) declare the Appellants to be
representatives of a class of New Jersey physicians who were long-time insureds
of the Company, who were members of the Exchange during the three year look-back
period for determining the eligibility of former members of the Exchange to
participate in the Reorganization, and whose interests are aligned with those of
Appellants, (iv) permit notice to be given by the Appellants to the members of
the proposed class, at the Company's expense or as otherwise ordered by the
Appellate Court and (v) grant other relief. All of these motions were denied by
the Appellate Court. When the Company mailed notices to its Members of the
special meeting to vote on the Plan of Reorganization, the Appellants filed an
emergent application with the Appellate Court seeking to enjoin the meeting and
the vote of the Members. The Appellants' application was denied by the Appellate
Court. The Appellants subsequently requested a hearing by the Supreme Court of
New Jersey on their application for emergent relief. That request was denied.
The Plan of Reorganization was approved by the Members at a special meeting held
on March 17, 1999 with a vote of 5,326 in favor and 429 opposed. Following
approval of the Plan of Reorganization, Appellants again sought injunctive
relief by filing an application with the Appellate Court for an order enjoining
implementation of the Plan pending final disposition of the Appeal. The
application to enjoin implementation of the Plan was heard by the Appellate
Court and was denied. Following the Appellate Court's denial of that motion, the
Appellants filed a motion with the Supreme Court of New Jersey seeking again to
enjoin implementation of the Plan of Reorganization. That motion was denied. The
appeal of the Commissioner's order approving the Plan of Reorganization
currently remains pending as to the three named Appellants that initially filed
the Appeal with the Appellate Court.

Other Pending Actions. Five current members of the Exchange have filed an
action against the Company and others in the Superior Court of New Jersey,
Chancery Division. Those five individual members ("Plaintiffs") claim that they
should be certified to represent a class of persons who were members of the
Exchange during both the three-year look back period and prior to the three-year
look back period, and who allegedly would benefit from a formula to allocate
stock in a manner proposed by the Plaintiffs. To date, the Plaintiffs have not
been certified to represent such a class. Four of the five Plaintiffs previously
moved to intervene in the Appeal from the Commissioner's order approving the
Plan of Reorganization. That motion was denied by the Appellate Court. The
Plaintiffs are challenging, among other things, the formula adopted by the Board
of Governors to allocate stock to Distributees, the valuation of the
Attorney-in-Fact, certain

14
<PAGE> 16

contractual benefits of key officers (including stock options, secured loans,
long-term incentives, and potential severance benefits), and actions taken by
the Board of Governors and key officers that allegedly violated such persons'
fiduciary duties. The Plaintiffs also contend that the surplus of the Company is
greater than the Company has reported. In addition to their request to be
certified to represent a class of members, the Plaintiffs sought to enjoin the
vote of Members on the Plan of Reorganization, to require that the Company
provide them priority subscription rights, to compel the payment of dividends by
the Exchange, to enjoin the Offering and to award non-specified compensatory and
punitive damages and attorney fees.

Prior to the vote of the Members on the Plan of Reorganization, the Company
filed a motion to dismiss Plaintiffs' complaint for lack of subject matter
jurisdiction and for failure to state a claim for which relief may be granted.
The Plaintiffs moved the court for an order enjoining the vote of the Members
and requiring certain discovery on an emergent basis. The motions of Plaintiffs
and the Company were heard prior to the vote of the Members. The Superior Court
of New Jersey, Chancery Division, granted the Company's motion to dismiss for
lack of subject matter jurisdiction on all claims related to the Plan of
Reorganization. The court deferred ruling on the Company's motion to dismiss the
remaining claims. The court denied the motion of the Plaintiffs for emergent
discovery and for an order enjoining the vote of the Members on the Plan of
Reorganization. The court further ruled that Plaintiffs would be permitted
access to the Company's mailing facility for the purpose of sending a letter to
Members expressing Plaintiffs' position on the Plan of Reorganization. The
Plaintiffs subsequently renewed their motion for emergent discovery and an order
enjoining the vote of the Members. The court denied the Plaintiffs' motion in
its entirety. The Plaintiffs then filed an appeal in the Appellate Court seeking
an emergent order enjoining the vote of the Members and leave to appeal the
dismissal of claims related to the Plan of Reorganization. Following a hearing,
the Appellate Court denied both the Plaintiffs' motion seeking leave to appeal
and their motion to enjoin the vote of the Members. The Company intends to
vigorously defend against each of the two remaining claims. However, no
assurance can be given that the Company will prevail on the merits of
Plaintiffs' claims or that a court will not grant relief that the Plaintiffs
have requested or other relief. Damages that could be awarded if the Plaintiffs
were to prevail cannot be predicted and could have a material adverse effect on
the Company. Any injunctive relief that delays the completion of the Plan of
Reorganization or other injunctive relief could have a material adverse effect
on the Company.

Other Potential Actions. Other persons could bring actions against the
Company for a variety of reasons, including but not limited to the relative
allocation of Common Stock among Distributees, the method by which the Company
determined which members of the Exchange would be Distributees, or the absence
of any applicable statute or published court decision expressly permitting a
reciprocal insurer to reorganize as a stock company. Final adjudication of any
such case could take a number of years and the parties could appeal any final
judgment. Such appeals, if made, could require a number of years to be decided.
If any such action is brought, the Company intends to vigorously defend the
Reorganization. However, no assurance can be given that a court would not enjoin
the distribution of Common Stock pursuant to the Plan of Reorganization, or that
the Company will ultimately prevail on the merits. Damages awarded under any
such suit cannot be predicted and could have a material adverse effect on the
Company. If the Reorganization is completed, but the authority of the New Jersey
Department to approve conversion from a reciprocal insurer to a stock company is
overturned, the remedy a court might grant is uncertain. Such remedy could have
a material adverse effect on the Company and its stockholders.

COMPETITION

15
<PAGE> 17

to encounter such competition from doctor-owned insurance companies and
commercial companies in other states as it carries out its expansion plans. Many
of the Company's current and potential competitors may have greater financial
resources than the Company and may seek to acquire market share by decreasing
pricing for their products below prevailing market rates, thereby reducing
profitability. The Company believes that several insurance companies that have
greater financial resources than the Company are writing medical malpractice
insurance in New Jersey and Pennsylvania that provides the same coverage as the
Company's products at prices much lower than the Company's prices. This price
competition could have a material adverse effect on the Company's financial
condition and results of operations. There can be no assurance that the Company
will be able to compete effectively against these potential and existing
competitors.

The hospital professional liability insurance market is also extremely
competitive. Most of the Company's principal insurance company competitors for
physicians and medical groups also now actively compete in the hospital
professional liability insurance market. Moreover, the Company's primary
competitor in New Jersey was founded to provide professional liability coverage
to hospitals, while the Company traditionally served the individual physician
market. The Company also believes that the number of health care entities that
insure their affiliated physicians through self-insurance may increase, reducing
the market for physician professional liability insurance. These competitive
factors may adversely affect the Company's results of operations.

As the Company expands into new product lines and new geographic markets,
it will compete with established companies in such markets, many of which will
have existing relationships with the physicians, medical groups, hospitals, and
other healthcare providers that the Company will seek to insure. Competitors may
also have existing relationships with insurance brokers or other distribution
channels. These factors may adversely affect the Company's financial condition
and results of operations. See "Business -- Competition."

CHANGES IN HEALTH CARE

In recent years, a number of factors related to the emergence of "managed
care" have negatively impacted or threaten to impact the medical practice and
economic independence of physicians. Physicians have found it more difficult to
conduct a traditional fee-for-service practice and many have been forced to join
or affiliate with managed care organizations, health care delivery systems or
practice management organizations. This consolidation has begun to reduce the
role of the physician and the medical group in the medical malpractice insurance
purchasing decision. In addition, the consolidation could reduce primary medical
malpractice insurance premiums paid by doctors and hospitals, as larger health
care systems generally retain more risk by accepting higher deductibles and
self-insured retentions or form their own captive insurance companies.
Furthermore, larger health care systems may possess sufficient bargaining power
to negotiate discounted rates. These factors could have a material adverse
effect on the Company's profitability.

EXPANSION INTO NEW MARKETS

The Company's strategy includes expanding and diversifying its product
lines and geographic markets to meet the insurance needs of the changing health
care market, while maintaining its traditional personalized service for
physicians and medical groups, and customized products for health care
institutions. Such expansion and diversification are contingent on various
factors, including, among others, the availability of adequate capital,
marketing success, the ability to profitably underwrite such expanded and
diversified business and applicable regulatory requirements. The Company's
business expansion may also occur through the acquisition of, or combination
with, other medical professional liability insurers or other entities. There can
be no assurance that any such acquisition or combination will be profitable for
the Company. There can be no assurance that the Company's expansion will be
successful.

As the Company expands and diversifies its product lines into new areas,
the Company will be required to retain qualified personnel with the requisite
experience in such areas. Competition for such personnel may be intense, and
there can be no assurance that the Company will be able to attract and retain
such personnel. In addition, the Company will have to seek distribution channels
for its new products. This may increase the Company's dependence on insurance
brokers and other intermediaries. There can be no assurance that the

16
<PAGE> 18

Company will be able to develop such distribution channels or maintain
satisfactory relationships with insurance brokers and other intermediaries.

A.M. BEST RATINGS

Ratings have become an increasingly important factor in establishing the
competitive position of insurance companies. The Company is rated "A
(Excellent)" by A.M. Best, the third highest rating of 16 ratings assigned by
A.M. Best. A.M. Best's ratings reflect its opinion of an insurance company's
financial strength, operating performance, strategic position, and ability to
meet its obligations to policyholders, and are not evaluations directed to
purchasers of an insurance company's securities. In March 1998, A.M. Best
reaffirmed the Company's "A (Excellent)" rating. The Company's rating is subject
to periodic review by A.M. Best and cannot be assured. If the Company's rating
is reduced from its current level by A.M. Best, the Company's results of
operations could be adversely affected. See "Business -- A.M. Best Ratings."

REINSURANCE

The amount and cost of reinsurance available to companies specializing in
medical professional liability insurance are subject, in large part, to
prevailing market conditions beyond the control of the Company. The Company's
ability to provide professional liability insurance at competitive premium rates
and coverage limits on a continuing basis will depend in part on its ability to
secure adequate reinsurance in amounts and at rates that are commercially
reasonable. There can be no assurance that the Company will continue to be able
to secure adequate reinsurance, and any failure to do so could have a material
adverse effect on the Company. Furthermore, the Company is subject to a credit
risk with respect to its reinsurers because reinsurance does not relieve the
Company of liability to its insureds for the risks ceded to reinsurers. A
significant reinsurer's inability to make payment under the terms of a
reinsurance treaty could have a material adverse effect on the Company. See
"Business -- Reinsurance."

HOLDING COMPANY STRUCTURE; LIMITATION ON DIVIDENDS

The MIIX Group is an insurance holding company whose assets after the
Reorganization will consist primarily of all the outstanding capital stock of
MIIX Insurance, the Attorney-in-Fact, and downstream subsidiaries of those
companies. As an insurance holding company, The MIIX Group's ability to meet its
obligations and to pay dividends, if any, will largely depend on the receipt of
sufficient funds from its subsidiaries. The payment of dividends to The MIIX
Group by the Insurance Subsidiaries is subject to general limitations imposed by
applicable insurance laws. See "Business -- Regulation -- Holding Company
Regulation" and "Business -- Regulation -- Regulation of Dividends from
Insurance Subsidiaries."

ANTI-TAKEOVER PROVISIONS

The MIIX Group's certificate of incorporation and by-laws include
provisions that may be deemed to have anti-takeover effects and may delay,
defer, or prevent a takeover attempt that stockholders may consider to be in
their best interests. These provisions include: a Board of Directors consisting
of three classes with staggered terms; authorization to issue up to 50,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"), in
one or more series, with such rights, obligations, powers, and preferences as
The MIIX Group Board may provide; a limitation which permits only The MIIX Group
Board, the Chairman or Vice Chairman of The MIIX Group Board or the Chief
Executive Officer (or in the event of his or her absence or disability, any Vice
President) of The MIIX Group, to call a special meeting of stockholders; a
prohibition against stockholders acting by written consent; provisions allowing
directors to be removed only for cause and only by the affirmative vote of a
majority of holders of the outstanding shares of voting securities; provisions
allowing The MIIX Group Board to increase the size of the Board and fill
vacancies and newly created directorships; and certain advance notice procedures
for nominating candidates for election to The MIIX Group Board and for proposing
business before a meeting of stockholders. In addition, state insurance holding
company laws that will be applicable to The MIIX Group generally provide that no
person may acquire control of The MIIX Group without the prior approval of
appropriate insurance regulatory authorities. See "Management," "Description of
Capital Stock -- Delaware Law and Certain Charter and Bylaw Provisions," and
"Business -- Regulation -- Holding Company Regulation."

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REGULATORY AND RELATED MATTERS

Insurance companies are subject to supervision and regulation by the state
insurance authority in each state in which they transact business. Such
supervision and regulation relate to numerous aspects of an insurance company's
business and financial condition, including limitations on lines of business,
underwriting limitations, the setting of premium rates, the establishment of
standards of solvency, statutory surplus requirements, the licensing of insurers
and agents, concentration of investments, levels of reserves, the payment of
dividends, transactions with affiliates, changes of control, and the approval of
policy forms. Such regulation is concerned primarily with the protection of
policyholders' interests rather than stockholders' interests. See
"Business -- Regulation."

State regulatory oversight and various proposals at the federal level may
in the future adversely affect the Company's results of operations. In recent
years the state insurance regulatory framework has come under increased federal
scrutiny, and certain state legislatures have considered or enacted laws that
alter and, in many cases, increase state authority to regulate insurance
companies and insurance holding company systems. Furthermore, the National
Association of Insurance Commissioners (the "NAIC") and state insurance
regulators are reexamining existing laws and regulations, which in many states
has resulted in the adoption of certain laws that specifically focus on
insurance company investments, issues relating to the solvency of insurance
companies, risk-based capital ("RBC") guidelines, interpretations of existing
laws, the development of new laws and the definition of extraordinary dividends.
See "Business -- Regulation -- Risk-Based Capital,"
"Business -- Regulation -- NAIC-IRIS Ratios," and
"Business -- Regulation -- Regulation of Investments." Changes in or the
adoption of laws or regulations regarding such issues or other matters,
including the rates charged for insurance coverage, could have a material
adverse effect on the operations of the Company. State agencies and officials
responsible for administering such laws and regulations have broad powers, which
they exercise primarily for the protection of policyholders.

STATE INSURANCE REGULATORY APPROVALS

Because New Jersey's statutory scheme does not have an explicit process for
converting a reciprocal insurance exchange into a stock company, the conversion
will be accomplished through two assumption agreements by which the Exchange
will transfer its ongoing business, assets and liabilities (except for the
Common Stock and cash to be distributed pursuant to the Reorganization) to MIIX
Insurance. However, insurance licenses cannot be transferred. Accordingly, it
will be necessary for MIIX Insurance to gain state regulatory approval to become
an admitted carrier in each of the eight states other than New Jersey in which
the Exchange is currently licensed. These states are Connecticut, Delaware,
Kentucky, Maryland, Michigan, Pennsylvania, Vermont and West Virginia. MIIX
Insurance has obtained such approval in Pennsylvania, Delaware, Vermont,
Michigan and West Virginia. These states (except Michigan) must also approve
MIIX Insurance's rates, rules and policy forms, which the Company expects will
initially be a continuation of those currently used by the Exchange. Delaware
has approved MIIX Insurance's policy forms, and Pennsylvania has approved MIIX
Insurance rates, rules and policy forms. In addition, Virginia, which is LP&C's
state of domicile, must approve the change in LP&C's ultimate parent from the
Exchange to The MIIX Group, and New York, which is MIIX New York's state of
domicile, must approve the change in the ultimate parent of MIIX New York from
the Exchange to The MIIX Group. Such approval has been obtained in Virginia. See
"Business -- Regulation." Finally, Connecticut, Delaware and West Virginia
approvals and the consent of the reinsurers will be required in connection with
the assignment to MIIX Insurance of the various reinsurance agreements under
which the Exchange cedes risk. Such approval has been obtained in Connecticut
and Delaware. All necessary reinsurer consents have been obtained. Other
miscellaneous approvals may be required in a number of states. If these
approvals are not granted prior to the Closing Date, it may prevent the
consummation of the Reorganization as currently contemplated and, because MIIX
Insurance will not be authorized to write new business in such states, may have
an adverse effect on the Company.

SHARES ELIGIBLE FOR FUTURE SALE

All of the shares of Common Stock issued in the Reorganization and the
Offering (except for the shares issued to the Medical Society pursuant to the
Plan of Reorganization, the directors and officers of the

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<PAGE> 20

Company, and other affiliates of the Company) will be eligible for immediate
sale in the public market. No prediction can be made as to the effect, if any,
that future sales of shares, or the availability of shares for future sale, will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of such shares of Common Stock in the public market
following the consummation of the Reorganization and the Offering or the
perception that such sales could occur could adversely affect the market price
of the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Shares Eligible for
Future Sale."

LACK OF PRIOR PUBLIC MARKET FOR COMMON STOCK

Prior to the Reorganization and the Offering, there has been no public
market for the Common Stock and there can be no assurance that an active trading
market will develop or be sustained. The Common Stock has been approved for
listing on the NYSE, subject to official notice of issuance. However, there can
be no assurance as to the price at which Common Stock will trade on the NYSE. In
addition, factors such as the variations in the Company's financial results or
other developments affecting the Company could cause the market price of the
Common Stock to fluctuate significantly after the Offering.

FAILURE TO CONSTITUTE A TAX-FREE REORGANIZATION

PricewaterhouseCoopers LLP (the "Tax Advisor") has delivered an opinion
(the "Tax Opinion") stating that consummation of the Plan of Reorganization
shall constitute a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended. The Internal Revenue Service
(the "IRS") and the courts have not previously considered the treatment of a
transaction in the form described herein. The Tax Opinion represents the Tax
Advisor's best judgment of how a court would rule. However, the opinion is not
binding upon either the IRS or any court. A ruling has not been, and will not
be, sought from the IRS with respect to the U.S. federal income tax consequences
of the consummation of the Plan of Reorganization. Accordingly, the IRS and/or a
court could reach a conclusion that differs from the conclusions in the Tax
Opinion. In that event, it is possible that the consummation of the Plan of
Reorganization would be treated as a taxable transaction, in which case the
Exchange would recognize taxable gain. See "The Reorganization -- Federal Tax
Consequences."

DEPENDENCE ON KEY PERSONNEL

The Company's success since 1990 has been significantly dependent on the
contributions of Daniel Goldberg, the Company's President and Chief Executive
Officer, and the loss of his services could have a material adverse effect on
the Company's business, results of operations and financial condition. The
Company's success also depends to a significant extent on a number of other key
employees of the Company and the loss of their services could also have a
material adverse effect on the Company. In addition, the Company believes that
its future success will depend in part on its ability to attract and retain
additional highly skilled professional, managerial, sales, and marketing
personnel. Competition for such personnel is intense. There can be no assurance
that the Company will be successful in attracting and retaining the personnel
that it requires for its business and planned growth.

GUARANTY FUND ASSESSMENTS AND OTHER LIABILITIES

Property and casualty insurers like the Company are subject to assessments
in most states where they are licensed for the provision of funds necessary for
the settlement of covered claims under certain policies of impaired, insolvent
or failed insurance companies. Maximum contributions required by law in any one
year vary by state, and have historically been between 1% and 2% of annual
premiums written. The Company cannot predict with certainty the amount of future
assessments. Significant assessments could have a material adverse effect on the
Company's financial condition or results of operations.

In addition to guaranty fund assessments, there is a possibility that the
Company could be required to pay some portion of the estimated $2 billion
liability of Pennsylvania's Medical Professional Liability Catastrophe (CAT)
Loss Fund. This fund provides a level of malpractice coverage above that of
primary carriers. A study is currently under way to assess the level of unfunded
liability and recommend legislative solutions. Options

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<PAGE> 21

include a bond issue; primary carriers assuming some of the fund's liability;
major reinsurers funding the liability; or continuing current surcharges until
the liability is eliminated. A determination that primary carriers are to share
the fund's liability could have a material adverse effect on the Company.

YEAR 2000; INFORMATION TECHNOLOGY

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

The Company began evaluating this issue in 1996 in connection with an
overall evaluation of the Company's systems and during 1997 assigned a project
manager to study the Company's information systems and computers to determine
whether they will appropriately handle post-1999 date codes. The identification
of compliance issues included the Company's internal systems and processes, as
well as exposure from service providers, brokers and other external business
partners. Software applications, hardware and information technology ("I/T")
infrastructure and non I/T systems such as the Company's telephone, security and
heating and ventilating systems have been reviewed to identify those requiring
upgrading or replacement to improve current computing capabilities and to ensure
that they are Year 2000 compliant. In the course of evaluating the Year 2000
readiness of its internal systems, the Company determined that its claims
administration system is not Year 2000 compliant. The Company has purchased a
replacement system that the vendor has represented to be Year 2000 compliant and
is expected to be operational in 1999. There can be no assurance that the
replacement claims administration system will function as represented by the
vendor or that the installation itself will not cause disruption to the
Company's operations that could have a material adverse effect on its results of
operations. The Company has also determined that its telephone equipment is not
Year 2000 compliant. The Company is currently choosing among different methods
of making its telephone equipment Year 2000 compliant. The new telephone
equipment is expected to be operational in 1999.

The Company has not completed its review of its I/T and non I/T systems or
its investigation of whether its service providers, brokers and other external
business partners may experience Year 2000 problems that could affect the
Company. The Company expects to complete its Year 2000 compliance efforts in
1999. However, there can be no assurance that the Company will not experience
failure of its I/T or non I/T systems (including, without limitation, the
replacement claims administration system), which may result in business
interruption, financial loss, reputational loss or liability. There can be no
assurance that the Company's service providers, brokers and other external
business partners will not experience Year 2000 problems. Such problems may
disrupt important services upon which the Company depends, such as
telecommunications or electrical power. As the Company continues its Year 2000
compliance efforts, it may discover unforeseen problems that could require
costly remedies. Any of these circumstances could have a material adverse effect
on the Company's operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000."

The Company is significantly dependent upon effective I/T systems. Any
failure in, or failure to timely update, the Company's I/T systems could have a
material adverse effect on the Company's results of operations or financial
condition. The Company is in the process of upgrading its computer systems that
relate to policy administration, billing, claims, and other aspects of the
Company's business. There can be no assurance that such upgrades will be
implemented without causing significant disruption to the Company's operations.
Any such disruptions could have a material adverse effect on the Company's
ability to conduct its operations and could increase administrative expenses.

The Company may be adversely affected if Year 2000 issues result in
additional claims being made against the Company's insureds. Such claims could
have a material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000."

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THE REORGANIZATION

GENERAL

The Exchange is currently organized as a New Jersey reciprocal insurer, and
accordingly has no stockholders. Since the Exchange's inception, the business of
the Exchange has been managed by the Attorney-in-Fact, which is a wholly owned
subsidiary of the Medical Society, under the supervision of the Board of
Governors. On October 15, 1997, the Board of Governors adopted the Plan of
Reorganization. The Plan of Reorganization was approved by the Members at a
special meeting held on March 17, 1999. The key components of the Plan of
Reorganization are set forth below.

- The MIIX Group has formed a new subsidiary, MIIX Insurance. MIIX
Insurance was formed to assume, if the Reorganization is consummated, all
of the Exchange's assets and liabilities (except for the Common Stock and
cash to be distributed pursuant to the Reorganization), including
insurance policies written by the Exchange. After consummation of the
Reorganization, MIIX Insurance will continue the Exchange's business of
writing insurance policies and the Exchange will be dissolved. In
consideration of the foregoing assignments by the Exchange to MIIX
Insurance, The MIIX Group will issue the Reorganization Shares to the
Exchange.

- The MIIX Group will acquire the Attorney-in-Fact from the Medical Society
for $11 million worth of Common Stock and $100,000 in cash.

- When the Exchange is dissolved, the Reorganization Shares will be
distributed to Distributees. The distribution of the Reorganization
Shares is registered under a separate registration statement.

- If a Distributee is allocated fewer than 100 shares of Common Stock,
or if such Distributee's address as shown on the records of the
Exchange is outside the United States or is an address to which mail
is undeliverable, such Distributee will receive cash in lieu of Common
Stock. Distributees who receive cash in lieu of Common Stock will
receive an amount of cash equal to the product of (i) the number of
shares of Common Stock which they would otherwise be entitled to
receive and (ii) the Conversion Value. If a Distributee's address as
shown on the records of the Exchange is an address to which mail is
undeliverable, the Company will hold such Distributee's cash
distribution and will endeavor to contact such Distributee using any
other information in the Company's possession. If the Company is
unable to contact such Distributee, the Company will continue to hold
the cash for the Distributee, subject to any escheat laws that may
apply.

- To the extent that a Distributee receives cash in lieu of Common
Stock, the Common Stock otherwise distributable to such Distributee
will not be distributed to other Distributees. Thus, fewer than
12,000,000 shares of Common Stock will be distributed to the
Distributees pursuant to the Reorganization. The Company currently
estimates that 11,900,000 shares of Common Stock will be distributed
to the Distributees pursuant to the Reorganization. Assuming that the
Conversion Value is equal to $13.00, approximately $1.3 million will
be distributed to Distributees in lieu of Common Stock. Cash payments
will be made from the Company's existing cash reserves.

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<PAGE> 23

On March 5, 1998, the Commissioner approved the Plan of Reorganization
subject to two conditions. First, the Commissioner must approve the formation of
MIIX Insurance. This approval was obtained on August 3, 1998. Second, in
accordance with the terms of the Plan of Reorganization, the Members must
approve the Plan of Reorganization by the affirmative vote of not less than
two-thirds of those Members voting in person or by proxy. This approval was
obtained on March 17, 1999. See "Risk Factors -- Actions Opposing the Plan of
Reorganization." On January 14, 1999, the New Jersey Department approved an
amendment to the Plan of Reorganization extending the time for its consummation
to September 5, 1999.

PURPOSE

The principal purposes of the Reorganization are to enhance the Company's
strategic and financial flexibility and to provide Distributees with marketable
stock in The MIIX Group. As a reciprocal insurer, the Company can increase its
capital primarily through retained surplus. The Company believes that in the
long term this source will not be sufficient to meet its business objectives. As
a stock company, the Company will have greater access to the capital markets.
The Company believes that such access will enhance the Company's ability to
expand its existing business and to develop new business opportunities. In
addition, as a stock company the Company will have a well-recognized and
flexible organizational form that may facilitate strategic acquisitions.

TRANSFER OF ASSETS AND LIABILITIES TO MIIX INSURANCE

Pursuant to an Assumption Reinsurance and Administration Agreement to be
entered into among the Exchange, The MIIX Group and MIIX Insurance (the
"Reinsurance Assignment"), all the rights and obligations under policies written
by the Exchange, and all instruments of reinsurance ceded by the Exchange in
respect of such policies, will be transferred to MIIX Insurance in consideration
of the transfer by the Exchange to MIIX Insurance of invested assets, premium
receivables, reinsurance recoverables and other assets having a value equal to
the liabilities transferred under the Reinsurance Assignment. Following the
effectiveness of the Reinsurance Assignment, MIIX Insurance will become directly
liable under the assumed direct written policies and will service and administer
those policies. The Reinsurance Assignment's effectiveness is conditioned upon
the approval of the Commissioner and the commissioners of insurance of the
states of Connecticut and Delaware. Such approval has been obtained in
Connecticut and Delaware. In addition, the West Virginia regulatory authorities
have indicated that they wish to review the Reinsurance Assignment. The
Commissioner's approval was obtained in connection with the approval of the Plan
of Reorganization. As promptly as possible following the effectiveness of the
Reinsurance Assignment, MIIX Insurance will mail to each policyholder of the
Exchange (and to former policyholders with claims outstanding on the Closing
Date or arising after the Closing Date) a certificate of assumption notifying
them that their policies have been transferred to MIIX Insurance. Pursuant to an
Assignment and Assumption Agreement to be entered into among the Exchange, The
MIIX Group and MIIX Insurance (the "Asset Assignment" and, with the Reinsurance
Assignment, the "Assumption Agreements"), MIIX Insurance will assume all the
non-insurance liabilities of the Exchange, and the Exchange will transfer to
MIIX Insurance all of the non-insurance operating assets and properties used or
held for use in connection with, necessary for, or material to, the business and
operations currently conducted by the Exchange. Common Stock and cash to be
distributed to Distributees is excluded from such transfer. In consideration of
the foregoing assignments by the Exchange, The MIIX Group will issue the
Reorganization Shares to the Exchange. See "-- General." The Asset Assignment is
conditioned upon the approval of the Commissioner, which has already been
obtained in connection with the Commissioner's approval of the Plan of
Reorganization.

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<PAGE> 24

The transfer of assets and liabilities from the Exchange to MIIX Insurance
will be accounted for on a historical cost basis, with no gain or loss
recognition resulting from the transfer.

SHARES OF COMMON STOCK ISSUED TO DISTRIBUTEES

In connection with the Reorganization, 12,000,000 shares of Common Stock
will be available for allocation to Distributees. "Distributees" are Persons who
were Named Insureds (regardless of the person or group who paid the premiums) in
one or more Policies that were In Force on the Adoption Date and Persons who
were at any time during the three-year period prior to the Adoption Date Named
Insureds in one or more Policies. Corporate policyholders and other
policyholders who are not natural persons are not Distributees. See "Glossary of
Reorganization Terms."

Distributees will be allocated shares of Common Stock if the Reorganization
is consummated. See "-- Conditions to Consummation of the Reorganization." Each
Distributee will be allocated a pro rata share of the 12,000,000 shares of
Common Stock available for allocation to Distributees, in the proportion that
direct premiums earned by the Exchange attributable to such Distributee, less
return premiums, over the three years prior to October 15, 1997, bear to direct
premiums earned by the Exchange attributable to all Distributees, less return
premiums, over the same period. The number of shares allocated will be rounded
to the nearest integer, with one-half share allocation being rounded upward.
Therefore, the actual number of shares so allocated will not precisely equal
each Distributee's pro rata share of the Exchange's earned premiums over the
three years prior to October 15, 1997. The total amount of direct premiums
earned by the Exchange attributable to all Distributees, less return premiums,
over the three years prior to October 15, 1997 was approximately $350 million.
Distributees who (i) have as their address for mailing purposes shown on the
records of the Company an address outside the United States of America or an
address to which mail is undeliverable, or (ii) are allocated a number of shares
of Common Stock fewer than 100, will be paid cash in lieu of such shares. The
gross amount of cash paid in consideration for each such share shall equal the
Conversion Value. If a Distributee's address as shown on the records of the
Exchange is an address to which mail is undeliverable, the Company will hold
such Distributee's cash distribution and will endeavor to contact such
Distributee using any other information in the Company's possession. If the
Company is unable to contact such Distributee, the Company will continue to hold
the cash for the Distributee, subject to any escheat laws that may apply. To the
extent that a Distributee receives cash in lieu of Common Stock, the Common
Stock otherwise distributable to such Distributee will not be distributed to
other Distributees. Thus, fewer than 12,000,000 shares of Common Stock will be
distributed to the Distributees pursuant to the Reorganization. The Company
currently estimates that 11,900,000 shares of Common Stock will be distributed
to the Distributees pursuant to the Reorganization. Assuming that the Conversion
Value is equal to $13.00, approximately $1.3 million will be distributed to
Distributees in lieu of Common Stock. Cash payments will be made from the
Company's existing cash reserves.

Following the Closing Date, the Company will mail to each Distributee
(other than Distributees receiving cash) a stock certificate representing the
shares of Common Stock distributed to such Distributee. Distributees will not be
able to sell such shares until they receive their stock certificate.

The par value of the Common Stock distributed to Distributees will be
accounted for as a reallocation among the equity components of the Company from
retained earnings to additional paid in capital, and will have no impact on the
total equity of the Company. The amount distributed to Distributees in lieu of
Common Stock will be accounted for as a reduction to retained earnings.

ACQUISITION OF THE ATTORNEY-IN-FACT

Pursuant to a Stock Purchase Agreement dated as of October 15, 1997,
between The MIIX Group and the Medical Society, as amended (the "Stock Purchase
Agreement"), on the date on which the Reorganization is consummated, The MIIX
Group will purchase all the outstanding common stock of the Attorney-in-Fact
from the Medical Society in exchange for (i) $100,000 in cash and (ii) that
number of shares of Common Stock with a value equal to $11 million based on the
Offering Price, or if the Offering is not consummated, on the average trading
price (based upon the mean of the daily high and low share price) for

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<PAGE> 25

the first 60 days of trading of the Common Stock on any nationally recognized
securities exchange. Based on an assumed Offering Price of $13.00 per share,
846,154 shares of Common Stock will be paid to the Medical Society. All
subsidiaries of the Attorney-in-Fact are included in the purchase. The Common
Stock received by the Medical Society pursuant to the Stock Purchase Agreement
may not be transferred by the Medical Society for a period of 10 years following
October 15, 1997 except to the Company or its affiliates at fair market value or
to another party if The MIIX Group Board approves such transfer.

The acquisition of the Attorney-in-Fact will be accounted for as a
purchase. As a result, the assets and liabilities of the Attorney-in-Fact will
be adjusted to reflect their fair market values on the date of the consummation
of the Reorganization and any difference between the purchase price and the fair
market value of the net assets will be recorded as goodwill.

CONDITIONS TO CONSUMMATION OF THE REORGANIZATION

The consummation of the Reorganization is subject to the conditions that
(i) the Exchange has received an opinion from a nationally-recognized investment
banking firm as to the fairness of the Plan of Reorganization; (ii) the Exchange
has received an opinion from its tax advisors substantially to the effect that
the transfer of the Exchange's assets to, and assumption of its liabilities by,
MIIX Insurance, and the dissolution of the Exchange, shall qualify as a tax-free
reorganization; (iii) the Members of the Exchange shall have approved the Plan
of Reorganization by the affirmative vote of not less than two-thirds of those
Members voting; (iv) the Attorney-in-Fact shall have canceled all powers of
attorney entered into with any applicant for insurance with the Exchange; (v)
all requisite approvals of the Reinsurance Assignment shall have been obtained;
(vi) the Exchange shall have filed with the Commissioner certain certificates as
to the satisfaction of the conditions to the consummation of the Plan of
Reorganization; (vii) the Commissioner shall have issued a certificate of
authority to MIIX Insurance to do business for the same lines of insurance
currently permitted of the Exchange and shall have granted MIIX Insurance any
required rate and form approvals; and (viii) the order of the Commissioner
approving the Plan of Reorganization shall have become final. The order
approving the Plan of Reorganization was issued on March 5, 1998. On August 3,
1998, the Commissioner granted a certificate of authority to MIIX Insurance
authorizing it to do business in the same lines of insurance currently permitted
of the Exchange. The Exchange has received the opinion of the Tax Advisor that
the Reorganization qualifies as a tax-free Reorganization. See "-- Federal Tax
Consequences." In addition, the Exchange has received a fairness opinion from
Salomon Smith Barney Inc. that (i) the consideration to be received by the
Distributees, as a group, in the Reorganization pursuant to the Plan of
Reorganization is fair, from a financial point of view, to the Distributees, as
a group, and (ii) the consideration to be paid for all the outstanding common
stock of the Attorney-in-Fact and its subsidiaries is fair, from a financial
point of view, to the Exchange. The Members approved the Plan of Reorganization
at a special meeting held on March 17, 1999. The Company has obtained all
necessary reinsurer consents, and Connecticut and Delaware approval of the
Reinsurance Assignment. See "-- Transfer of Assets and Liabilities to MIIX
Insurance." The consummation of the Offering is conditioned on the consummation
of the Reorganization. However, the consummation of the Reorganization is not
conditioned on the consummation of the Offering.

REGULATORY APPROVALS

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These states are Connecticut, Delaware, Kentucky, Maryland, Michigan,
Pennsylvania, Vermont and West Virginia. MIIX Insurance has obtained such
approval in Pennsylvania, Delaware, Vermont, Michigan and West Virginia. These
states (except Michigan) must also approve MIIX Insurance's rates, rules and
policy forms, which the Company expects will initially be a continuation of
those currently used by the Exchange. Delaware has approved MIIX Insurance's
policy forms, and Pennsylvania has approved MIIX Insurance's rates, rules and
policy forms. In addition, Virginia, which is LP&C's state of domicile, must
approve the change in LP&C's ultimate parent from the Exchange to The MIIX
Group, and New York, which is MIIX New York's state of domicile, must approve
the change in the ultimate parent of MIIX New York from the Exchange to The MIIX
Group. Such approval has been obtained in Virginia. See
"Business -- Regulation." Finally, Connecticut, Delaware and West Virginia
approvals and the consent of the reinsurers will be required in connection with
the assignment to MIIX Insurance of the various reinsurance agreements under
which the Exchange cedes risk. See "-- Transfer of Assets and Liabilities to
MIIX Insurance." Such approval has been obtained in Connecticut and Delaware.
All necessary reinsurer consents have been obtained. Other miscellaneous
approvals may be required in a number of states.

FEDERAL TAX CONSEQUENCES

Assuming that the Reorganization takes place as described in this
Prospectus and based on certain representations made by the Exchange, it is the
opinion of the Tax Advisor that the transfer of the assets of the Exchange to,
and the assumption of the Exchange's liabilities by, MIIX Insurance, followed by
the dissolution of the Exchange shall constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, neither the Exchange, MIIX Insurance nor The MIIX Group
will realize any taxable income for federal income tax purposes as a result of
the consummation of the Reorganization. This opinion is based on the Code, its
legislative history, existing and proposed regulations thereunder, judicial
decisions and published rulings and other administrative interpretations issued
by the IRS, as currently in effect, all of which are subject to change at any
time, possibly with retroactive effect. Further, this opinion is not binding on
the IRS or any court. See "Risk Factors -- Failure to Constitute a Tax-Free
Reorganization."

POSSIBLE ALTERNATIVE TREATMENT OF THE REORGANIZATION.

The IRS and the courts have not previously considered the treatment of a
transaction in the form described herein. The Tax Opinion represents the Tax
Advisor's best judgment of how a court would rule. However, the opinion is not
binding upon either the IRS or any court. A ruling has not been, and will not
be, sought from the IRS with respect to the United States federal income tax
consequences of the consummation of the Plan of Reorganization. Accordingly, the
IRS and/or a court could reach a conclusion that differs from the conclusions in
the Tax Opinion. If the consummation of the Plan of Reorganization were not
treated as a tax-free reorganization within the meaning of Section 368(a) of the
Code, the Exchange would recognize taxable gain on the transfer of its assets to
MIIX Insurance in an amount equal to the fair market value of the consideration
received by the Exchange in exchange for the assets less the Exchange's
aggregate tax basis in those assets.

USE OF PROCEEDS

The principal purpose of the Offering is to enhance the liquidity of the
shares of Common Stock to be received by the Distributees as part of the
Reorganization. The principal purposes of the Reorganization are to enhance the
Company's strategic and financial flexibility, and to provide Distributees with
marketable stock in The MIIX Group. The net proceeds to the Company from the
sale of Common Stock in the Offering is estimated to be approximately $32
million after deducting the underwriting discount and the other expenses of the
Company in connection with the Reorganization and the Offering. The net proceeds
of the Offering will be used for general corporate purposes which may include,
without limitation, capitalizing the Company's subsidiaries in order to support
their continued growth and for financing potential acquisitions in the insurance
industry and other industries related to the Company's lines of business. Until
a specific use of proceeds is determined, the Company will invest such funds.
The Company will not receive any proceeds from the issuance of the Common Stock
to Distributees pursuant to the Reorganization.

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DIVIDEND POLICY

The MIIX Group currently intends to pay regular quarterly cash dividends.
The MIIX Group initially expects to pay a quarterly cash dividend of $.05 per
share commencing with the first full calendar quarter following the Closing
Date. The declaration and payment of dividends to holders of Common Stock will
be at the discretion of The MIIX Group Board and will be dependent upon the
Company's financial condition, results of operations, cash requirements, future
prospects, regulatory restrictions on the payment of dividends to The MIIX Group
by the Insurance Subsidiaries and other factors deemed relevant by The MIIX
Group Board. There can be no assurance that The MIIX Group will declare and pay
any dividends. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

The MIIX Group, upon consummation of the Reorganization, will be an
insurance holding company whose business will be conducted through MIIX
Insurance, the Attorney-in-Fact, and downstream subsidiaries of those companies.
The MIIX Group's ability to pay dividends to its stockholders and meet its other
obligations, including operating expenses and any debt service, will depend
primarily on the receipt of sufficient funds from the Insurance Subsidiaries.
The payment of dividends by the Insurance Subsidiaries to The MIIX Group will be
restricted by applicable insurance law. See "Risk Factors -- Holding Company
Structure; Limitation on Dividends," "Business -- Regulation -- Regulation of
Dividends from Insurance Subsidiaries," and "Description of Capital Stock."

26
<PAGE> 28

CAPITALIZATION

The information set forth in the table presented below is derived from the
audited consolidated financial statements and the related notes thereto included
elsewhere in this Prospectus. The table presents the capitalization at December
31, 1998 of: (i) the Exchange and its subsidiaries, (ii) The MIIX Group, As
Adjusted, to reflect the Reorganization (after deducting estimated
reorganization costs) and (iii) The MIIX Group, As Further Adjusted, to reflect
the sale of 3,000,000 shares of Common Stock in the Offering at an assumed
Offering Price of $13.00 per share after deducting estimated underwriting
discounts and expenses of the Offering and assuming that the Underwriters'
over-allotment option is not exercised. See "The Reorganization." The table
should be read in conjunction with the historical financial statements and the
related notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------------------------
AS AS FURTHER
ACTUAL ADJUSTED(1) ADJUSTED(2)
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total debt................................................ $ -- $ 19,771 $ 19,771
-------- -------- --------
Equity:
Preferred stock, $.01 par value, 50,000,000 shares
authorized, no shares issued and outstanding......... -- -- --
Common stock, $.01 par value, 100,000,000 shares
authorized, no shares issued and outstanding;
approximately 12,746,154 shares issued and
outstanding, as adjusted, approximately 15,746,154
shares issued and outstanding, as further adjusted... -- 127 157
Additional paid-in capital.............................. -- 7,592 42,832
Surplus/retained earnings............................... 312,087 310,668 310,668
Accumulated other comprehensive income.................. 10,756 10,756 10,756
-------- -------- --------
Total equity............................................ 322,843 329,143 364,413
======== ======== ========
Total capitalization.................................... $322,843 $348,914 $384,184
Book value per share (pro forma)........................ $ 25.82 $ 23.14
======== ========
</TABLE>

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

(1) The As Adjusted column gives effect to the assumed aggregate issuance of (i)
11,900,000 shares of Common Stock to Distributees and (ii) 846,154 shares of
Common Stock to the Medical Society in connection with the purchase of the
Attorney-in-Fact for $11 million in Common Stock and $100,000 in cash, and
also gives effect to the assumption of debt of the Attorney-in-Fact and/or
its subsidiaries in connection with the purchase of the Attorney-in-Fact,
and is reduced by $3.4 million to reflect the estimated expenses related to
the Reorganization. Cash issued to Distributees in lieu of Common Stock will
reduce equity by approximately $1.3 million, assuming a Conversion Value
equal to $13.00 per share.

(2) The As Further Adjusted column reflects the sale of 3,000,000 shares of
Common Stock at an assumed Offering Price of $13.00 per share in the
Offering less the estimated underwriting discounts of the Offering of $2.7
million and additional estimated expenses of $1.0 million. The As Further
Adjusted column does not reflect the purchase of 180,001 shares of Common
Stock by certain officers of the Company pursuant to the Stock Purchase and
Loan Agreements.

27
<PAGE> 29

SELECTED FINANCIAL AND OPERATING DATA

The following table sets forth selected consolidated financial and
operating data for the Company. The income statement data set forth below for
each of the years in the four year period ended December 31, 1998 and the
balance sheet data as of December 31, 1998, 1997 and 1996 are derived from the
consolidated financial statements of the Company audited by Ernst & Young LLP,
independent auditors, and should be read in conjunction with, and are qualified
by reference to, such statements and the related notes thereto. The income
statement data for the year ended 1994, and the balance sheet data as of
December 31, 1994 and 1995, are derived from unaudited consolidated financial
statements of the Company which management believes incorporate all of the
adjustments necessary for the fair presentation of the financial condition and
results of operations for such periods. All selected financial data are
presented in accordance with GAAP, except for the item entitled "statutory
surplus" which is presented in accordance with SAP. The statutory surplus
amounts are derived from the audited statutory financial statements of the
Company and, in the opinion of management, fairly reflect the specified data for
the periods presented.

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Direct premiums written................................... $ 127,647 $ 137,291 $ 143,218 $ 162,430 $ 230,314
========== ========== ========== ========== ==========
Net premiums earned....................................... $ 85,992 $ 105,256 $ 107,887 $ 123,330 $ 162,501
Net investment income..................................... 47,765 51,896 49,135 53,892 65,107
Realized investment gains (losses)........................ (11,030) 13,149 5,832 10,296 36,390
Other revenue............................................. 2,385 2,807 3,164 2,884 891
---------- ---------- ---------- ---------- ----------
Total revenues.......................................... 125,112 173,108 166,018 190,402 264,889
---------- ---------- ---------- ---------- ----------
Losses and loss adjustment expenses....................... 55,687 107,889 110,593 120,496 155,868
Underwriting expenses..................................... 12,777 14,743 17,553 25,415 42,063
Funds held charges........................................ 4,669 6,996 10,273 13,361 13,420
Impairment of capitalized system development costs........ -- -- -- -- 12,656
---------- ---------- ---------- ---------- ----------
Total expenses.......................................... 73,133 129,628 138,419 159,272 224,007
---------- ---------- ---------- ---------- ----------
Income before income taxes................................ 51,979 43,480 27,599 31,130 40,882
Income tax expense........................................ 16,327 11,402 10,004 2,006 11,154
---------- ---------- ---------- ---------- ----------
Net income.............................................. $ 35,652 $ 32,078 $ 17,595 $ 29,124 $ 29,728
========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Total investments......................................... $ 788,465 $ 895,146 $ 916,330 $1,026,971 $1,165,698
Total assets.............................................. 1,014,664 1,173,681 1,295,441 1,446,559 1,674,262
Total liabilities......................................... 827,659 919,050 1,033,129 1,136,585 1,351,419
Total equity.............................................. 187,005 254,631 262,312 309,974 322,843
ADDITIONAL DATA:
GAAP ratios:
Loss ratio.............................................. 64.8% 102.5% 102.5% 97.7% 95.9%
Expense ratio........................................... 14.9% 14.0% 16.3% 20.6% 25.9%
---------- ---------- ---------- ---------- ----------
Combined ratio.......................................... 79.7% 116.5% 118.8% 118.3% 121.8%

Statutory surplus......................................... $ 156,246 $ 184,651 $ 208,478 $ 242,395 $ 253,166
========== ========== ========== ========== ==========
Earnings per share (pro forma)(1)......................... $ 1.97
==========
</TABLE>

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

28
<PAGE> 30

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

GENERAL

The Exchange was organized as a New Jersey reciprocal insurance exchange in
1977. A New Jersey reciprocal insurance exchange is an entity that may be formed
by persons seeking a particular type of insurance coverage. In the case of the
Exchange, medical and osteopathic physicians formed the Exchange to provide
medical malpractice insurance. Under New Jersey law, the business of a
reciprocal insurance exchange must be conducted by a separate entity acting as
the attorney-in-fact of such exchange.

The medical malpractice insurance industry is cyclical in nature. Many
factors influence the financial results of the medical malpractice insurance
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.

Management periodically reviews the Company's guidelines for premiums,
premium surcharges, discounts, cancellations and non-renewals and other related
matters. As part of this review, rates and rating classifications for its
physicians, medical groups and other insureds are evaluated based on current and
historical loss, LAE and other actuarially significant data. This process may
result in changes in rates for certain exposure classes.

Currently, a substantial portion of the Company's policies have January 1
effective dates. Premium is recognized as written in the quarter the policy is
effective, yet the premiums are earned ratably throughout the year. As the
Company expands geographically, new policies are being written with effective
dates other than January 1.

Reinsurance. The Company reinsures its risks primarily under two
reinsurance contracts, a specific excess of loss treaty ("Specific Contract")
and an aggregate excess of loss treaty ("Aggregate Contract"). Under the
Specific Contract, the Company's retention for casualty business is $10 million
per loss. For medical professional liability and commercial general liability
business, coverage is provided up to $65 million per loss above the retention.
For other casualty business, coverage is provided up to $15 million per loss
above the retention. Property coverage is also provided 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 an 8% co-participation in
covered losses. The Company has maintained specific excess of loss reinsurance
coverage generally similar to that described for several years.

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

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

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

29
<PAGE> 31

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

The Company offered traditional occurrence coverage from 1977 through 1986
and has offered a form of occurrence-like coverage, "modified claims made," from
1987 to the present. The Company's modified claims made policy is the PPP. Under
the PPP, coverage is provided for claims reported to the Company during the
policy period arising from incidents since inception of the policy. The PPP
includes "tail coverage" for claims reported after expiration of the policy for
occurrences during the policy period and thus is reserved on an occurrence
basis. Loss and LAE reserves carried for this policy and traditional occurrence
policies constitute approximately 87% of the gross loss and LAE reserves at
December 31, 1998.

With the additional uncertainties associated with occurrence business, as
discussed above, incurred but not reported ("IBNR") reserves have consistently
represented a majority of the gross reserves recorded by the Company.

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

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

30
<PAGE> 32

The Company is currently expanding its operations into a number of states,
and the Company expects that the majority of the policies issued in such states
will be on a claims made basis. See "Business -- Product Offerings." As a
result, the Company believes that as claims made reserves begin to comprise a
greater percentage of aggregate reserves it is likely that more frequent
adjustments to aggregate reserves recorded in the financial statements will
become necessary because the reporting period for claims made policies is
shorter, which facilitates the ability of the Company to more quickly determine
ultimate losses.

Underwriting Expenses. The Company's continued expansion into other states
and markets will most likely increase underwriting expenses. The Company
believes that its plan of expansion through broker and agent distribution
channels will increase its marketing expenses, but it also believes that this
relationship will reduce the need to make other significant expenditures in
order to expand into other states. Commissions for policies sold on a brokerage
basis typically range from 2.0% to 12.5% of premiums, whereas the Company does
not incur commissions on products it sells directly. To the extent that brokered
business represents an increased percentage of the Company's business in the
future, expense ratios will continue to increase.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

Direct premiums written. Direct premiums written were $230.3 million for
the year ended December 31, 1998, a $67.9 million or 41.8% increase over the
$162.4 million written during 1997. Of this $67.9 million increase,
approximately $16 million is attributable to policies effective toward the end
of 1997 that were issued in 1998. An increase of $29.9 million of premiums
written in Connecticut and Pennsylvania was primarily a result of successful
marketing efforts directed at large medical institutions in these states during
the third quarter of 1998. Individual physician and surgeon premiums written in
Ohio and Kentucky increased by $19.4 million primarily due to successful
marketing efforts directed at former policyholders of PIE Mutual Insurance
Company ("PIE Mutual"), an insurer which ceased writing business in these states
during 1997. Additional premium written increases of $21.5 million primarily
occurred in Maryland, Texas, Massachusetts, Michigan and Illinois as a result of
successful marketing efforts to physicians, surgeons and institutions in these
targeted expansion states. This increase in business written outside of New
Jersey more than offset a net $2.9 million decrease in New Jersey direct
premiums written for the year ended December 31, 1998, as compared to the year
ended December 31, 1997. The net decrease in New Jersey business during 1998 was
composed of an increase of $1.6 million in 1998 policy year premiums and a
decrease of $4.5 million relating to policies that normally would have renewed
January 1, 1998, but which were accelerated to November, 1997 as part of the
Company's competitive strategy. The Company's decision to accelerate the renewal
of such policies reduced the concentration of premium renewals, which
substantially exposed the Company's book of business to market competition in
one time period. Additional direct premiums written were therefore recognized in
1997 which would have otherwise been recognized in 1998 but for this change. The
acceleration of premiums written had no impact on net premiums earned in 1997 or
1998. The Company's geographic expansion is continuing to reduce the
concentration of business in New Jersey which comprised 50% of direct premiums
written for the year ended December 31, 1998, as compared to approximately 73%
in 1997 and 89% in 1996.

Net premiums earned. Net premiums earned increased approximately $39.2
million, or 31.8% to $162.5 million, for the year ended December 31, 1998 from
$123.3 million for the same period in 1997. This increase is generally
consistent with the increase in direct premiums written.

Net investment income. Net investment income increased approximately $11.2
million or 20.8% to $65.1 million for the year ended December 31, 1998 from
$53.9 million for the same period in 1997. Average invested assets increased to
approximately $1.1 billion during the year ended December 31, 1998 compared to
approximately $1.0 billion for the same period last year. The average annualized
pre-tax yield on the

31
<PAGE> 33

investment portfolio increased to 5.77% for the year ended December 31, 1998
from 5.61% for the same period in 1997, primarily as a result of changes in
asset allocation with an increased concentration in higher pre-tax yielding
securities and a corresponding decrease in government and tax exempt security
holdings.

Realized investment gains. Net realized investment gains increased
approximately $26.1 million to $36.4 million for the year ended December 31,
1998 compared to $10.3 million for the same period in 1997. In 1998, the Company
implemented an "equity collar" around its equity securities of $85 million. An
"equity collar" is an option position created with the simultaneous purchase and
sale of an equal number of put and call options. This resulting option position
establishes, for a specified time period, both a ceiling and a floor with
respect to the financial performance of the underlying asset upon which the
equity collar is established. The purpose of the collar was to reduce equity
market volatility and to stabilize unassigned surplus. The collar was
constructed using European-style S&P 500 options. A "European-style" option is
an option contract that may be exercised only upon expiration of the contract
whereas an "American-style" option may be exercised at any time prior to the
expiration of the contract. The reference to "S&P 500" refers to the underlying
asset upon which the option contract's value will be based. To minimize loss
exposure due to credit risk, the Company utilized intermediaries with a Standard
and Poor's rating of "AA" or better. Approximately $24.4 million of the net
gains realized during 1998 resulted from the liquidation of the Company's equity
portfolio during the third quarter of 1998. This net gain was comprised of a
gain of approximately $38.4 million on the disposition of the equities, which
was partially offset by a $14.0 million loss realized (since gains were capped
at 5% by the equity collar and any gains above the equity collar are treated as
a realized loss to be offset against the gross realized gains) on the expiration
of the Company's equity collar position on July 13, 1998.

In July 1998, the Company liquidated its equity portfolio as part of a
medium term portfolio strategy which the Company believes will increase
investment yield. Following liquidation, the proceeds were reinvested in fixed
income securities. The remaining $12.0 million of gains recognized during 1998
pertain to the sale of government and tax exempt bonds in a generally falling
interest rate environment.

Other revenue. Other revenue decreased approximately $2.0 million or 69.1%
to $0.9 million for the year ended December 31, 1998 from $2.9 million for the
same period last year and is composed primarily of finance charge income
associated with the Company's financing of policyholder premiums, which declined
as the Company outsourced its installment payment plans in the second quarter of
1998.

Losses and loss adjustment expenses (LAE). The provision for losses and
LAE increased $35.4 million or 29.4% to $155.9 million for the year ended
December 31, 1998 from $120.5 million for the same period in 1997. As a
percentage of earned premiums, however, incurred losses and LAE decreased to
95.9% for the year ended December 31, 1998 from 97.7% for the same period in
1997. The decrease in the loss ratio is principally attributable to an
increasing portion of the Company's business being written on a claims made
basis which resulted from the Company's geographic expansion. The provision for
losses and LAE for the year ended December 31, 1998 included favorable reserve
development of $2.1 million relating to prior years, the net result of adverse
gross reserve development of $3.8 million offset by favorable development of
ceded reserves of $5.9 million. The provision for losses and LAE for the year
ended December 31, 1997 included no development relating to prior years. At
December 31, 1998 and 1997, reserves for gross losses and allocated loss
adjustment expenses on incurred but not reported claims amounted to $623.8
million and $591.2 million respectively, of which $436.3 million and $430.3
million related to prior years. While certain individual cases were settled
during the years ended 1998 and 1997 at values more or less than specific case
reserve amounts established in prior years, there were no overall indications
that prior established aggregate reserves, including the significant portion of
reserves for incurred but not reported claims, should be adjusted beyond the
amounts recorded. 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. The provision for losses and LAE is net of $62.4 million and $68.9
million for the years ended December 31, 1998 and 1997, respectively, of
incurred losses and LAE ceded to reinsurers, primarily on a funds withheld
basis.

32
<PAGE> 34

contracts, therefore, have the effect of holding net incurred losses and
allocated loss adjustment expenses at a constant level as long as losses and
allocated loss adjustment expenses remain within the coverage limits, which was
the case for the years ended December 31, 1998 and 1997.

Underwriting expenses. Underwriting expenses increased $16.6 million or
65.5% to $42.1 million for the year ended December 31, 1998, from $25.4 million
for the year ended December 31, 1997. The expense ratio was 25.9% for the year
ended December 31, 1998 compared to 20.6% for the same period in 1997.
Approximately $5.5 million of this increase was attributable to the cost of
acquiring new business, primarily through a broker distribution network, and an
additional $10.1 million related to the expansion of both facilities and staff
necessary to service the increased volume of business activity in 1998. Also in
1998, the Company recognized approximately $1.0 million in connection with
guaranty fund assessments associated with insurance company insolvencies,
primarily in Pennsylvania and Ohio which are not offset against premium taxes.

Funds held charges. Funds held charges of $13.4 million remained unchanged
from 1997 and relate primarily to the interest credited on amounts held under
ceded aggregate reinsurance contracts in effect since 1993. This result is the
net effect of an increase of $1.9 million in interest expense accrued on funds
held under the aggregate reinsurance agreements, consistent with the increase in
the related funds held balances, reduced by an adjustment to funds held interest
of $1.9 million associated with adjustments to losses and premium ceded under
those reinsurance contracts.

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

Income taxes. Income taxes increased approximately $9.2 million to $11.2
million for the year ended December 31, 1998, resulting in an effective tax rate
of 27.3%, compared to $2.0 million and an effective tax rate of 6.4% for the
year ended December 31, 1997. This increase was primarily attributable to three
factors: an increase in pre-tax income in 1998 of $9.8 million resulting in
additional tax of $3.4 million at a 35% rate; an increase in taxes of $0.8
million associated with a reduction in tax exempt interest in 1998; and release
of a provision of $4.2 million for tax contingencies in 1997.

Net income. Net income was $29.7 million for the year ended December 31,
1998, a 2.1% increase from the $29.1 million for the year ended December 31,
1997. This increase was the net result of a number of factors, but is primarily
due to higher realized gains and net investment income, partially offset by
higher underwriting costs and income taxes and the one time charge of $12.7
million for the impairment of capitalized system development costs.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Direct premiums written. Direct premiums written were $162.4 million for
the year ended December 31, 1997, a $19.2 million or 13.4% increase over the
$143.2 million for the year ended December 31, 1996, as the Company
significantly accelerated its geographic expansion. An almost three-fold
increase (to $44.1 million) in premiums written outside of New Jersey more than
offset a 7.3% decrease (to $118.3 million) in New Jersey business, which was
primarily attributable to policies that were not renewed due to rate increases
for certain exposure classes that resulted from the Company's annual
underwriting process.

Net premiums earned. Net premiums earned were $123.3 million for the year
ended December 31, 1997, an increase of 14.3% over the $107.9 million for the
year ended December 31, 1996. This increase is generally consistent with the
increase in direct premiums written.

33
<PAGE> 35

Net Investment Income. Net investment income was $53.9 million for the
year ended December 31, 1997, an increase of 9.7% over the $49.1 million for the
year ended December 31, 1996. Cash flow from operations of $64.0 million for the
year ended December 31, 1997 provided the majority of the increase in the
Company's invested asset base which totaled approximately $1 billion at December
31, 1997. Although the invested asset base increased, the pre-tax book yield on
invested assets remained comparable at 5.61%.

Realized investment gains. Net realized investment gains were
approximately $10.3 million for the year ended December 31, 1997 compared to
$5.8 million for the year ended December 31, 1996. Substantially all of these
gains resulted from the sale of equity securities during 1997 and from the sale
of bonds in 1996.

Other revenue. Other revenue was $2.9 million for the year ended December
31, 1997, a decrease of 8.8% from the $3.2 million for the year ended December
31, 1996 and is composed primarily of finance charge income associated with the
Company's financing of policyholder premiums.

Losses and loss adjustment expenses (LAE). The provision for losses and
LAE was $120.5 million for the year ended December 31, 1997, an increase of 9.0%
over the $110.6 million for the year ended December 31, 1996. The loss and LAE
ratio was 97.7% for the year ended December 31, 1997 compared to 102.5% for
1996. The decrease in the loss and LAE ratio is primarily attributed to changes
in the Company's business mix with an increasing amount of policies being issued
on a claims made basis. The provision for net losses and LAE for the years ended
December 31, 1997 and 1996 included no development relating to prior years.
Gross loss and loss adjustment expenses incurred related to prior years
increased by $0.2 million for the year ended December 31, 1997 and did not
change for the year ended December 31, 1996. Reviews of gross losses and loss
adjustment expenses conducted as of December 31, 1996 and 1997 did not indicate
a basis to further revise prior estimates at December 31, 1997 or December 31,
1996. At December 31, 1996 and 1997, reserves for gross losses and allocated
loss adjustment expenses on incurred but not reported claims amounted to $500.0
million and $591.2 million, respectively, of which $350.9 million and $430.3
million related to prior years. While certain individual cases were settled
during 1996 and 1997 at values more or less than specific case reserve amounts
established in prior years, there were no overall indications that prior
established financial reserves, including the significant portion of reserves
for incurred but not reported claims, should be adjusted. 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. The provision for losses and LAE is
net of $68.9 million for the year ended December 31, 1997 and $56.8 million for
the year ended December 31, 1996 of incurred losses and LAE ceded to reinsurers.

Additionally, the aggregate excess reinsurance contracts, in place since
1993, provide coverage for losses and allocated loss adjustment expenses above
aggregate retentions. The aggregate excess reinsurance contracts, therefore,
have the effect of holding net incurred losses and allocated loss adjustment
expenses at a constant level as long as losses and allocated loss adjustment
expenses remain within the coverage limits, which occurred for the years ended
December 31, 1996 and 1997.

Underwriting expenses. Underwriting expenses were $25.4 million for the
year ended December 31, 1997, an increase of 44.8% over the $17.6 million for
the year ended December 31, 1996. The expense ratio was 20.6% for the year ended
December 31, 1997 compared to 16.3% for the year ended December 31, 1996.
Approximately $5.0 million of the increase is attributable to staffing,
commissions, premium taxes and facilities costs related to the Company's
geographic expansion and increases in direct premiums earned. Additional
increases of approximately $1.6 million are related to various consulting
projects geared towards business process enhancements and approximately $0.6
million relates to an increase in the reserve for uncollectible accounts
receivable with the remaining increases attributable to the Company's geographic
expansion.

Funds held charges. Funds held charges of $13.4 million for the year ended
December 31, 1997 increased by $3.1 million or 30.1% over the $10.3 million for
the year ended December 31, 1996 and relate to the interest credited on amounts
held under certain ceded aggregate excess reinsurance contracts. This increase
is the result of the net effect of the increase in interest expense accrued on
funds held under these contracts, consistent with the increase in the related
funds held balances.

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<PAGE> 36

Income Taxes. Income taxes were $2.0 million for the year ended December
31, 1997, a decrease of 79.9% from the $10.0 million for the year ended December
31, 1996. The effective tax rate was 6.4% for the year ended December 31, 1997
compared to 36.2% for 1996, primarily due to the reversal of reserves for
potential tax contingencies, the majority of which were provided for in 1996 and
which were resolved in the Company's favor in 1997.

Net income. Net income was $29.1 million for the year ended December 31,
1997, a 65.5% increase from the $17.6 million for the year ended December 31,
1996, principally as a result of higher investment income and realized
investment gains and lower income taxes.

FINANCIAL CONDITION

Cash and invested assets. Aggregate invested assets, including cash and
short term investments, were $1,167.1 million and $1,031.8 million at December
31, 1998 and 1997, respectively. The increase in invested assets between
December 31, 1997 and December 31, 1998 resulted primarily from cash flow from
operations generated during the period and net realized and unrealized
investment gains.

Fixed maturities available for sale, including short-term investments,
aggregated approximately $1.2 billion, or 99.7% of the investment portfolio of
the Company as of December 31, 1998. At that date, the average credit quality of
the fixed income portfolio was "AA-," as defined by Standard & Poor's, while the
total portfolio effective duration (including short-term investments) was 4.45
years.

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

In 1998, another equity collar was implemented with a notional value of $85
million around the equity portfolio. Again the purpose of the collar was to
reduce equity market volatility and to stabilize unassigned surplus. The collar
was constructed using European style S&P 500 options. The collar transaction was
executed on January 13, 1998 and expired on July 13, 1998.

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

In July 1998, the Company liquidated its equity portfolio as part of a
medium term portfolio strategy that the Company believes will increase
investment yield. Following liquidation, the proceeds were reinvested in fixed
maturity securities.

Unpaid losses and LAE, reinsurance recoverable on unpaid losses and LAE and
funds held under reinsurance treaties. Gross unpaid losses and LAE were $951.7
million and $876.7 million at December 31, 1998 and 1997, respectively. The
increases in these amounts were consistent with the continued growth in the
Company's book of business. Reinsurance recoverable on unpaid losses and LAE was
$325.8 million and $270.7 million at December 31, 1998 and 1997, respectively.
Funds held under reinsurance treaties, which are unrestricted, collateralize a
significant portion of reinsurance recoverable on unpaid losses and LAE and were
$228.1 million and $182.6 million at December 31, 1998 and 1997 respectively.

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<PAGE> 37

Equity. Total equity was $322.8 million and $310.0 million at December 31,
1998 and 1997, respectively. The increases were attributable to net income and
changes in unrealized net appreciation of investments.

LIQUIDITY AND CAPITAL RESOURCES

The MIIX Group, Incorporated. The MIIX Group is a holding company whose
only material assets immediately after the Reorganization will be the capital
stock of MIIX Insurance and the Attorney-in-Fact. The net proceeds of the
Offering will be used for general corporate purposes, which may include, without
limitation, capitalizing The MIIX Group's subsidiaries in order to support their
continued growth and for financing potential acquisitions. The MIIX Group's
ongoing cash flow will consist primarily of dividends and other permissible
payments from its subsidiaries. The MIIX Group will depend upon such payments
for funds for general corporate purposes and for the payment of dividends on the
Common Stock.

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

MIIX Insurance. The primary sources of MIIX Insurance's liquidity, on both
a short- and long-term basis, will be funds provided by insurance premiums
collected, net investment income, recoveries from reinsurance and proceeds from
the maturity or sale of invested assets. Funds are generally used to pay claims,
LAE, operating expenses, reinsurance premiums and taxes. The Company's net cash
flow from operating activities was approximately $90.1 million for the year
ended December 31, 1998, and $64.0 million and $43.2 million for the years ended
1997 and 1996, respectively. The higher amount of cash flow from operations in
1998 compared to 1997 was principally due to an increase in collected premiums
in 1998 somewhat offset by increases in paid losses and loss adjustment expenses
and in paid underwriting expenses during 1998. Because of the inherent
unpredictability related to the timing of the payment of claims, it is not
unusual for cash flow from operations for a medical malpractice insurance
company to vary, perhaps substantially, from year to year.

The Company held collateral of $228.1 million and $182.6 million at
December 31, 1998 and 1997 respectively, in the form of funds withheld, for
recoverable amounts on ceded unpaid losses and loss adjustment expenses under
certain reinsurance agreements. Under the contracts, reinsurers may require that
a trust fund be established to hold the collateral should one or more triggering
events occur, such as a downgrade in the Company's A.M. Best rating to B+ or
lower, or a reduction in statutory capital and surplus to less than $20 million.
Otherwise, no restrictions are placed on investments held in support of the
funds withheld. In accordance with the provisions of the reinsurance contracts,
the funds withheld are credited with interest at contractual rates ranging from
7.5% to 8.6%, which is recorded as an expense in the year incurred.

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

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

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<PAGE> 38

The Attorney-in-Fact currently leases the Company's headquarters in
Lawrenceville, New Jersey from the Medical Society, a related party. The Company
is considering purchasing this building. An independent appraisal firm has been
retained by the Company to determine the fair market value of the property to
assist both parties in negotiating the transaction.

YEAR 2000

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

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

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

Remediation costs to date (including expenditures associated with
replacement systems) have been approximately $390,000 and are estimated to be
less than $1 million through the completion of remediation, which is expected in
1999. These costs have been considered in preparing the Company's capital and
operating budgets. There can be no assurance, however, that remediation efforts
will be completed within these estimated costs and time periods. See "Risk
Factors -- Year 2000; Information Technology."

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<PAGE> 39

BUSINESS

Based on direct premiums written in 1997, the Company is the leading
provider of medical professional liability insurance in New Jersey and is ranked
10th among medical professional liability insurers in the United States. The
Company currently insures approximately 16,500 physicians and other medical
professionals who practice alone, in medical groups, clinics or in other health
care organizations. The Company also insures more than 195 hospitals, extended
care facilities, HMOs and other managed care organizations. The Company's
business has historically been concentrated in New Jersey but has expanded to
other states in recent years. The Company currently writes policies in 20 states
and the District of Columbia. In 1998, approximately 50% of the Company's total
direct premiums written were generated outside of New Jersey. In addition to the
Company's medical malpractice insurance operations, the Company also offers a
broad range of complementary insurance products to its insureds and operates
several fee-based consulting and other businesses.

In 1997, total medical professional liability direct premiums written in
the United States were approximately $5.9 billion, of which $299.3 million were
written in New Jersey, according to data compiled by A.M. Best, an insurance
rating agency. The Company's market share of such direct premiums written was
2.8% in the United States and 40% in New Jersey according to A.M. Best. In 1998,
medical malpractice insurance accounted for approximately 97% of the Company's
direct premiums written.

The Attorney-in-Fact is a corporation that is wholly owned by the Medical
Society and was originally formed to fulfill the statutory role of
attorney-in-fact for the Exchange. In recent years the Attorney-in-Fact has
diversified its business, but its principal activity continues to be managing
the Exchange. The Attorney-in-Fact manages the Exchange, subject to the
supervision of the Board of Governors, pursuant to a management contract that
requires the Exchange to reimburse the costs of the Attorney-in-Fact. In
addition to the power of attorney contained in such management contract, each
member of the Exchange is required to execute a power of attorney in favor of
the Attorney-in-Fact to affirm the Attorney-in-Fact's power to act on behalf of
the Exchange pursuant to the management contract.

The rights of a member of the Exchange are similar to the rights of a
policyholder of other types of insurance companies. Because members of the
Exchange are accorded certain voting rights, members' rights are more closely
analogous to the rights of a person insured by a mutual insurance company than
the rights of a person insured by a stock insurance company. Members' rights
include the right to elect the Board of Governors, which has supervisory
authority over the Attorney-in-Fact. Therefore, while the day-to-day affairs of
the Exchange are managed by the Attorney-in-Fact, the Exchange is ultimately
controlled by its members through their power to elect the Board of Governors.

The Exchange has been operated to generate profits. Such profits are part
of the Exchange's surplus account, and the application of such profits is in the
Exchange's discretion. Neither the Attorney-in-Fact nor the Medical Society owns
the Exchange or has any right to profits generated by the Exchange.

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<PAGE> 40

The Exchange is permitted by law to engage in any line of insurance
permitted by its rules and regulations, its certificate of authority, and
applicable New Jersey laws. All aspects of the Exchange's operations are
regulated by state regulatory authorities, particularly the regulatory
authorities of New Jersey, which is the state in which the Exchange is
domiciled. 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 Exchange. See "Business --
Regulation."

The wholly owned subsidiaries of the Attorney-in-Fact offer a wide range of
reinsurance products, healthcare and financial consulting services to the
medical profession, healthcare institutions and other parties unrelated to the
Company.

Hamilton National Leasing is a middle-market leasing company for medical
and other equipment primarily to parties unrelated to the Company. Pegasus
Advisors, Inc. is a reinsurance consultant/broker specializing in the design and
placement of customized reinsurance programs for the Company and other unrelated
insurance and reinsurance companies. Medical Brokers, Inc., fully licensed in
New Jersey, provides insurance broker services and sells other insurance not
underwritten by the Exchange. MIIX Healthcare Group, Inc. provides comprehensive
consulting services designed to assist physicians, institutions and
organizations in the healthcare industry. Lawrenceville Re is a reinsurance
company domiciled in Bermuda designed to provide customized reinsurance
solutions to large health care institutions.

The Exchange was initially capitalized through the issuance of
non-interest-bearing subordinated loan certificates in an aggregate principal
amount of $22.9 million. These certificates were issued in varying principal
amounts to many of the physicians who were initial members. The loan
certificates have been redeemed, with the last such redemption occurring in
1995. As an insurer, the Exchange is required to maintain levels of capital and
surplus as determined by the insurance regulators of certain states. See
"Business -- Regulation -- Insurance Company Regulation." The Exchange has been
operated to generate profits. Such profits are part of the Exchange's surplus
account, and the application of such profits is in the Exchange's discretion.
The profits from the Exchange's operations are retained in a surplus account.

American Medical Mutual, Inc., a Vermont domiciled risk retention group
("AMM"), is an underwriter of professional liability insurance for physicians.
AMM is managed by the Attorney-in-Fact through an insurance services agreement.
All medical professional liability coverage written by AMM is reinsured by the
Exchange under a quota share contract and two excess of loss contracts.

BUSINESS STRATEGY

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

- continue to expand geographically by increasing the number of states
in which the Company writes policies;

- enhance product offerings to facilitate "one-stop shopping" for the
Company's extensive customer base;

- expand distribution channels;

- maintain underwriting discipline to seek to assure that profitability,
rather than premium volume, is emphasized;

- take advantage of strategic acquisition opportunities; and

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

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<PAGE> 41

Expand Geographically. From its inception in 1977 through 1990, all of the
Company's business was written in New Jersey. In 1991, the Company began to
write business in Pennsylvania and in 1996 began its expansion to other states.
Since 1996, the Company has expanded its operations significantly and currently
writes policies in 20 states and the District of Columbia. As a result of this
expansion, the proportion of the Company's business written in states other than
New Jersey has grown from approximately 11% in 1996 to 50% in 1998. In order to
facilitate continued geographic expansion, the Company is in the process of
obtaining authority to write medical professional liability policies in 10 other
states. Over time, the Company intends to become licensed to write insurance in
all 50 states, although the Company may choose not to write insurance in certain
states based on market or regulatory conditions. In addition, the Company has
opened four regional sales and customer support offices to assist its marketing
efforts outside of New Jersey.

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<PAGE> 42

professional liability insurance that it offers have the endorsements of
different medical associations. The Company will continue to utilize practicing
physicians on advisory committees to provide management with input on medical
practice patterns, claims, customer needs and other relevant matters. In
addition, the Company will endeavor to maintain its endorsements.

PRODUCT OFFERINGS

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

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

Traditional claims-made coverage is offered to institutions in New Jersey.
In Pennsylvania traditional occurrence coverage is primarily offered to
physicians and traditional claims made coverage is primarily offered to
institutions. In other states, the Company issues policies primarily on a claims
made coverage basis to physicians and institutions. Tail coverage may be offered
as an endorsement to those accounts written on a pure claims made basis to
extend the period when losses could be reported to the Company. Additional
premium is collected at the time such endorsement is purchased by the insured.
In a number of states, the Company offers policy limits up to $10,000,000 per
incident and $12,000,000 in the aggregate for individual physicians. Policy
limits of up to $75,000,000 per incident and in the aggregate are offered to
institutions and medical groups.

In addition to its core medical professional liability insurance products,
the Company has developed other products and services for health care
institutions. Expanded products offered include comprehensive liability coverage
for medical offices, directors and officers, managed care errors and omissions,
employment practices, fiduciary, property and worker's compensation.

For premises liability and property exposures of medical offices, the
Company offers the Medical Office Policy written on an occurrence basis.
Commercial general liability coverage is offered on an occurrence basis only.
Excess/umbrella liability covers excess of underlying policies or self-insured
retentions. Directors and officers coverage and errors and omissions coverage
are offered on a claims made basis. The Company has also introduced the option
for large health care institutions to purchase excess insurance coverage on a
multi-year basis for a guaranteed prepaid premium. Such coverages are also
available with reinstatement options, combined with the ability to pre-purchase
such options at the inception of the policy. The Company underwrites most of
these coverages, and the remaining coverages are marketed by the Company and
underwritten by other insurance carriers with which the Company has developed
strategic alliances.

Substantially all of the Company's policies are offered for periods of one
year, with renewal occurring on the anniversary date of the policy inception.
Premiums are recorded as earned over the life of the policy period. The PPP
policy provides occurrence-like coverage, and accordingly the premiums are
earned in the

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<PAGE> 43

period the policy is written consistent with the recording of the expected
ultimate loss and LAE reserves on an occurrence basis. A profile of the
Company's direct premiums written is summarized in the table below.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1997 1998
----------------- ----------------- -----------------
(IN THOUSANDS)
% OF % OF % OF
$ TOTAL $ TOTAL $ TOTAL
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Professional Liability Products
Occurrence/Occurrence-like........ $131,565 92% $127,610 79% $141,437 61%
Claims Made....................... 9,660 7% 31,195 19% 82,543 36%
Other Products...................... 1,993 1% 3,625 2% 6,334 3%
-------- --- -------- --- -------- ---
Direct Premiums Written............. $143,218 100% $162,430 100% $230,314 100%
======== === ======== === ======== ===
</TABLE>

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

MARKETING AND POLICYHOLDER SERVICES

The Company employs various strategies for marketing its products and
providing policyholder services. In New Jersey, the Company markets its products
to physicians and physician groups principally through medical associations,
referrals by existing policyholders, advertisements in medical journals,
seminars on health care topics for physicians, and direct mail solicitation. The
Company's professional liability program has the endorsement of different
medical associations. In addition to these direct marketing channels, the
Company sells its products through independent brokers and agents who currently
produce approximately 27% of the Company's direct premiums written in New
Jersey. Health care institutions frequently prefer brokers over direct
solicitation when they purchase professional liability insurance, and the
Company believes that its broker relationships in New Jersey are important to
its ability to grow in that market segment. To provide localized marketing and
policyholder services in New Jersey and nationally, the Company has established
five regional offices. See "-- Business Strategy -- Maintain Close Relationship
with the Medical Community."

Outside New Jersey, the Company markets its products exclusively through
independent brokers and agents. In 1998, 107 independent brokers and agents
actively marketed the Company's products in 20 states and the District of
Columbia and produced approximately 63% of the Company's direct premiums written
on a national basis. No national broker or regional agency accounted for more
than 10% of the Company's year-end direct premiums written. The Company selects
brokers and agents that it believes have demonstrated growth and stability in
the medical malpractice insurance industry, strong sales and marketing
capabilities, and a focus on selling medical professional liability insurance.
Brokers and agents receive market rate commissions and other incentives based on
the business they produce. The Company strives to maintain relationships with
those brokers and agents who are committed to promoting the Company's products
and are successful in producing business for the Company. See "-- Business
Strategy -- Expand Distribution Capabilities."

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

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<PAGE> 44

physicians on risk management techniques. These educational programs are
designed to increase risk awareness and to reduce the risk of injury to patients
and third parties.

UNDERWRITING

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

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

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

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

The Underwriting Department meets periodically with the Underwriting
Committee to review the guidelines for premium surcharges, cancellations and
non-renewals and any candidate for cancellation or non-renewal. The Underwriting
Committee is composed solely of physicians who are members of either the Board
of Governors or the Board of Directors of the Attorney-in-Fact and are insured
by the Company. Members of the Underwriting Committee are not employees of the
Company.

The Company maintains quality control through periodic audits at the
underwriting and processing levels. Renewal accounts are underwritten as
thoroughly as new accounts. Insureds who no longer meet underwriting guidelines
are identified as non-renewal candidates. All non-renewal candidates are
referred to the home office Underwriting Department and discussed with the
Underwriting Committee to approve the Underwriting Department's recommendations.

PRICING

The Company establishes, through its own actuarial staff and independent
consulting actuaries, rates and rating classifications for its insureds based on
loss and LAE experience it has developed and on other relevant information. The
Company has various rating classifications based on practice location, medical
specialty and other factors. The Company applies various discounts, including
discounts for part-time practice, physicians just entering medical practice,
large medical groups and claims experience. The Company has established its
premium rates and ratings classifications for hospitals and managed care
organizations using actuarially significant data filed publicly by other
insurers.

CLAIMS

The Company's Claim Department is responsible for claims investigation,
establishment of appropriate case reserves for loss and ALAE, defense planning
and coordination, supervision of attorneys engaged by the

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<PAGE> 45

Company to defend a claim, and negotiation of the settlement or other
disposition of a claim. All of the Company's primary policies require it to
defend its insureds. Medical malpractice claims often involve the evaluation of
highly technical medical issues, severe injuries, and conflicting medical
opinions. In almost all cases, the person bringing the claim against the insured
is already represented by legal counsel when the claim is reported to the
Company.

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

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

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

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

LOSS AND LAE RESERVES

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

The determination of loss and LAE reserves involves the projection of
ultimate losses through an actuarial analysis of the claims history of the
Company and other professional liability insurers, subject to adjustments deemed
appropriate by the Company due to changing circumstances. Included in the
Company's claims history are losses and LAE paid by the Company in prior
periods, and case reserves for anticipated losses and ALAE developed by the
Company's claim department as claims are reported and investigated. Management
relies primarily on such historical loss experience in determining reserve
levels on the assumption that historical loss experience provides a good
indication of future loss experience despite the uncertainties in loss trends
and the delays in reporting and settling claims. As additional information
becomes available, the estimates reflected in earlier loss reserves may be
revised. Any increase in the amount of aggregate reserves reported in the
financial statements, including reserves for insured events of prior years,
could have an adverse effect on the Company's results of operations for the
period in which the adjustments are made.

44
<PAGE> 46

occurrence or occurrence-like policy as opposed to a claims made policy. With
the longer claim reporting and development period, reserves are more likely to
be impacted by, among other factors, changes in judicial liability standards and
interpretation of insurance contracts, changes in the rate of inflation and
changes in the propensities of individuals to file claims.

The Company offered traditional occurrence coverage from 1977 through 1986
and has offered a form of occurrence-like coverage, "modified claims made," from
1987 to the present. The Company's modified claims made policy is the PPP. See
"-- Product Offerings." Under the PPP, coverage is provided for claims reported
to the Company during the policy period arising from incidents since inception
of the policy. The PPP includes "tail coverage" for claims reported after
expiration of the policy for occurrences during the policy period and thus is
reserved on an occurrence basis. Loss and LAE reserves carried for this policy
and traditional occurrence policies constitute approximately 87% of the gross
loss and LAE reserves at December 31, 1998.

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 % OF % OF TOTAL GROSS
OCCURRENCE-LIKE TOTAL CLAIMS MADE TOTAL OTHER TOTAL RESERVES
--------------- ----- ----------- ----- ------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
GROSS RESERVES HELD AS OF:
December 31, 1996............. $759,324 95.4% $ 21,338 2.7% $14,787 1.9% $795,449
December 31, 1997............. 818,129 93.4% 42,423 4.8% 16,169 1.8% 876,721
December 31, 1998............. 825,636 86.8% 104,759 11.0% 21,264 2.2% 951,659
</TABLE>

As displayed in the above table, the proportion of the gross loss and LAE
reserves held on claims made professional liability policies has grown from 2.7%
of total gross loss and LAE reserves held at December 31, 1996 to 11.0% at
December 31, 1998. This is a result of the Company's expansion into new states
during 1997 and 1998. The majority of policies sold in these new states have
been claims made.

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

COMPONENTS OF GROSS LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

(IN THOUSANDS)

<TABLE>
<CAPTION>
LOSS AND ALAE LOSS AND ALAE TOTAL
CASE % OF 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, 1996.... $272,570 34.2% $500,037 62.9% $22,842 2.9% $795,449
December 31, 1997.... 260,779 29.8% 591,158 67.4% 24,784 2.8% 876,721
December 31, 1998.... 299,178 31.4% 623,842 65.6% 28,639 3.0% 951,659
</TABLE>

The Company has issued occurrence policies since 1977 and occurrence-like
policies since 1987. There is a significant lag in reporting of incidents or
occurrences inherent in the medical malpractice insurance industry. As a result
the Company continues to experience reported claims that are alleged to have
occurred as far back as 1977. As of December 1998, 93 claims related to accident
years 1977-1981 are still outstanding, the majority of which have been reported
to the Company over the last five years.

45
<PAGE> 47

The following table illustrates the amount and percentage of gross loss and
LAE reserves held by the Company at December 31, 1998 categorized by accident
year.

GROSS LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES BY ACCIDENT YEAR

AS OF DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
GROSS % OF
ACCIDENT YEAR RESERVES TOTAL
------------- -------- ------
<S> <C> <C>
1977-81......................................... $ 3,188 .3%
1982............................................ 1,461 .2%
1983............................................ 1,580 .2%
1984............................................ 2,540 .3%
1985............................................ 2,285 .2%
1986............................................ 2,797 .3%
1987............................................ 4,450 .5%
1988............................................ 7,866 .8%
1989............................................ 10,404 1.1%
1990............................................ 13,146 1.4%
1991............................................ 29,913 3.1%
1992............................................ 27,840 2.9%
1993............................................ 61,828 6.5%
1994............................................ 97,569 10.3%
1995............................................ 139,319 14.6%
1996............................................ 155,229 16.3%
1997............................................ 177,174 18.6%
1998............................................ 213,070 22.4%
-------- ------
Total Gross Reserves held by the Company........ $951,659 100.0%
======== ======
</TABLE>

As shown in the above tables, at December 31, 1998: approximately 87% of
gross reserves are occurrence based; over 65% of gross reserves are IBNR
reserves; and over 82% of gross reserves relate to the most recent five accident
years, which are the most immature in terms of loss development.

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

46
<PAGE> 48

management considers the detailed analysis performed by the actuarial staff of
its independent auditors in connection with the audit of the Company's financial
statements.

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

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance as of January 1, gross of reinsurance
recoverable............................................ $748,660 $795,449 $876,721
Incurred related to:
Current year........................................... 167,406 189,163 214,413
Prior years............................................ -- 205 3,822
-------- -------- --------
Total incurred........................................... 167,406 189,368 218,235
-------- -------- --------
Paid related to:
Current year........................................... 4,085 6,879 1,343
Prior years............................................ 116,532 101,217 141,954
-------- -------- --------
Total paid............................................... 120,617 108,096 143,297
-------- -------- --------
Balance at end of period, gross of reinsurance
recoverable............................................ 795,449 876,721 951,659
Reinsurance recoverable.................................. 221,749 270,731 325,795
-------- -------- --------
Balance at end of period, net of reinsurance............. $573,700 $605,990 $625,864
======== ======== ========
</TABLE>

The aggregate reserves reported in the financial statements represent
management's best estimate of the remaining costs of settling all incurred
claims. The Company increased prior year gross reserves by $0.2 million and $3.8
million during 1997 and 1998, respectively. No adjustment to prior year
aggregate reserves was made in 1996. Notwithstanding management's analysis and
determination in setting its best estimate of aggregate reserves reported in the
financial statements, which may or may not require adjustments to aggregate
prior year reserves, management regularly evaluates, and adjusts when
appropriate, its estimates of accident year ultimate losses and LAE (i) as part
of its pricing analyses, (ii) as part of its evaluation of the effectiveness of
its reinsurance programs and (iii) for reporting to regulatory authorities such
as the IRS and the state insurance departments. Accordingly, reserves
established for losses and LAE on individual accident years may experience
greater volatility than aggregate reserves reported in the Company's financial
statements. Individual accident year reserves cover a smaller amount of business
over a shorter period of time than do the aggregate reserves, which are an
accumulation of reserves pertaining to all accident years. Estimated ultimate
losses and LAE associated with individual accident years were adjusted in 1998,
1997 and 1996. The

47
<PAGE> 49

following table presents the estimated ultimate losses and LAE gross of
reinsurance (including changes in such estimates) by accident year:

ACCIDENT YEAR DEVELOPMENT

(IN THOUSANDS)

<TABLE>
<CAPTION>
CHANGES IN ESTIMATED ULTIMATE
ESTIMATED ULTIMATE LOSSES AND LAE FOR THE YEAR
LOSSES AND LAE AS OF DECEMBER 31, ENDED DECEMBER 31,
------------------------------------------------- -------------------------------
ACCIDENT YEAR 1995 1996 1997 1998 1996 1997 1998
------------- ---------- ---------- ---------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1988 and Prior....... $ 773,316 $ 766,100 $ 762,547 $ 766,847 $(7,216) $(3,553) $ 4,300
1989................. 105,775 105,766 102,249 99,315 (9) (3,517) (2,934)
1990................. 106,935 116,637 119,545 119,428 9,702 2,908 (117)
1991................. 114,598 119,310 121,531 121,454 4,712 2,221 (77)
1992................. 121,265 114,116 113,610 112,404 (7,149) (506) (1,206)
1993................. 137,316 137,279 140,304 121,990 (37) 3,025 (18,314)
1994................. 150,527 150,519 150,613 154,063 (8) 94 3,450
1995................. 161,296 161,301 156,099 165,973 5 (5,202) 9,874
1996................. 167,406 172,141 174,681 4,735 2,540
1997................. 189,163 195,469 6,306
1998................. 214,413
---------- ---------- ---------- ---------- ------- ------- --------
Total Estimated
Ultimate Losses and
LAE................ $1,671,028 $1,838,434 $2,027,802 $2,246,037 -- $ 205 $ 3,822
========== ========== ========== ========== ======= ======= ========
Less: Total Paid Loss
and LAE............ $ 922,368 $1,042,985 $1,151,081 $1,294,378
---------- ---------- ---------- ----------
Gross Loss and LAE
Reserves as of
December 31........ $ 748,660 $ 795,449 $ 876,721 $ 951,659
========== ========== ========== ==========
</TABLE>

The accident year reserve development detailed in the above table is
indicative of the potential volatility of accident year reserve estimates.
Management believes that the level of volatility experienced and reflected
therein, which ranged up to plus or minus 15% of estimated accident year
ultimate losses at December 31, 1998, is not unreasonable for the medical
malpractice line of business.

Specific factors noted in management's actuarial analyses that gave rise to
the accident year development in 1998 included the following: reserves held on
accident years 1988 and prior were increased to reflect greater, but slower,
reserve development than had previously been projected. Reserves held on
accident years 1989 through 1992 were decreased to reflect lower than
anticipated loss severities somewhat offset by higher than anticipated LAE and
the longer expected development period. Reserves held on the 1993 accident year
were substantially reduced, reflecting lower than previously projected loss
frequency and severities on the occurrence-like PPP book. With six years of loss
experience with respect to the 1993 accident year, management believes there is
now sufficient actuarial confidence to adjust these very slowly developing
reserves. Reserves held on accident years 1994 through 1996 were increased,
primarily as a result of higher than anticipated losses on the hospital claims
made book of business. Reserves held on accident year 1997 were increased to
reflect higher than anticipated claim frequency on claims made business written
in certain expansion states, primarily Ohio and Texas. In addition, included in
the development for all accident years was $2.6 million of additional ULAE
reserves to reflect the anticipated longer development period in the PPP
occurrence-like book.

Specific factors noted in management's actuarial analyses that gave rise to
the accident year development in 1996 and 1997 included the following: lower
than expected claim severity for accident years 1989 and prior, which management
believes resulted from the combined effects of tort reform in New Jersey and
improve-

48
<PAGE> 50

ments made to the internal claims settlement process; greater than expected
claim frequency in accident years 1990 and 1991, primarily resulting from
increased claims filed against physicians practicing in obstetrics and
gynecology and internal medicine specialties, frequency levels not seen in
subsequent accident years; and less than previously expected loss frequency and
severity in accident year 1993. Development in the 1995 and 1996 accident years
largely pertained to adjustment of reserves held on a specific medical
professional liability program with a large hospital group, and to development
on other medical professional claims made business once reported claims were
known.

As previously discussed approximately 87.0% of the Company's December 31,
1998 gross loss and LAE reserves are related to occurrence or occurrence-like
policies which is down from 93.4% at December 31, 1997 and 95.4% at December 31,
1996. Management initially establishes its best estimate of reserves based on
the underlying pricing assumptions and adjusts those estimates over time as
significant developments in the legal environment or significant changes in
expected patterns of claim frequency and/or severity become apparent. However,
the Company is continuing to expand its operations into a number of states, and
the Company expects that the majority of the policies issued in such states will
be on a claims made basis. As a result, the Company believes that as claims made
reserves continue to comprise a greater percentage of aggregate reserves it is
likely that more frequent adjustments to aggregate reserves recorded in the
financial statements will become necessary because the reporting period for
claims made policies is shorter, which facilitates the ability of the Company to
more quickly determine ultimate losses.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balances as of January 1, net of reinsurance recoverable... $582,931 $573,700 $605,990
Incurred related to:
Current year............................................. 110,593 120,496 157,952
Prior years.............................................. -- -- (2,084)
-------- -------- --------
Total incurred............................................. 110,593 120,496 155,868
Paid related to:
Current year............................................. 3,630 3,930 1,328
Prior years.............................................. 116,194 84,276 134,666
-------- -------- --------
Total paid................................................. 119,824 88,206 135,994
Balance at end of period, net of reinsurance recoverable... 573,700 605,990 625,864
Reinsurance recoverable.................................... 221,749 270,731 325,795
-------- -------- --------
Balance at end of period, gross of reinsurance............. $795,449 $876,721 $951,659
======== ======== ========
</TABLE>

Net loss and LAE reserves reported in accordance with statutory accounting
principles are lower than the net loss and LAE reserves displayed above. The
differences relate to a 1992 contract accounted for using deposit accounting for
GAAP reporting and amount to $173.4 million at December 31, 1996; $167.8 million
at December 31, 1997; and $103.3 million at December 31, 1998.

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" 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.

49
<PAGE> 51

The tables reflect the effect of all changes in amounts of prior periods.
For example, if a loss determined in 1995 to be $100,000 was first reserved in
1988 at $150,000, the $50,000 redundancy (original estimate minus actual loss)
would be included in the cumulative redundancy in each of the years 1988 through
1994 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>
1988 1989 1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss and LAE Reserves........ $453,181 $502,928 $554,076 $593,828 $629,064 $667,200 $688,455 $748,660
LIABILITY REESTIMATED AS OF:
One year later.............. 448,413 516,113 541,778 583,133 616,042 623,988 688,455 748,660
Two years later............. 468,853 503,199 529,531 570,108 572,831 623,986 688,450 744,130
Three years later........... 455,076 495,663 516,501 532,877 572,831 623,989 689,122 739,106
Four years later............ 444,454 482,667 487,918 532,878 572,871 624,567 674,224
Five years later............ 432,338 463,784 487,921 540,067 570,424 606,219
Six years later............. 417,770 463,788 490,398 538,126 570,390
Seven years later........... 417,776 456,563 486,236 539,298
Eight years later........... 410,560 449,493 487,485
Nine years later............ 407,007 450,859
Ten years later............. 411,307
CUMULATIVE REDUNDANCY
(DEFICIENCY)................ 41,874 52,069 66,591 54,530 58,674 60,981 14,231 9,554

<CAPTION>
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loss and LAE Reserves........ $795,449 $876,721
LIABILITY REESTIMATED AS OF:
One year later.............. 795,654 880,543
Two years later............. 793,170
Three years later...........
Four years later............
Five years later............
Six years later.............
Seven years later...........
Eight years later...........
Nine years later............
Ten years later.............
CUMULATIVE REDUNDANCY
(DEFICIENCY)................ 2,279 (3,822)
</TABLE>

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
One year later.............. $ 58,060 $ 80,959 $ 67,483 $ 79,239 $ 83,837 $ 83,522 $ 98,053 $116,532
Two years later............. 137,271 146,137 144,987 161,532 165,737 179,714 212,284 214,484
Three years later........... 196,890 218,676 221,931 238,998 256,860 284,828 293,323 332,920
Four years later............ 254,428 286,181 288,463 318,934 348,868 343,563 407,357
Five years later............ 304,740 335,723 339,121 389,638 395,242 436,921
Six years later............. 339,140 370,225 390,991 413,413 462,920
Seven years later........... 356,697 391,596 401,626 459,668
Eight years later........... 370,850 396,442 437,768
Nine years later............ 372,361 414,288
Ten years later............. 385,140

<CAPTION>
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
One year later.............. $101,217 $141,954
Two years later............. 231,755
Three years later...........
Four years later............
Five years later............
Six years later.............
Seven years later...........
Eight years later...........
Nine years later............
Ten years later.............
</TABLE>

The Company experienced favorable development on gross financial statement
reserves held at each year end in the table except 1997, largely in reserves
first recorded in 1992 and prior years. The Company believes that this favorable
development has resulted from (i) the disciplined approach to establishing
reserves for medical malpractice insurance losses and LAE; and (ii) the
improvements made to the internal claims settlement process. These internal
claims settlement process improvements resulted from: key staffing additions,
including a new Vice President of Claims in 1990; the building of a detailed
claims database over a 20-year period, which enables the Company's claims
professionals to better evaluate and resolve claims; the addition of staff
counsel in 1993 to defend certain malpractice cases and to control legal costs;
and the expansion and enhancement of the risk management department in 1993 to
provide support to insureds in controlling and reducing their exposure to
claims. It is not possible to quantify the impact that these changes have had on
development of loss reserves. Most of the favorable reserve development
evidenced in the table was recognized during 1993 ($13.0 million) and 1994
($43.2 million). Favorable development was recognized at that time because major
trends in loss experience were first credibly apparent then. The loss experience
in the early 1990's, to some extent resulting from the then recently introduced
internal changes discussed above, suggested that the very conservative reserving
posture maintained by the Company since its inception during the medical
malpractice crisis of the late 1970's was no longer appropriate. Earlier
projections of loss

50
<PAGE> 52

frequencies and severities no longer appeared likely, and financial statement
loss and LAE reserves were adjusted accordingly. Financial statement loss and
LAE reserves established since 1994 have been set based upon this new
understanding. Development of reserves since 1994 has been modest, primarily
consisting of: favorable and adverse adjustments pertaining to specific accident
years on the occurrence - like PPP policy book; adverse development on hospital
claims made reserves; and adverse development on claims made policies written in
certain expansion states.

TABLE II. LOSS AND LAE RESERVES DEVELOPMENT - NET

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss and LAE
Reserves-Gross.............. $453,181 $502,928 $554,076 $593,828 $629,064 $667,200 $688,455 $748,660
Reinsurance Recoverable on
Unpaid Losses............... 400 400 1,025 8,265 3,037 62,682 112,917 165,729
-------- -------- -------- -------- -------- -------- -------- --------
452,781 502,528 553,051 585,563 626,027 604,518 575,538 582,931
LIABILITY REESTIMATED AS OF:
One year later.............. 446,101 513,096 534,087 581,453 600,655 559,518 575,538 582,931
Two years later............. 463,924 494,044 527,847 560,688 555,656 559,518 575,538 582,931
Three years later........... 444,537 491,987 512,867 521,671 555,656 559,518 575,538 580,883
Four years later............ 438,866 477,053 482,498 521,828 555,655 559,518 575,124
Five years later............ 425,224 456,696 482,658 529,008 555,656 559,133
Six years later............. 409,040 457,795 485,125 525,111 555,484
Seven years later........... 409,871 450,860 479,007 524,574
Eight years later........... 403,169 443,028 478,072
Nine years later............ 399,453 442,210
Ten years later............. 401,304
CUMULATIVE REDUNDANCY
(DEFICIENCY)................ 51,477 60,318 74,979 60,989 70,543 45,385 414 2,048

<CAPTION>
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loss and LAE
Reserves-Gross.............. $795,449 $876,721
Reinsurance Recoverable on
Unpaid Losses............... 221,749 270,731
-------- --------
573,700 605,990
LIABILITY REESTIMATED AS OF:
One year later.............. 573,700 603,906
Two years later............. 573,321
Three years later...........
Four years later............
Five years later............
Six years later.............
Seven years later...........
Eight years later...........
Nine years later............
Ten years later.............
CUMULATIVE REDUNDANCY
(DEFICIENCY)................ 379 2,084
</TABLE>

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
One year later.............. $ 56,148 $ 78,967 $ 67,479 $ 79,239 $ 83,212 $ 82,572 $ 97,496 $116,194
Two years later............. 133,367 144,141 144,983 161,532 164,469 178,357 211,426 197,370
Three years later........... 192,982 216,680 221,927 238,998 255,586 283,370 278,571 315,743
Four years later............ 250,520 284,185 288,459 318,928 347,493 328,836 392,522
Five years later............ 300,832 333,727 339,111 389,579 381,408 422,194
Six years later............. 335,232 368,223 390,928 401,000 449,086
Seven years later........... 352,783 389,541 394,999 447,255
Eight years later........... 366,883 390,579 431,141
Nine years later............ 365,144 408,425
Ten years later............. 377,923

<CAPTION>
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
One year later.............. $ 84,276 $134,666
Two years later............. 214,404
Three years later...........
Four years later............
Five years later............
Six years later.............
Seven years later...........
Eight years later...........
Nine years later............
Ten years later.............
</TABLE>

The aggregate excess reinsurance contracts, in place since 1993, provide
coverage above aggregate retentions for losses and ALAE occurring in 1993 and
after, other than losses and ALAE retained by LP&C and losses and ALAE reinsured
under other insignificant reinsurance contracts. LP&C's retention is $200,000
per loss. The aggregate reinsurance contracts, therefore, have the effect of
holding underwriting year net incurred losses and ALAE, other than losses and
ALAE retained by LP&C and losses and ALAE reinsured under other insignificant
reinsurance contracts, at a constant level as long as such losses and ALAE ceded
under the aggregate excess reinsurance contracts remain within the coverage
limits. Ceded losses and ALAE have remained within coverage limits in each year
since 1993. The adjustment to net reserves in 1998 relates to losses and LAE not
covered by the aggregate reinsurance contracts, including losses and ALAE for
accident years 1992 and prior, losses and ALAE for accident years 1997 and 1998
retained by LP&C, and ULAE.

51
<PAGE> 53

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

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

REINSURANCE

Reinsurance Ceded. The Company follows customary industry practice by
reinsuring some of its business. The Company typically cedes to reinsurers a
portion of its risks and pays a fee based upon premiums received on all policies
so subject to such reinsurance. Insurance is ceded principally to reduce net
liability on individual risks and to provide aggregate loss and LAE protection.
Although reinsurance does not legally discharge the ceding insurer from its
primary liability for the full extent of the policies reinsured, it does make
the reinsurer liable to the insurer to the extent of the reinsurance ceded. The
Company determines how much reinsurance to purchase based upon its evaluation of
the risks it has insured, consultations with its reinsurance brokers, and market
conditions, including the availability and pricing of reinsurance. The Company's
reinsurance arrangements have generally been placed through Pegasus Advisors,
Inc., a reinsurance broker wholly owned by the Attorney-in-Fact and to be
acquired by the Company as part of the acquisition of the Attorney-in-Fact and
its subsidiaries.

The Company reinsures its risks primarily under two reinsurance contracts,
the Specific Contract and the Aggregate Contract. Under the Specific Contract,
the Company's retentions for casualty business is $10 million per loss. For
medical professional liability and commercial general liability business,
coverage is provided up to $65 million per loss above the retention. For other
casualty business, coverage is provided up to $15 million per loss above the
retention. Property coverage is also provided 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 an 8% co-participation in covered losses. The
Company has maintained specific excess of loss reinsurance coverage generally
similar to that just described for several years.

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

Each of the aggregate excess reinsurance contracts contains an adjustable
premium provision that may result in changes to ceded premium and related funds
held charges, based on loss experience under the contract. During 1998, combined
ceded losses under the aggregate excess reinsurance contracts were increased by
a net amount of $0.3 million, resulting in net additional premium charges of
$3.2 million and net reduction in funds held charges of $1.9 million. No
adjustments to ceded losses under the aggregate excess reinsurance contracts
were made during 1997 and 1996. 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 would be recorded by the Company
after the funds withheld balance related to an aggregate excess reinsurance
contract exceeds the related ceded reserves, after any adjustments under the
adjustable premium provisions. Profit sharing would then be recorded as an
offset to funds held charges and to the funds withheld liability. There was no
accrual of profit sharing at December 31, 1998, 1997 or 1996.

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<PAGE> 54

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

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Ceded premiums earned....................................... $36,699 $42,337 $36,105
Ceded Losses and LAE........................................ 56,813 68,872 62,367
Funds held charges.......................................... 10,273 13,361 13,420
</TABLE>

Credit risk from reinsurance is controlled by placing the reinsurance with
large, highly rated reinsurers and by collateralizing amounts recoverable from
reinsurers. The following table identifies the Company's most significant
reinsurers, the total amount recoverable from them for unpaid losses, prepaid
reinsurance premiums and other amounts as of December 31, 1998, and collateral
held by the Company primarily in the form of funds withheld and letters of
credit as of December 31, 1998. No other single reinsurer's percentage
participation in 1998 exceeded 5% of the total reinsurance recoverable at
December 31, 1998.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------------------
TOTAL AMOUNTS TOTAL AMOUNT OF
REINSURER RECOVERABLE COLLATERAL HELD
- --------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Hannover Reinsurance (Ireland) Ltd.......................... $150,156 $137,283
Eisen und Stahl Reinsurance (Ireland) Ltd................... 37,080 34,469
Scandinavian Reinsurance Company Ltd........................ 46,267 48,793
London Life and Casualty Reinsurance Corporation............ 59,186 57,534
Underwriters Reinsurance Company (Barbados)................. 47,666 41,756
</TABLE>

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

Reinsurance Assumed. The Company assumed reinsurance under three programs,
with assumed premiums of $1.5 million, $4.6 million and $2.2 million in 1998,
1997 and 1996, respectively. The Company provides medical professional liability
reinsurance coverage to AMM under a quota share contract and two excess of loss
contracts. AMM is also managed by the Attorney-in-Fact and in 1998 had $1.3
million of premiums written. The Company participated in the IRM Services, Inc.
property pool ("the Pool") with a 5% share in 1996 and 1997. The Pool was
discontinued and placed into runoff on November 30, 1996. Only minimal further
activity beyond 1998 is expected under this arrangement. The Company was also a
participant in quota share reinsurance contracts in 1996 and 1997 with
Underwriters Reinsurance Company, whereby the Company reinsured up to $250,000
per risk on business identified by Underwriters Reinsurance Company as casualty
facultative business. The contract was discontinued on March 1, 1998.

In addition, in 1997 the Company assumed reinsurance under a novation
agreement pertaining to certain policies written for a large hospital group
during 1989 through 1997. Premiums associated with this agreement amounted to
$10.9 million in 1997. Existing ceded reinsurance agreements with the hospital
group's captive insurer covering the novated business remain in effect following
the novation.

The Company believes that as more managed care organizations and integrated
health care delivery systems retain a larger part of their exposure directly or
through captive arrangements, they will need to obtain excess insurance or
reinsurance for the potentially larger losses, and the Company believes that it
is prepared to meet this need through assumed reinsurance arrangements.

INVESTMENT PORTFOLIO

An important component of the operating results of the Company has been the
return on its invested assets. Such investments are made by investment managers
and internal management under policies

53
<PAGE> 55

established and supervised by the Investment Advisory and Finance Committee of
the Board of Governors and Board of Directors of the Attorney-in-Fact (the
"Investment Committee"). The Company's current investment policy has placed
primary emphasis on investment grade, fixed maturity securities and maximization
of after-tax yields while minimizing credit risk of the portfolio. The Company
currently uses three outside managers for fixed maturity securities. At December
31, 1998 and 1997, the average credit quality of the fixed income portfolio was
AA- and AA+, respectively. This change in average credit quality during 1998
resulted from purchases of below-investment grade securities.

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, 1997 DECEMBER 31, 1998
--------------------- ------------------------
COST OR COST OR
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Maturity Investments:
Bonds:
U.S. Government and Agencies............ $188,715 $193,007 $ 119,083 $ 123,264
State, municipalities and political
subdivisions.......................... 202,386 209,605 176,798 185,216
Foreign securities -- U.S. dollar
denominated........................... -- -- 15,694 15,128
Mortgage-backed securities and other
asset-backed securities............... 311,562 316,795 407,140 409,801
Corporate............................... 130,159 133,339 322,477 324,330
-------- -------- ---------- ----------
Total Fixed Maturity Investments........... 832,822 852,746 1,041,192 1,057,739
-------- -------- ---------- ----------
Equity Investments........................... 66,520 89,080 3,159 3,159
-------- -------- ---------- ----------
Total...................................... $899,342 $941,826 $1,044,351 $1,060,898
======== ======== ========== ==========
</TABLE>

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

The table below contains additional information concerning the investment
ratings of the fixed maturity investments at December 31, 1998:

<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)......... $ 613,188 $ 628,516 59.3%
AA................................................... 63,250 64,183 6.1
A.................................................... 215,718 219,586 20.8
BBB.................................................. 97,778 98,962 9.4
Other Ratings (below investment grade)............... 50,423 45,769 4.3
Not Rated............................................ 835 723 0.1
---------- ---------- -----
Total...................................... $1,041,192 $1,057,739 100.0%
========== ========== =====
</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.

54
<PAGE> 56

The following table sets forth certain information concerning the
maturities of fixed maturity investments in the investment portfolio as of
December 31, 1998 by contractual maturity:

<TABLE>
<CAPTION>
PERCENTAGE OF
MATURITY OF INVESTMENT AMORTIZED COST FAIR VALUE FAIR VALUE
---------------------- -------------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Due one year or less................................. $ 14,784 $ 14,810 1.4%
Due after one year through five years................ 109,671 110,704 10.5
Due after five years through ten years............... 207,892 212,155 20.1
Due after ten years.................................. 301,705 310,269 29.3
Mortgage-backed and other asset-backed securities.... 407,140 409,801 38.7
---------- ---------- -----
Total...................................... $1,041,192 $1,057,739 100.0%
========== ========== =====
</TABLE>

The average effective maturity and the effective duration of the securities
in the fixed maturity portfolio (excluding short-term investments) as of
December 31, 1998, was 9.75 years and 6.27 years, respectively.

The mortgage-backed portfolio represents approximately 27% of the total
fixed income portfolio, and is allocated equally across "standard" and "more
complex" securities, while the asset-backed portfolio represents approximately
12% of the total fixed income portfolio.

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

MARKET RISK

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

Interest rate risk is considered by management to be the most significant
market risk element currently facing the Company. Interest rate risk is the
price sensitivity of a fixed income 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 investment portfolios after
consideration of the duration of associated liabilities, primarily losses and
LAE reserves, and other factors.

The tables below provide, as of December 31, 1998 and December 31, 1997,
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

55
<PAGE> 57

maturity date or, for mortgage-backed securities, expected payment patterns
based on statistical analysis and management's judgement. Actual cash flows
could differ, perhaps significantly, from the expected amounts.

At December 31, 1998:

<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
------------------------------------------------------------ TOTAL
(IN THOUSANDS) PRINCIPAL
1999 2000 2001 2002 2003 THEREAFTER AMOUNTS FAIR VALUE
------- ------- ------- ------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government & Agency......... $ 430 $ 1,710 $ 2,651 $ 5,769 $ 415 $136,570 $ 147,545 $ 138,392
-- Average Yield.......... 5.94% 6.12% 6.18% 4.51% 6.64% 5.65% 5.62%
Corporate................... $14,300 $30,960 $23,450 $ 4,500 $28,745 $226,299 $ 328,254 $ 324,330
-- Average Yield.......... 5.87% 6.22% 6.60% 6.47% 6.25% 7.12% 6.85%
Mortgage-Backed............. $10,313 $20,343 $ 9,780 $25,176 $32,072 $188,001 $ 285,685 $ 288,151
-- Average Yield.......... 6.34% 7.03% 7.16% 6.68% 6.45% 6.52% 6.58%
Asset-Backed................ $11,301 $ -- $14,299 $13,500 $ 5,500 $ 75,336 $ 119,936 $ 121,650
-- Average Yield.......... 5.78% -- 6.69% 6.98% 7.47% 7.09% 6.93%
Municipal................... $ -- $ -- $11,480 $ 2,225 $10,490 $147,165 $ 171,360 $ 185,216
-- Average Yield.......... -- -- 5.07% 5.90% 5.21% 5.18% 5.18%
------- ------- ------- ------- ------- -------- ---------- ----------
TOTALS...................... $36,344 $53,013 $61,660 $51,170 $77,222 $773,371 $1,052,780 $1,057,739
</TABLE>

At December 31, 1997:

<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
------------------------------------------------------------ TOTAL
(IN THOUSANDS) PRINCIPAL
1998 1999 2000 2001 2002 THEREAFTER AMOUNTS FAIR VALUE
------- ------- ------- ------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government & Agency............ $ -- $23,005 $ 9,770 $25,101 $38,800 $ 92,835 $189,511 $193,007
-- Average Yield............. -- 6.21% 5.96% 6.44% 5.76% 6.35% 6.19%
Corporate...................... $ 7,150 $10,563 $ -- $ 6,000 $ -- $111,000 $134,713 $133,339
-- Average Yield............. 6.36% 6.73% -- 8.00% -- 6.80% 6.83%
Mortgage-Backed................ $11,652 $16,396 $42,835 $19,154 $13,638 $169,841 $273,516 $278,574
-- Average Yield............. 8.15% 7.37% 7.17% 6.92% 6.77% 7.09% 7.14%
Asset-Backed................... $ -- $ -- $ 1,906 $ 9,500 $ 4,853 $ 21,601 $ 37,860 $ 38,221
-- Average Yield............. -- -- 6.98% 6.75% 7.30% 7.06% 7.01%
Municipal...................... $ -- $ 500 $ -- $12,980 $ 8,045 $171,140 $192,665 $209,605
-- Average Yield............. -- 3.89% -- 5.04% 5.14% 5.12% 5.11%
------- ------- ------- ------- ------- -------- -------- --------
TOTALS......................... $18,802 $50,464 $54,511 $72,735 $65,336 $566,417 $828,265 $852,746
</TABLE>

In addition to interest rate risk, fixed income securities like those
comprised by the Company's investment portfolio involve other risks, such as
default or credit risk. For example, the corporate bonds that make up the
largest portion of the Company's investment portfolio, based on fair value at
December 31, 1998, are subject to non-payment if the issuer defaults and is
unable to meet its financial obligations as they become due. The Company manages
this risk by limiting the amount of higher risk corporate obligations
(determined by credit rating assigned by private rating agencies) in which it
invests.

Regardless of structure, mortgage-backed securities involve the same risks
associated with all fixed income investments: interest rate risk, reinvestment
rate risk, and default or credit risk. In addition, mortgage-backed securities
also possess prepayment risk, which is the risk that a security's originally
scheduled interest and principal payments will differ considerably due to
changes in the level of interest rates. In a standard pass-through
mortgage-backed security, the inherent risks are identical across all security
holders, but as mortgage-backed security structures become more complex the risk
is spread unevenly across the different securities issued on the same underlying
pool of mortgages. This results in securities having dramatically different
credit and/or prepayment characteristics even though the securities are issued
from the same underlying collateral. The Company takes advantage of this
"structural" risk by purchasing those mortgage-backed securities which, due to
this uneven spread of risk, possess enhanced credit and/or stable prepayment
characteristics.

56
<PAGE> 58

"Other asset backed securities" are classified similarly to mortgage-backed
securities as these types of securities also involve prepayment risk. Assets
other than traditional home mortgages are used to collateralize these types of
securities. Examples include securities backed by home equity loans, lease
receivables, high yield bonds, credit card receivables, and auto loan
receivables. The Company only purchases those securities structured to enhance
credit quality and/or provide prepayment stability. The Company continues to use
and adopt financial modeling techniques to monitor and manage the risks
associated with its fixed income portfolio holdings.

Short-term investments are composed of "AAA-rated" and "AA-rated" money
market instruments and money market mutual funds.

Asset and liability matching is an important part of the Company's
portfolio management process. The Company utilizes financial modeling and
scenario analysis to monitor closely the effective modified duration of both
assets and liabilities in order to minimize any "gapping" or "mismatching"
issues with respect to the balance sheet. Any adjustments to portfolio strategy
indicated from such analysis are made to reflect emerging liability pay-out
trends, significant changes in financial markets, and the Company's changing
business. Effective asset/liability management has resulted in the Company's
ability to consistently pay claims from operating funds without disrupting the
Company's long-term investment strategy.

COMPETITION

The physician professional liability insurance market in the United States
is highly competitive. According to A.M. Best, in 1997 there were 357 companies
nationally that wrote medical professional liability insurance. In New Jersey,
where approximately 50% of the Company's 1998 premiums were written, the
Company's principal competitor is Princeton Insurance Companies. In New Jersey
and other states, the Company's principal competitors include CNA Insurance
Group, Frontier Insurance Group, Inc., PHICO Insurance Company, Zurich Insurance
Company and St. Paul Companies. These companies rank among the top 20 medical
malpractice insurers nationally and are actively engaged in soliciting insureds
in the states in which the Company writes insurance. In addition, as the Company
expands into new states, it may face strong competition from local carriers that
are closely focused on narrow geographic markets. The Company expects to
encounter such competition from doctor-owned insurance companies and commercial
companies in other states as it carries out its expansion plans. Many of the
Company's current and potential competitors may have greater financial resources
than the Company and may seek to acquire market share by decreasing pricing for
their products below prevailing market rates, thereby reducing profitability.
The Company believes that several insurance companies that have greater
financial resources than the company are writing medical malpractice insurance
in New Jersey and Pennsylvania that provides the same coverage as the Company's
products at prices much lower than the Company's prices. This price competition
could have a material adverse effect on the Company's financial condition and
results of operations. The Company believes that the principal competitive
factors, in addition to pricing, include financial stability and A.M. Best
ratings, breadth and flexibility of coverage, and the quality and level of
services provided.

The Company plans to compete by diversifying its products, expanding
geographically, extending its distribution channels, and differentiating itself
through superior claims, risk management, and customer services. All markets in
which the Company now writes insurance and in which it expects to enter have
certain competitors with substantially greater financial and operating resources
than the Company. See "Risk Factors -- Competition."

57
<PAGE> 59

REGULATION

The Exchange, MIIX Insurance, LP&C and MIIX New York are each subject to
supervisory regulation by their respective states of incorporation, commonly
called the state of domicile. The Exchange and MIIX Insurance are domiciled in
New Jersey, LP&C is domiciled in Virginia and MIIX New York is domiciled in New
York. Therefore, the laws and regulations of these states, including the tort
liability laws and the laws relating to professional liability exposures and
reports, have the most significant impact on the operations of the combined
company.

Holding Company Regulation. As part of a holding company system, the
Exchange, MIIX Insurance, LP&C and MIIX New York are subject to the Insurance
Holding Company Systems Acts (the "Holding Company Act") of their domiciliary
states. The Holding Company Act requires the domestic company to file
information periodically with the state insurance department and other state
regulatory authorities, including information relating to its capital structure,
ownership, financial condition and general business operations. Certain
transactions between an insurance company and its affiliates, including sales,
loans or investments, are deemed "material" and require prior approval by New
Jersey, Virginia and/or New York insurance regulators. In New Jersey and
Virginia, transactions with affiliates involving 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 capital and surplus, whichever
is greater, require prior approval. In New York, such transactions which within
any 12 month period aggregate to more than 1% of the insurance company's
admitted assets as of the end of such company's last fiscal year require the
prior approval of the New York Insurance Department. Prior approval is also
required for all management agreements, service contracts, and cost-sharing
arrangements between affiliates. Certain reinsurance agreements or modifications
also require prior approval.

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 statutorily established
percentages of the Company's business, are also subject to disclosure.

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

Regulation of Dividends from Insurance Subsidiaries. The Holding Company
Act of the State of New Jersey will limit the ability of MIIX Insurance to pay
dividends to The MIIX Group. Without prior notice to and approval of the
Commissioner, MIIX Insurance may not declare or pay an extraordinary dividend,
which 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 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 out of other funds is approved by the Commissioner.
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.

58
<PAGE> 60

The other United States domiciled Insurance Subsidiaries will be subject to
similar provisions and restrictions under the Holding Company Acts of other
states.

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. In two of such
states, the license currently does not include the authority to write medical
malpractice insurance. In addition, in eight of such states, the Company is in
the process of the rate, rule and form filings necessary in order to write
medical malpractice policies in such states. The extent of regulation varies by
state, but such regulation usually includes: (i) regulating premium rates and
policy forms; (ii) setting minimum capital and surplus requirements; (iii)
regulating guaranty fund assessments; (iv) licensing companies and agents; (v)
approving accounting methods and methods of setting statutory loss and expense
reserves; (vi) setting requirements for and limiting the types and amounts of
investments; (vii) establishing requirements for the filing of annual statements
and other financial reports; (viii) conducting periodic statutory examinations
of the affairs of insurance companies; (ix) approving proposed changes of
control; and (x) limiting the amounts of dividends that may be paid without
prior regulatory approval. Such regulation and supervision are primarily for the
benefit and protection of policyholders and not for the benefit of investors.

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

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, 1993 financial
statements, was completed on March 5, 1995, and a report was issued on June 21,
1995. The Exchange currently is undergoing another periodic examination that
began on November 24, 1997. The last periodic financial examination of LP&C,
based on December 31, 1996 financial statements, was completed on April 25,
1997, and a report was issued on August 4, 1997. Various states also conduct
"market conduct examinations" which are unscheduled examinations designed to
monitor the compliance with state laws and regulations concerning the filing of
rates and forms and company operations in general. The Company has not undergone
a market conduct examination.

Risk-Based Capital. In addition to state-imposed insurance laws and
regulations, insurers are subject to the general statutory accounting practices
and the reporting format of the NAIC. The NAIC's methodology for assessing the
adequacy of statutory surplus of property and casualty insurers includes a RBC
formula that attempts to measure statutory capital and surplus needs based on
the risks in a company's mix of products and investment portfolio. The formula
is designed to allow state insurance regulators to identify potentially under-
capitalized companies. Under the formula, a company determines its RBC by taking
into account certain risks related to the insurer's assets (including risks
related to its investment portfolio and ceded reinsurance) and the insurer's
liabilities (including underwriting risks related to the nature and experience
of its insurance business). The RBC rules provide for different levels of
regulatory attention depending on the ratio of an insurance company's total
adjusted capital to its "authorized control level" of RBC. At December 31, 1998,
the Exchange's RBC was 2.58 times greater than the threshold requiring the least
regulatory attention. At December 31, 1998, LP&C's RBC was 7.19 times greater
than the threshold requiring the least regulatory

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<PAGE> 61

attention. MIIX Insurance and MIIX New York did not write any premium during
1998, and therefore, RBC ratios are not meaningful for that period.

NAIC-IRIS Ratios. The NAIC Insurance Regulatory Information System
("IRIS") was developed by a committee of state insurance regulators and is
primarily intended to assist state insurance departments in executing their
statutory mandates to oversee the financial condition of insurance companies
operating in their respective states. IRIS identifies 12 ratios for the property
and casualty insurance industry and specifies a range of "usual values" for each
ratio. Departure from the "usual value" range on four or more ratios may lead to
increased regulatory oversight from individual state insurance commissioners. In
1998 the Exchange had one ratio (change in net writings) slightly outside the
usual range as a result of growth in business presented by opportunities in a
dynamic marketplace. LP&C in 1998 had two ratios (change in net writings and
two-year overall operating ratio) outside the usual range. These ratios reflect
the increase in premiums written and the initial high cost of expanding LP&C's
business, as LP&C was acquired in 1996 and had no business at that time. IRIS
ratio results for MIIX Insurance and MIIX New York are not applicable due to no
business written in these companies in 1998.

Regulation of Investments. The Insurance Subsidiaries are subject to state
laws and regulations that require diversification of their investment portfolios
and limit the amount of investments in certain investment categories such as
below investment grade fixed income securities, real estate and equity
investments. Failure to comply with these laws and regulations would cause
investments exceeding regulatory limitations to be treated as non-admitted
assets for purposes of measuring statutory surplus and, in some instances, would
require divestiture of such non-qualifying investments over specified time
periods unless otherwise permitted by the state insurance authority under
certain conditions. The Company did not have any non-qualifying investments in
1998.

Prior Approval of Rates and Policies. Pursuant to the New Jersey Insurance
Code, a domestic insurer must submit policies and endorsements to the
Commissioner for prior approval, but rating plans and rates are not subject to
review until 30 days after use. Virginia law requires LP&C to submit rating
plans, rates, policies, and endorsements to regulators for prior approval. The
possibility exists that the Company may be unable to implement desired rates,
policies, endorsements, forms, or manuals if such items are not approved by the
applicable regulatory authorities. See "Risk Factors -- Regulatory and Related
Matters." In the past, substantially all of the Company's rate applications have
been approved in the normal course of review. In most other states, policy forms
usually are subject to prior approval by the regulatory agency while rates
usually are "file and use." Unlike most other states, New York's Insurance
Department sets the rates for medical malpractice coverage on an annual basis.

Medical Malpractice Tort Reform. Major revisions to New Jersey's statutory
scheme governing medical malpractice took effect in 1995. These revisions
included raising joint and several liability standards, requiring certificates
of merit, eliminating strict liability of health care providers due to defective
products used in their practices, and capping punitive damages at the greater of
five times compensatory damages or $350,000. The Company believes that these
changes are bringing stability to the medical malpractice insurance business in
New Jersey by making it more feasible for insurers to assess certain risks.
Legislation passed in 1996 in Pennsylvania provides, among other things, that
plaintiffs must prove causation in informed consent cases, that punitive damages
assessed against individual defendants be capped at twice the compensatory
damages, and that the Pennsylvania Medical Professional Liability Catastrophe
Loss Fund (the "Cat Fund") be responsible for delay damages and post-judgment
interest. 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 be jointly and severally
liable only if found to be more than 50% responsible. Exemplary damages shall
not exceed the greater of $200,000, or two times the economic damage plus the
non-economic damage, not to exceed $750,000.

Medical Malpractice Reports. The Company principally writes medical
malpractice insurance and additional requirements are placed upon them to report
detailed information with regard to settlements or judgments against their
insureds. In addition, the Company is required to report to state regulatory
agencies and/or the National Practitioners Data Bank payments, claims closed
without payments, and actions by the

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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 Practitioners Data Bank.

Catastrophe Funds. In two states in which the Company writes insurance,
its liability is capped at a level below the Company's typical policyholder
limits of coverage. Pennsylvania's Cat Fund provides coverage for medical
malpractice claims exceeding $400,000 per claim and $1.2 million aggregate per
year. The Cat Fund coverage is limited to $800,000 per claim and $2.4 million in
the aggregate. Similarly, physicians in Indiana are required to purchase
insurance limits of $250,000 per claim and $750,000 in the aggregate. The
Indiana Patient Compensation Fund provides an additional $1 million of coverage
per claim for an insured. A plaintiff's maximum total recovery for medical
malpractice causing injury or death is $1.25 million in Indiana.

A.M. BEST RATINGS

In 1997 A.M. Best, which rates insurance companies based on factors of
concern to policyholders, rated the Company "A (Excellent)" for the third
consecutive year and reaffirmed the rating in March of 1998. This is the third
highest rating of 16 ratings that A.M. Best assigns. The Company earned its
first rating, a "B+," in 1992 and achieved an "A" rating by 1995.

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

EMPLOYEES

The Company employs approximately 220 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.

PROPERTIES

The Company leases 49,000 square feet of space from the Medical Society in
Lawrenceville, New Jersey, where its home office and Mid-Atlantic Region office
are located. The Company also leases 28,000 square feet of space in a second
Lawrenceville office building, where its claim department and a subsidiary are
based. The Company's regional office facilities are located in rented office
space in Indianapolis (5,000 square feet), Boston (3,670 square feet), Atlanta
(4,190 square feet) and Dallas (5,000 square feet). The Company believes that
its office space is adequate for its present needs and that it will be able to
secure additional office space in the future if necessary. The Company is
considering the purchase of its headquarters in Lawrenceville, New Jersey, which
it currently leases from the Medical Society, and has retained an independent
appraisal firm to determine its fair market value.

LITIGATION

The Company may be a party to litigation from time to time in the ordinary
course of business. Except as described under "Risk Factors -- Actions Opposing
the Plan of Reorganization," the Company is not currently a party to any
litigation which may have a material adverse effect on the Company.

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<PAGE> 63

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the individuals who
currently serve as directors of The MIIX Group. The officers set forth below are
all officers of the Attorney-in-Fact. The MIIX Group has only three executive
officers, Messrs. Goldberg, Koreyva and Hudson.

<TABLE>
<CAPTION>
NAME POSITION CLASS
- ---- -------- -----
<S> <C> <C>
Daniel Goldberg.............................. President, Chief Executive Officer and Director III
Joseph J. Hudson............................. Executive Vice President, Marketing and N/A
Business Development
Kenneth Koreyva.............................. Executive Vice President, Chief Financial N/A
Officer and Treasurer
Richard J. Gergasko.......................... Vice President, Underwriting and Actuarial N/A
Services
Lisa Kramer.................................. Vice President, Claims N/A
Angelo S. Agro, M.D. ........................ Director I
Hillel M. Ben-Asher, M.D. ................... Director I
Harry M. Carnes, M.D. ....................... Director I
Andrew Coronato, M.D. ....................... Director I
Palma E. Formica, M.D. ...................... Director II
John S. Garra, M.D. ......................... Director II
Paul J. Hirsch, M.D. ........................ Director II
Louis L. Keeler, M.D. ....................... Director II
Henry R. Liss, M.D. ......................... Director I
Arganey Lucas, Jr., M.D. .................... Director I
S. Stuart Mally, M.D. ....................... Director I
Vincent A. Maressa, Esq. .................... Director II
Murray N. Matez, D.O. ....................... Director I
Robert S. Maurer, D.O. ...................... Director III
A. Richard Miskoff, D.O. .................... Director III
Charles J. Moloney, M.D. .................... Director III
Eileen Marie Moynihan, M.D. ................. Director III
Fred M. Palace, M.D. ........................ Director I
John J. Pastore, M.D. ....................... Director II
Pascal A. Pironti, M.D. ..................... Director II
Carl Restivo, Jr., M.D. ..................... Director II
Joseph A. Riggs, M.D. ....................... Director I
Bernard Robins, M.D.......................... Director III
Herman M. Robinson, M.D. .................... Director II
Gabriel F. Sciallis, M.D. ................... Director III
Benjamin I. Smolenski, M.D. ................. Director II
Martin L. Sorger, M.D. ...................... Director III
Bessie M. Sullivan, M.D. .................... Director III
Harvey P. Yeager, M.D. ...................... Director III
</TABLE>

The MIIX Group's Certificate of Incorporation provides for a Board of
Directors consisting of at least nine but not more than thirty-five directors.
At each succeeding Annual Meeting of stockholders following such initial
classification and election, the respective successors of each class shall be
elected for three-year terms.

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<PAGE> 64

At a meeting held on September 16, 1998. The MIIX Group Board approved a
proposal to reduce the size of The MIIX Group Board to approximately 12 to 13
members comprised of ten current members, including Mr. Goldberg, and two to
three new members. This reduction would take place over three years. The MIIX
Group Board requested that a transition committee develop a detailed plan for
the implementation of this proposal.

Daniel Goldberg, 51, Director, President and Chief Executive Officer of the
Attorney-in-Fact, has served in each of these capacities since 1990. Mr.
Goldberg is a member of the Board of Directors of ACCRA Holdings Corp. and
American Fidelity & Liberty Insurance Company. He is a member of the Academy of
Hospital Attorneys.

Joseph J. Hudson, 58, Executive Vice President, Marketing and Business
Development has served as Vice President of Marketing and Business Development
of the Attorney-in-Fact since 1994. Prior to that, he was a Vice President at
Alexander & Alexander, Inc. He is a member of the American Society of Hospital
Risk Managers, the Professional Liability Underwriting Society and the Society
of Chartered Property and Casualty Underwriters.

Kenneth Koreyva, 43, Executive Vice President, Chief Financial Officer and
Treasurer has served as Vice President, Chief Financial Officer and Treasurer of
the Attorney-in-Fact since 1997. From 1991 until 1997, he served as Vice
President in various capacities. Prior to that, he was a partner with the
accounting firm of Coopers & Lybrand. He is a member of the American Institute
of Certified Public Accountants.

Richard J. Gergasko, 40, Vice President, Underwriting and Actuarial
Services of the Attorney-in-Fact, has served in this capacity since December
1998. From 1995 to 1998, he was Vice President of Underwriting with American
International Group, Inc. From 1992 to 1994 he provided actuarial services with
MBA Incorporated. He is a Fellow of the Casualty Actuarial Society and a Member
of the American Academy of Actuaries.

Lisa Kramer, 53, Vice President, Claims of the Attorney-in-Fact, has served
in this capacity since 1990. She is a member of the American Bar Association,
the International Association of Defense Counsel and the Philadelphia Bar
Association.

Angelo S. Agro, M.D., 50, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He is a physician certified by the
American Board of Otolaryngology. Dr. Agro has practiced in Voorhees, New
Jersey, for more than five years with Professional Otolaryngology Associates. He
is a member of the American Academy of Otolaryngology, the American Medical
Association, the American College of Surgeons, and the Medical Society of New
Jersey. Dr. Agro is a trustee of Camden County College and Secretary of the
Board.

Hillel M. Ben-Asher, M.D., 67, Director, has been Chairman of the Board of
Governors of the Exchange since 1988 and a member of the Board of Governors
since 1977. He has been a board-certified physician in Morristown, New Jersey,
for more than five years with Blair Medical Associates. Dr. Ben-Asher is a
Fellow of the American College of Physicians and a member of the American
Medical Association, the American Society of Internal Medicine, and the New
Jersey Society of Internal Medicine.

Harry M. Carnes, M.D., 66, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1989. He has been a physician in
Audubon, New Jersey, for more than five years. Dr. Carnes is a member of the
American Academy of Family Practice, the Camden City Medical Society, and the
Medical Society of New Jersey.

Andrew Coronato, M.D., 58, Director, has been a member of the Board of
Governors of the Exchange since 1991. He has been a board-certified physician in
Westfield, New Jersey, for more than five years with Medical Diagnostic
Associates, P.A. Dr. Coronato is a Fellow of the American College of
Gastroenterology and American College of Physicians. He is a member of the
American Gastroenterologic Association and the Medical Society of New Jersey.

Palma E. Formica, M.D., 70, Director, has been Secretary/Treasurer of the
Board of Directors of the Attorney-in-Fact since 1982. She has been a
board-certified physician in New Brunswick, New Jersey, for

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<PAGE> 65

more than five years with St. Peter's Medical Center and a Professor of Clinical
Family Medicine at the University of Medicine and Dentistry of New Jersey
(UMDNJ) Robert Wood Johnson Medical School. Dr. Formica is a member of the
Academy of Medicine of New Jersey, the American Academy of Family Physicians,
the American College of Physician Executives, the American Medical Association,
the American Medical Political Action Committee, the Medical Society of New
Jersey, the Middlesex County Medical Society, the New Jersey Academy of Family
Physicians, and the Organization of Medical Society Presidents.

John S. Garra, M.D., 58, Director, has been a member of the Board of
Governors of the Exchange since 1992. He has been a board-certified physician in
Collingswood, New Jersey, for more than five years. Dr. Garra is a member of the
American College of Obstetricians and Gynecologists, the American College of
Surgeons, the American Fertility Society, the Medical Society of New Jersey, and
the New Jersey Society of Surgeons.

Paul J. Hirsch, M.D., 61, Director, has been Vice Chair of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
physician in Bridgewater, New Jersey, for more than five years with BioSport
Orthopedics & Sports Medicine. Dr. Hirsch is a member of the American Academy of
Orthopedic Surgeons, the American Orthopaedic Association, the American College
of Surgeons, the Arthroscopy Association of North America, the American Medical
Association, and the Medical Society of New Jersey. He currently serves on the
Boards of Trustees for Raritan Valley Community College, the Journal of Bone and
Joint Surgery and the Academy of Medicine of New Jersey. Dr. Hirsch is a
clinical professor of orthopedic surgery at Seton Hall School of Graduate
Medical Education.

Louis L. Keeler, M.D., 66, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1994. He has been a board-certified
physician in Haddon Heights, New Jersey, for over five years. Dr. Keeler is a
member of the American Medical Association, the American Urological Association,
and the Medical Society of New Jersey.

Henry R. Liss, M.D., 73, Director, has been a member of the Board of
Governors of the Exchange since 1977. He has been a board-certified physician in
Summit, New Jersey, for more than five years as a neurosurgery consultant. Dr.
Liss is a member of the American Association of Neurological Surgeons, the
American Medical Association, the American Society of Military Surgeons, and the
Congress of Neurosurgeons.

Arganey Lucas, Jr., M.D., 71, Director, has been a member of the Board of
Governors of the Exchange since 1987. He is a retired board-certified
anesthesiologist. Dr. Lucas is a member of the Academy of Medicine, the American
Medical Association, the American Society of Anesthesiologists, the Medical
Society of New Jersey, the National Medical Association, the New Jersey State
Society of Anesthesiologists, the North Jersey Medical Society, and the Morris
County Medical Society.

S. Stuart Mally, M.D., 72, Director, has been a member of the Board of
Governors of the Exchange since 1990. He has been a board-certified physician in
Atlantic City, New Jersey, for more than five years. Dr. Mally is a governor of
the American College of Surgeons and a member of the Medical Society of New
Jersey and the Society of Surgeons of New Jersey. Dr. Mally is a former
President of the New Jersey Society of Surgeons and the New Jersey Chapter,
American College of Surgeons.

Vincent A. Maressa, Esq., 56, Director, has been Chairman of the Board of
Directors of the Attorney-in-Fact since 1990 and a member of the Board of
Directors of the Attorney-in-Fact since 1977. He has been the Executive Director
and General Counsel of the Medical Society of New Jersey since 1973. Mr. Maressa
is a member of the American Bar Association, the American Society of Medical
Executives, and the Mercer County Bar Association.

Murray N. Matez, D.O., 71, Director, has been Secretary of the Board of
Governors of the Exchange since 1979. He has been a board-certified physician in
Camden, New Jersey, for more than five years. Dr. Matez has been a physician at
Lourdes Medical Associates, P.A. since 1996. Prior to that, Dr. Matez was a solo
practitioner. He is a member of the American College of Osteopathic Family
Physicians, the American Osteopathic Association, the Camden County Society of
Osteopathic Physicians and Surgeons and the New

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Jersey Chapter of American College of Osteopathic Family Physicians. Dr. Matez
is also a member and a former President of the New Jersey Association of
Osteopathic Physicians and Surgeons.

Robert S. Maurer, D.O., 66, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1977. He has been a board-certified
physician in Stratford, New Jersey, for more than five years. Dr. Maurer has
been an Associate Professor of Clinical Family Medicine at UMDNJ-SOM since 1992.
He is a member of the American Osteopathic Association, the American Osteopathic
College of Family Practitioners, the American Osteopathic College of
Rheumatology, the Middlesex County Osteopathic Society, and the New Jersey
Association of Osteopathic Surgeons and Physicians.

A. Richard Miskoff, D.O., 57, Director, has been a member of the Board of
Governors of the Exchange since 1994. He has been a board-certified physician in
Edison, New Jersey, for more than five years. Dr. Miskoff is a member of the
American Osteopathic Association, the American Society of Clinical Oncologists,
the American Society of Hematology, and the New Jersey Association of
Osteopathic Physicians.

Charles J. Moloney, M.D., 64, Director, has been Assistant Secretary of the
Board of Governors of the Exchange since 1979. He has been a board-certified
physician in Moorestown, New Jersey, for more than five years. Dr. Moloney is a
member of the American Academy of Pediatrics and the Medical Society of New
Jersey.

Eileen Marie Moynihan, M.D., 46, Director, has been a member of the Board
of Governors of the Exchange since 1995. She has been a board-certified
rheumatologist in Woodbury, New Jersey for more than five years. Dr. Moynihan
has also been Medical Director of the Eastern District Office for XACT Medicare
(Highmark Inc.) since 1988. She is a member of the Academy of Medicine of New
Jersey, the American College of Rheumatology, the American Medical Association,
the Camden County Medical Society and the New Jersey Rheumatism Association. Dr.
Moynihan is also a member and treasurer of the Medical Society of New Jersey.

Fred M. Palace, M.D., 63, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
radiologist in Morristown, New Jersey, for more than five years with Morris
Imaging Assoc., P.A. Dr. Palace is a member of the Medical Society of New
Jersey.

John J. Pastore, M.D., 71, Director, has been a member of the Board of
Governors of the Exchange since 1977. He has been a board-certified physician in
Vineland, New Jersey, for more than five years. Dr. Pastore is a member of the
American Academy of Family Physicians, the American Medical Association, the
Geriatric Society, and the Medical Society of New Jersey.

Pascal A. Pironti, M.D., 65, Director, has been a member of the Board of
Governors of the Exchange since 1982. He has been a board-certified urologist in
Summit, New Jersey, for more than five years. Dr. Pironti is a member of the
American College of Surgeons, the American Medical Association, the American
Urological Association, the Medical Society of New Jersey, and the Society of
Clinical Urologists.

Carl Restivo, Jr., M.D., 52, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1997. He has been a board-certified
physician in Jersey City, New Jersey, for more than five years. Dr. Restivo is a
Delegate for the New Jersey Chapter of the American Medical Association and a
past president of the Arthritis Foundation. He is a past president of the
Medical Society of New Jersey.

Joseph A. Riggs, M.D., 65, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
physician in Haddon Heights, New Jersey, for more than five years. Dr. Riggs is
a member of the American Medical Association, the Camden County Medical Society,
the Medical Society of New Jersey, the New Jersey Obstetrics and Gynecology
Society, and the American College of Obstetricians and Gynecologists.

Bernard Robins, M.D., 70, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
physician in Tewksbury Township, New Jersey, for more than five years. Dr.
Robins is a member of the Medical Society of New Jersey.

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Herman M. Robinson, M.D., 65, Director, has been a member of the Board of
Directors of the Attorney-in-Fact since 1990. He has been a board-certified
radiologist in Millburn, New Jersey, for more than five years. Dr. Robinson is a
member of the American College of Radiology, the American Medical Association,
the Medical Society of New Jersey, and the Radiology Society of New Jersey.

Gabriel F. Sciallis, M.D., 54, Director, has been Assistant Secretary of
the Board of Governors of the Exchange since 1979. He has been a board-certified
physician in Mercerville, New Jersey, for more than five years. He is a member
of the American Academy of Dermatology, the Dermatology Society of New Jersey,
the Medical Society of New Jersey, and the Mercer County Medical Association.

Benjamin I. Smolenski, M.D., 58, Director, has been Assistant Secretary of
the Board of Governors of the Exchange since 1990. He has been a board-certified
orthopedic surgeon in Mount Laurel, New Jersey, for more than five years with
Smolenski Brill Hagren & Schwartz P.A. Dr. Smolenski is a member of the American
Academy of Orthopedic Surgery, the American College of Surgeons, Eastern
Orthopedic, the Medical Society of New Jersey, and the Philadelphia Orthopaedic
Society.

Martin L. Sorger, M.D., 64, Director, has been a member of the Board of
Governors of the Exchange since 1979. He has been a board-certified orthopedic
physician in Glen Ridge, New Jersey, and a member of the Montclair Orthopedic
Group for more than five years. Dr. Sorger is a member of the Alumni Council
Columbia Medical School, the American Academy of Orthopedic Surgeons, the
American College of Surgeons and a former member of its Board of Councilors, and
the American Medical Association. He is a former president of the New Jersey
Orthopedic Society and a member of its executive committee.

Bessie M. Sullivan, M.D., 57, Director, has been a member of the Board of
Governors of the Exchange since 1992. She has been a board-certified physician
in Edison, New Jersey, for more than five years with the Arthritis, Allergy &
Immunology Center. Dr. Sullivan is a member of the American Medical Association,
the American Rheumatism Association, the New Jersey Medical Society, and the
Union City Medical Society.

Harvey P. Yeager, M.D., 64, Director, has been a member of the Board of
Governors of the Exchange since 1985. He has been a board-certified
otolaryngologist-head and neck surgeon in West Orange, New Jersey, for more than
five years. Dr. Yeager is a member of the American Academy of Otolaryngology,
the American Society of Head and Neck Surgery and the Medical Society of New
Jersey. He is a former president of the New Jersey Academy of Ophthalmology and
Otolaryngology and a former member of the Board of Directors of Physicians
Insurers Associates of American (PIAA).

COMMITTEES OF THE MIIX GROUP, INCORPORATED

The MIIX Group Board has the following standing committees:

Executive Committee. The Executive Committee has the authority to exercise
all powers of The MIIX Group Board between meetings of The MIIX Group Board,
except as provided by the Certificate of Incorporation or the By-laws of The
MIIX Group, or by applicable law. The Executive Committee consists of four
members, Messrs. Goldberg and Maressa, and Drs. Ben-Asher and Hirsch.

Audit Committee. The Audit Committee meets periodically with the Company's
management and independent auditors to discuss the scope of the annual audit,
internal control, and financial reporting matters. The Company's independent
auditors have direct access to the Audit Committee. The Audit Committee consists
of three members, all of whom are independent directors. The members of the
Audit Committee are Drs. Agro, Carnes and Sullivan.

Compensation Committee. The Compensation Committee sets the compensation
of the Company's directors and executive officers. The Compensation Committee
has five members consisting of Mr. Maressa and Drs. Agro, Ben-Asher, Hirsch and
Liss.

Nominating Committee. The Nominating Committee recommends candidates to
fill vacancies on The MIIX Group Board and also recommends candidates for
membership on committees of The MIIX Group Board. The members of the Nominating
Committee are Mr. Goldberg and Drs. Moynihan, Restivo and Sorger.

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Transition Committee. The Transition Committee deals with various aspects
of the Company's conversion to a publicly held stock insurance company. The
members of the Transition Committee are Messrs. Maressa and Goldberg, and Drs.
Agro, Ben-Asher, Formica, Hirsch, Liss, Matez, Moloney, Palace, Restivo,
Sciallis and Sorger.

The MIIX Group Board may from time to time establish certain other
committees to facilitate the management of The MIIX Group.

DIRECTOR COMPENSATION

Following the Reorganization, directors will receive the following fees.
The Chairman will receive an annual stipend of $35,000, the Vice-Chairman will
receive an annual stipend of $20,000, the Secretary will receive an annual
stipend of $20,000, the Chairman of the Audit Committee will receive an annual
stipend of $25,000, the Chairman of any other committee will receive an annual
stipend of $16,000, and other members of the Board will receive an annual
stipend of $14,000. Board members will not receive travel expense reimbursement
for meetings held in New Jersey.

In 1991, the Company invested in a number of corporate owned life insurance
policies insuring the lives of members of the Board of Governors, the Board of
Directors of the Attorney-in-Fact and committee members of such Boards. The
proceeds of such policies were payable to the Company. Under a separate Board
Members Plan the beneficiaries of such members were entitled to death benefit
payments from the Company over a ten-year period. On July 15, 1998, the Company
terminated such Board Members Plan.

EXECUTIVE COMPENSATION

The MIIX Group was organized as a Delaware corporation in October, 1997.
Since its organization, it has not paid any cash compensation to its executive
officers. The following Summary Compensation Table sets forth information
concerning the compensation by the Company of (i) the Company's President and
Chief Executive Officer and (ii) the five other most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers"), for the years ended December 31, 1997 and 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS COMPENSATION(1)
------------------------------ ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
Daniel Goldberg................................ 1998 $479,583(2) $475,000 $106,793(3)
President and Chief Executive Officer 1997 433,750(2) 76,000 113,132(3)
Joseph J. Hudson............................... 1998 232,500 215,000 14,542(4)
Executive Vice President, Marketing and 1997 200,000 33,000 13,117(4)
Business Development
Kenneth Koreyva................................ 1998 258,667 320,000 15,661(5)
Executive Vice President, Chief Financial 1997 225,000 49,500 17,113(5)
Officer and Treasurer
Richard J. Gergasko(6)......................... 1998 83,846 12,600 2,068(7)
Vice President, Underwriting and 1997 -- -- --
Actuarial Services
Lisa Kramer.................................... 1998 225,000 33,750 16,235(8)
Vice President, Claims 1997 225,000 24,000 16,950(8)
Ronald Wade(9)................................. 1998 188,370 18,900 11,128(10)
Vice President, Western Region 1997 179,400 26,000 7,750(10)
</TABLE>

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

(1) The value of certain perquisites or personal benefits is not included in
the amounts disclosed because it did not exceed for any Named Executive
Officer the lesser of either $50,000 or 10% of the total annual salary and
bonus reported for the Named Executive Officer.

(2) Includes $78,750 of deferred compensation paid in each of 1997 and 1998.

67
<PAGE> 69

(3) Represents 401(k) contributions of $4,750 and $5,000 in 1997 and 1998,
respectively; $10,429 and $3,840 in supplemental health and disability
insurance premiums in 1997 and 1998, respectively; $87,000 in premiums paid
by the Company in each of 1997 and 1998 in respect of a supplemental
executive retirement program; and $10,953 in respect of a Split Dollar Life
Insurance Agreement in each of 1997 and 1998. Under this Agreement, the
Company did not pay any amount attributable to term life insurance coverage
in 1997 or 1998, and the dollar value to Mr. Goldberg of the remainder of
the premiums paid by the Company during each of 1997 and 1998 is $10,953.
See "Employment Agreements."

(4) Represents 401(k) contributions of $4,750 and $5,000 in 1997 and 1998,
respectively; $4,967 and $6,142 in supplemental health and disability
insurance premiums in 1997 and 1998, respectively; and $3,400 in respect of
Split Dollar Life Insurance Agreement in each of 1997 and 1998. Under such
Agreement, the Company did not pay any amount attributable to term life
insurance coverage in 1997 or 1998, and the dollar value to Mr. Hudson of
the remainder of the premiums paid by the Company during each of 1997 and
1998 is $3,400. See "Employment Agreements."

(5) Represents 401(k) contributions of $4,750 and $5,000 in 1997 and 1998,
respectively; $7,113 and $5,411 in supplemental health and disability
insurance premiums in 1997 and 1998, respectively; and $5,250 in respect of
a Split Dollar Life Insurance Agreement in each of 1997 and 1998. Under
such Agreement, the Company did not pay any amount attributable to term
life insurance coverage in 1997 or 1998, and the dollar value to Mr.
Koreyva of the remainder of the premiums paid by the Company during each of
1997 and 1998 is $5,250. See "Employment Agreements."

(6) Mr. Gergasko was not employed by the Company in 1997.

(7) Consists of supplemental health and disability insurance premiums.

(8) Represents 401(k) contributions of $4,750 and $5,000 in 1997 and 1998,
respectively; $5,000 and $4,035 in supplemental health and disability
insurance premiums in 1997 and 1998, respectively; and $7,200 in respect of
a Split Dollar Life Insurance Agreement in each of 1997 and 1998. Under
such Agreement, the Company did not pay any amount attributable to term
life insurance coverage in 1997 or 1998, and the dollar value to Ms. Kramer
of the remainder of the premiums paid by the Company during each of 1997
and 1998 is $7,200. See "Employment Agreements."

(9) Reported pursuant to Item 402(a)(3)(iii) of Regulation S-K.

(10) Represents 401(k) contributions of $4,750 and $5,000 in 1997 and 1998,
respectively; and $3,000 and $6,128 in supplemental health insurance
premiums in 1997 and 1998, respectively.

EMPLOYMENT AGREEMENTS

Each of Messrs. Goldberg, Koreyva and Hudson is party to a separate
employment agreement dated October 9, 1998 (each an "Employment Agreement") with
The MIIX Group and the Attorney-in-Fact. Each Employment Agreement is for an
initial three year term. Mr. Goldberg's Employment Agreement provides for an
initial base salary of $430,000 per annum, Mr. Koreyva's Employment Agreement
provides for an initial base salary of $275,000 per annum and Mr. Hudson's
Employment Agreement provides for an initial base salary of $250,000 per annum.
Bonuses are payable at the discretion of the Board of Directors of The MIIX
Group. In the event of a termination of employment, severance pay including up
to three years' salary (in the case of Mr. Goldberg) or two years' salary (in
the case of Messrs. Koreyva and Hudson) is payable under certain circumstances.
Under the terms of their respective Employment Agreements each of Messrs.
Goldberg, Koreyva, and Hudson is entitled to the grant of stock options. Such
stock options will be granted under The MIIX Group's Long Term Incentive Equity
Plan (as described in more detail below) on or by the date of consummation of
the Offering at an exercise price equal to the fair market value of the Common
Stock as of the date of grant. Mr. Goldberg will be granted 175,000 options, Mr.
Hudson will be granted 60,000 options and Mr. Koreyva will be granted 80,000
options. Twenty-five percent of these options will vest upon grant and an
additional twenty-five percent will vest upon the first, second and third
anniversaries of the date of grant. Under the terms of each Employment
Agreement, Messrs. Goldberg, Koreyva and Hudson are

68
<PAGE> 70

permitted to participate in the Stock Purchase and Loan Agreements and the
compensation plans described below.

The Attorney-in-Fact is party to an employment agreement dated as of August
1, 1990, with Ms. Kramer. This is currently a year-to-year agreement. Ms.
Kramer's current compensation under such agreement is $225,000 per annum. If Ms.
Kramer's employment is terminated without cause, the Attorney-in-Fact is
required to pay Ms. Kramer's salary and benefits through the end of the term of
the agreement, reduced by the amount of any compensation received by Ms. Kramer
from other employment.

The Attorney-in-Fact is party to an employment agreement dated as of
November 1, 1997 with Mr. Wade. This agreement is for a two year term. Mr.
Wade's base salary per annum under this agreement is $179,400. Additional
compensation and bonuses are payable at the discretion of the Board of Directors
of the Attorney-in-Fact. If Mr. Wade's employment is terminated without cause,
the Attorney-in-Fact is required to pay Mr. Wade's salary and benefits for 12
months or, if earlier, until Mr. Wade obtains full-time employment with another
employer. If Mr. Wade's employment is terminated prior to November 1, 1999, he
is entitled to receive the greater of (i) the amount determined in accordance
with the preceding sentence and (ii) his salary and benefits payable through
November 1, 1999.

The Attorney-in-Fact provides Mr. Goldberg with a supplemental executive
retirement program through a Restricted Split Dollar Life Insurance Agreement
and a related Collateral Assignment of Split-Dollared Policy dated September 12,
1996. Under the terms of these agreements, the Attorney-in-Fact is responsible
for the payment of all premiums due under a life insurance policy on the life of
Mr. Goldberg with a total face value of $1.4 million. The annual premium under
such policy is $87,000. Mr. Goldberg owns such policy, but upon Mr. Goldberg's
death, the Attorney-in-Fact is entitled to receive (i) if the Attorney-in-Fact
or the Exchange has been declared insolvent, an amount equal to the lesser of
the cash surrender value of the policy or the sum of the premiums paid by the
Attorney-in-Fact, net of previous withdrawals or policy loans made to the
Attorney-in-Fact, and if the Attorney-in-Fact and the Exchange have not been
declared insolvent, zero (the "Insolvency Payment") and (ii) an amount equal to
the proceeds of the policy less the sum of $900,000 and the Insolvency Payment.
If the policy is paid under circumstances other than Mr. Goldberg's death, the
Attorney-in-Fact is entitled to receive the Insolvency Payment. Mr. Goldberg's
Employment Agreement requires The MIIX Group to maintain this or an equally
favorable arrangement on behalf of Mr. Goldberg.

The Attorney-in-Fact is party to Split Dollar Life Insurance Agreements and
related Collateral Assignments of Split-Dollared Policy with each of Mr.
Goldberg, Mr. Hudson, Mr. Koreyva and Ms. Kramer. Under the terms of such
agreements, the Named Executive Officer owns a life insurance policy, and the
Attorney-in-Fact and the applicable Named Executive Officer share the cost of
such policy's premiums. Upon payment of the proceeds or cash value of each such
policy, the Attorney-in-Fact is entitled to receive the excess of such proceeds
or cash value over the greater of (i) the excess of the proceeds or cash value
of the policy over the sum of total premiums paid by the Attorney-in-Fact, or
(ii) the sum of the applicable Named Executive Officer's premium payments, plus
interest at 5% per annum, compounded annually on the anniversary date of the
applicable policy.

STOCK PURCHASE AND LOAN AGREEMENTS

The MIIX Group is party to separate Stock Purchase and Loan Agreements with
each of Messrs. Goldberg, Koreyva and Hudson (the "Stock Purchase and Loan
Agreements"). The purpose of the Stock Purchase and Loan Agreements is to align
more closely the interests of such officers with the interests of The MIIX
Group's stockholders. Pursuant to such agreements, upon the closing of the
Offering The MIIX Group will loan $1,290,000 to Mr. Goldberg, $550,000 to Mr.
Koreyva and $500,000 to Mr. Hudson. The proceeds of such loans will be used to
purchase unregistered shares of Common Stock from The MIIX Group at the Offering
Price, and the interest rate charged therefor will be the minimum rate necessary
to avoid income imputation under the Code as of the date of the closing of the
Reorganization. Based on an assumed Offering Price of $13.00 per share, Messrs.
Goldberg, Hudson and Koreyva will purchase 99,231, 38,462 and 42,308 shares of
Common Stock, respectively. Although the purchased shares will be pledged to The
MIIX

69
<PAGE> 71

Group to secure the applicable loan, each loan will be made with full recourse
against the applicable executive. Each loan has a five-year term.

DEFERRED COMPENSATION AGREEMENTS

Effective as of December 31, 1998, the Attorney-in-Fact entered into
Deferred Compensation Agreements with each of Mr. Goldberg, Mr. Hudson and Mr.
Koreyva. Pursuant to each such Agreement, the officers may elect to defer
payment of certain compensation. Interest shall be credited monthly to the
deferred amounts equal to the aggregate investment portfolio total rate of
return for the Exchange, or the return associated with other investments as
agreed by the parties. Distributions of benefits shall commence no earlier than
January 15, 2004, but shall be accelerated upon the applicable officer ceasing
to be employed by the Attorney-in-Fact, or upon such officer's death. In the
event of a Change in Control, as defined in the applicable officer's Employment
Agreement with the Attorney-in-Fact and The MIIX Group, a change in the
officer's title or responsibilities, a reduction in the officer's base salary,
or a failure by the Attorney-in-Fact to increase the officer's compensation at a
rate commensurate with that of other key executives of the Attorney-in-Fact, the
Attorney-in-Fact must establish a trust and fund such trust with an amount equal
to the Attorney-in-Fact's obligation to the officer under the Deferred
Compensation Agreement.

COMPENSATION PLANS

Long Term Incentive Equity Plan.

The MIIX Group has adopted, and the Exchange as its sole stockholder has
approved, the 1998 Long Term Incentive Equity Plan (the "Incentive Plan"). Any
officer or key employee of The MIIX Group who is nominated by the Chief
Executive Officer of The MIIX Group and approved by the committee designated by
The MIIX Group's Board of Directors to administer the Plan (the "Committee")
will be eligible to receive awards under the Incentive Plan. Awards under the
Incentive Plan may be in the form of incentive stock options, non-qualified
options, stock appreciation rights ("SARs"), performance shares, restricted
stock, dividend equivalents or any combination thereof.

A maximum of 2,250,000 shares of Common Stock will be available for awards
during the term of the Incentive Plan. The maximum number of shares of Common
Stock that may be awarded to any employee under the Incentive Plan during any
calendar year shall not exceed 250,000. These limitations may be adjusted in the
event of a stock split, recapitalization, merger or similar event.

The price per share at which Common Stock may be purchased upon exercise of
an option granted under the Incentive Plan shall not be less than the fair
market value of a share of Common Stock on the date of grant. In the case of an
incentive stock option granted to a person owning more than 10% of the combined
voting power of all classes of stock of The MIIX Group (a "Ten Percent
Stockholder"), the option price per share shall not be less than 110% of the
fair market value of a share of Common Stock on the date of grant. An employee
who has been granted options may, at the discretion of the Committee, be
credited as of dividend payment dates that occur during the option period with
dividend equivalents that may be converted into Common Stock or cash at such
time and subject to such limitations as may be determined by the Committee. The
Committee shall specify when an option may be exercised, but the term shall in
no event be greater than 10 years (five years in the case of a Ten Percent
Stockholder). The Committee shall specify the option price and other conditions
of exercise. The Company anticipates that the exercise price of the options will
be the fair market value of a share of Common Stock on the date of grant, or
110% of such fair market value in the case of a Ten Percent Stockholder. In
general, options granted pursuant to the Incentive Plan terminate upon the
earliest to occur of (i) the full exercise of the option, (ii) the expiration of
the option by its terms or (iii) no more than five years (three months for
incentive stock options) after termination of the option holder's employment
with The MIIX Group.

An SAR must be granted in tandem with all or a portion of a related option.
An SAR may be granted either at the time of the grant of the option or at a
later time during the term of the option and shall be exercisable only to the
extent that the underlying option is exercisable. The base price of an SAR shall
be the option price under the related option. An SAR shall entitle the employee
to surrender unexercised the related

70
<PAGE> 72

option (or any portion of such option) and to receive a payment equal to the
excess of the fair market value of the shares of Common Stock covered by the SAR
on the date of exercise over the base price of the SAR. Such payment may be in
cash, in shares of Common Stock, in shares of restricted stock, or any
combination thereof, as the Committee shall determine. Upon exercise of an SAR,
the related option shall be canceled automatically to the extent of the number
of shares of Common Stock covered by such exercise, and such shares shall no
longer be available for purchase under the option. Conversely, if the related
option is exercised as to some or all of the shares of Common Stock covered by
the grant, the related SAR, if any, shall be canceled automatically to the
extent of the number of shares of Common Stock covered by the option exercise.
As a general matter, SARs are governed by the same rules regarding term and
termination as stock options.

An award of restricted stock is a grant by The MIIX Group of a specified
number of shares of Common Stock that are subject to forfeiture upon the
happening of specified events. The Committee may establish the terms of a
restricted stock award. Under certain conditions to be determined by the
Committee, restricted stock is subject to forfeiture upon termination of an
employee's employment.

The Committee may also grant performance awards, which are conditional
grants of Common Stock or cash which vest upon the attainment of certain goals.
An employee who has been granted performance awards may, at the discretion of
the Committee, be credited as of dividend payment dates that occur during the
performance period with dividend equivalents that may be converted into Common
Stock or cash at such time and subject to such limitations as may be determined
by the Committee. Under certain conditions to be determined by the Committee,
performance awards are subject to forfeit upon termination of an employee's
employment.

Upon a change of control of The MIIX Group, unless The MIIX Group Board
determines that awards may be assumed by the successor corporation, (i) at the
discretion of The MIIX Group Board either all options shall become immediately
exercisable or shall be canceled in exchange for a cash payment equal to the
excess of the fair market value of the underlying common stock over the exercise
price of the option and (ii) all restricted stock and performance awards shall
become nonforfeitable and immediately payable in cash.

401(k) Plan. Following the Reorganization, The MIIX Group will assume the
401(k) Plan from the Attorney-in-Fact. The 401(k) Plan offers eligible employees
of the Company an opportunity to contribute to the 401(k) Plan on a regular
basis through payroll deductions in amounts equal to but not greater than 15% of
their compensation. The 401(k) Plan's benefits are based on amounts contributed
and individual account investment performance. All employees of the Company who
are over age 21 years and have completed six months of service with the Company
are eligible to participate in the 401(k) Plan.

The Company matches 50% of an employee's contribution to the 401(k) Plan up
to 6% of such employee's compensation. The amount of matching contributions made
by the Company for the fiscal years ended December 31, 1998, 1997 and 1996 were
$322,324, $258,324 and $256,291, respectively. In addition, the Company may make
discretionary contributions to the 401(k) Plan to be allocated among the
employees' accounts on the basis of their relative levels of compensation.

Pension Benefits. Following the Reorganization, The MIIX Group will assume
from the Attorney-in-Fact a retirement plan (the "Retirement Plan") that
provides pensions for substantially all employees of the Company. The Retirement
Plan is an employee non-contributory, tax-qualified defined benefit plan that
provides each covered employee with a basic annual benefit at normal retirement
(age 65) equal to 1.5% of the employee's highest five year average basic
compensation, plus .59% of such average compensation in excess of $10,000, times
years of service (subject to applicable law limitations on the amount of
earnings which may be considered for benefit accrual purposes under tax
qualified plans) with the Company. Covered employees attaining age 21 and having
completed one year of service are eligible to participate in the Retirement
Plan.

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<PAGE> 73

The following table sets forth the estimated maximum annual benefits
payable under the Retirement Plan to a Company officer or employee retiring at
age 65 with the specified combination of final average compensation and years of
credited service:

ESTIMATED ANNUAL BENEFIT YEARS OF CREDITED SERVICE AT AGE 65

<TABLE>
<CAPTION>
AVERAGE
COMPENSATION 10 15 20 25 30 35 40
- ------------ ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000 $25,535 $38,303 $51,070 $63,838 $76,605 $ 89,373 $ 98,748
150,000 30,760 46,140 61,520 76,900 92,280 107,660 118,910
160,000+* 32,850 49,275 65,700 82,125 98,550 114,975 126,975
</TABLE>

- ---------------
* The Internal Revenue Code does not permit more than $160,000 in annual
compensation to count towards the determination of benefits under the pension
plan.

The amounts shown in the table are straight life annuities payable under
the Retirement Plan without reduction for the joint and survivor annuity.
Retirement benefits listed in the table are not subject to any deduction for
Social Security benefits.

The earnings subject to the retirement plans for each of the executive
officers in the Summary Compensation Table is determined from the compensation
amounts shown under "Salary," but not the amounts shown under "Bonus." As of
December 31, 1998, the years of service of Mr. Goldberg, Mr. Hudson, Mr.
Koreyva, Mr. Gergasko, Ms. Kramer and Mr. Wade are nine years, five years, eight
years, eight months, nine years, and two years, respectively.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Attorney-in-Fact leases 49,000 square feet for its home office and
Mid-Atlantic Region office from the Medical Society pursuant to a lease
agreement dated June 29, 1981 and extended on June 26, 1998. Annual lease
payments are approximately $770,000. The Company held a note receivable of $2.8
million and $3.0 million, included in other assets, at December 31, 1998 and
1997, respectively, from the Medical Society, collateralized by the building in
which the Company maintains its home office. The note provides for monthly
payments of $40,000, which includes interest at 9.05% until September 1, 2004
and reduced payments thereafter until June 1, 2009. Vincent A. Maressa, a
director of the Medical Society, is a director of The MIIX Group.

In addition to the lease mentioned above, the Attorney-in-Fact leases space
pursuant to a lease guaranteed by the Exchange. Such lease expires in May 2001,
with total minimum lease payments remaining of $1.3 million as of December 31,
1998. The Exchange has extended a line of credit to an Attorney-in-Fact
subsidiary in an amount up to $5.0 million, none of which was outstanding as of
December 31, 1998. The Exchange guarantees a bank loan on behalf of the
Attorney-in-Fact, which had an outstanding balance of $0.8 million at December
31, 1998. Mr. Goldberg, the Chief Executive Officer and a director of The MIIX
Group, is a director, the Chief Executive Officer and the President of the
Attorney-in-Fact.

A majority of the members of The MIIX Group Board are also policyholders
and Distributees. Such directors may experience claims requiring coverage under
their respective policies with the Company.

Mr. Goldberg is the Chief Executive Officer of AMM. The Attorney-in-Fact
manages the business of AMM. In 1998, AMM paid the Attorney-in-Fact $234,078 for
such management services.

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<PAGE> 74

OWNERSHIP OF COMMON STOCK

The following table sets forth certain information regarding beneficial
ownership of Common Stock as of the closing of the Reorganization and the
Offering (assuming an Offering Price of $13.00 per share) by (i) each person who
will own beneficially more than 5% of the outstanding shares of Common Stock,
(ii) each executive officer named in the Summary Compensation Table and each
director of The MIIX Group and (iii) all directors and executive officers of The
MIIX Group as a group. This table does not include any shares which any director
or executive officer may purchase in the Offering. Except as noted below, each
holder listed below will have sole investment and voting power with respect to
the shares beneficially owned by the holder.

<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE
BENEFICIALLY PERCENT
ACQUIRED IN THE OF
NAME REORGANIZATION OTHER CLASS
- ---- ---------------- -------- -------
<S> <C> <C> <C>
Daniel Goldberg......................................... 0 142,981(1) --
Joseph J. Hudson........................................ 0 53,462(2) --
Kenneth Koreyva......................................... 0 62,308(3) --
Richard J. Gergasko..................................... 0 1,250(4) *
Lisa Kramer............................................. 0 2,500(5) *
Ronald Wade............................................. 0 1,250(6) *
Angelo S. Agro, M.D. ................................... 2,103 0 *
Hillel M. Ben-Asher, M.D. .............................. 980 0 *
Harry M. Carnes, M.D. .................................. 586 0 *
Andrew Coronato, M.D. .................................. 1,427 0 *
Palma E. Formica, M.D. ................................. 405 0 *
John S. Garra, M.D. .................................... 4,093 0 *
Paul J. Hirsch, M.D. ................................... 3,256 0 *
Louis L. Keeler, M.D. .................................. 1,986 0 *
Henry R. Liss, M.D. .................................... 359 0 *
Arganey Lucas, Jr., M.D. ............................... 766 0 *
S. Stuart Mally, M.D. .................................. 1,727 0 *
Vincent A. Maressa, Esq. ............................... 0 0 *
Murray N. Matez, D.O. .................................. 616 0 *
Robert S. Maurer, D.O. ................................. 95 0 *
A. Richard Miskoff, D.O. ............................... 589 0 *
Charles J. Moloney, M.D. ............................... 588 0 *
Eileen Marie Moynihan, M.D. ............................ 815 0 *
Fred M. Palace, M.D. ................................... 1,291 0 *
John J. Pastore, M.D. .................................. 803 0 *
Pascal A. Pironti, M.D. ................................ 1,758 0 *
Carl Restivo, Jr., M.D. ................................ 451 0 *
Joseph A. Riggs, M.D. .................................. 562 0 *
Bernard Robins, M.D. ................................... 745 0 *
Herman M. Robinson, M.D. ............................... 1,227 0 *
Gabriel F. Sciallis, M.D. .............................. 703 0 *
Benjamin I. Smolenski, M.D. ............................ 3,207 0 *
Martin L. Sorger, M.D. ................................. 3,468 0 *
</TABLE>

73
<PAGE> 75

<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE
BENEFICIALLY PERCENT
ACQUIRED IN THE OF
NAME REORGANIZATION OTHER CLASS
- ---- ---------------- -------- -------
<S> <C> <C> <C>
Bessie M. Sullivan, M.D. ............................... 1,117 0 *
Harvey P. Yeager, M.D. ................................. 2,287 0 *
All directors and executive officers as a group (35
persons).............................................. 38,010 263,751 1.9%
</TABLE>

- ---------------
* Less than 1%

1. On the Closing Date, Mr. Goldberg will be granted options to purchase 175,000
shares of Common Stock, of which 43,750 options will be immediately
exercisable. In addition, if the Offering is consummated simultaneously with
the Reorganization, Mr. Goldberg will purchase $1,290,000 worth of Common
Stock pursuant to a Stock Purchase and Loan Agreement. See
"Management -- Stock Purchase and Loan Agreements." Based on an assumed
Offering Price of $13.00 per share, Mr. Goldberg will purchase approximately
99,231 shares of Common Stock pursuant to such agreement.

2. On the Closing Date, Mr. Hudson will be granted options to purchase 60,000
shares of Common Stock, of which 15,000 options will be immediately
exercisable. In addition, if the Offering is consummated simultaneously with
the Reorganization, Mr. Hudson will purchase $500,000 worth of Common Stock
pursuant to a Stock Purchase and Loan Agreement. Based on an assumed Offering
Price of $13.00 per share, Mr. Hudson will purchase approximately 38,462
shares of Common Stock pursuant to such agreement. See "Management -- Stock
Purchase and Loan Agreements."

3. On the Closing Date, Mr. Koreyva will be granted options to purchase 80,000
shares of Common Stock, of which 20,000 options will be immediately
exercisable. In addition, if the Offering is consummated simultaneously with
the Reorganization, Mr. Koreyva will purchase $550,000 worth of Common Stock
pursuant to a Stock Purchase and Loan Agreement. Based on an assumed Offering
Price of $13.00 per share, Mr. Koreyva will purchase approximately 42,308
shares of Common Stock pursuant to such agreements. See "Management -- Stock
Purchase and Loan Agreements."

4. On the Closing Date, Mr. Gergasko will be granted options to purchase 5,000
shares of Common Stock, of which 1,250 options will be immediately
exercisable.

5. On the Closing Date, Ms. Kramer will be granted options to purchase 10,000
shares of Common Stock, of which 2,500 options will be immediately
exercisable.

6. On the Closing Date, Mr. Wade will be granted options to purchase 5,000
shares of Common Stock, of which 1,250 options will be immediately
exercisable.

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<PAGE> 76

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of The MIIX Group as of the completion of the
Reorganization will consist of 100,000,000 shares of Common Stock, $.01 par
value, and 50,000,000 shares of Preferred Stock, $.01 par value. Upon completion
of the Reorganization and the Offering, there will be approximately 15,926,155
shares (16,376,155 shares if a 15% Underwriters' over-allotment option is
granted and exercised in full) of Common Stock issued and outstanding and no
shares of Preferred Stock issued and outstanding.

The following description of the capital stock of The MIIX Group does not
purport to be complete or to give full effect to Delaware statutory or common
law and is, in all respects, qualified by reference to the applicable provisions
of the DGCL, the Restated Certificate of Incorporation of The MIIX Group (the
"Certificate") and The MIIX Group By-laws (the "By-laws").

COMMON STOCK

Holders of Common Stock are entitled to such dividends and other
distributions as The MIIX Group Board may declare from funds legally available
therefor, subject to the preferential rights of Preferred Stock, if any, and the
requirements of applicable law. Holders of Common Stock are entitled to one vote
per share on any matter subject to stockholder approval, including the election
of directors. The Certificate does not provide for cumulative voting in
connection with the election of directors. No holder of Common Stock will have
any preemptive right to subscribe for any shares of capital stock issued in the
future. The rights, preferences and powers of holders of Common Stock are
subject to the rights of the holders of any series of preferred stock that The
MIIX Group may issue in the future.

Upon any voluntary or involuntary liquidation, dissolution, or winding up
of the affairs of The MIIX Group, the holders of Common Stock are entitled to
share ratably in any distribution of The MIIX Group's net assets remaining after
payment of creditors and subject to preferential rights of the holders of
Preferred Stock, if any. All of the outstanding shares of Common Stock are, and
the shares offered by The MIIX Group will be, fully paid and non-assessable.

PREFERRED STOCK

Pursuant to the Certificate, The MIIX Group Board may by resolution
establish one or more classes or series of Preferred Stock having such number of
shares and relative voting rights, designation, dividend rates, liquidation, and
other rights, preferences, and limitations as may be fixed by The MIIX Group
Board without further stockholder approval. Preferred Stock may be entitled to
preferences over Common Stock with respect to dividends, liquidation,
dissolution, or winding up of The MIIX Group in such amounts as are established
by The MIIX Group Board resolutions issuing such shares. Preferred Stock may
also enjoy redemption or sinking fund rights or voting rights (including the
right to vote as a class with respect to the election of directors, major
corporate transactions, or otherwise) that may limit, qualify, or otherwise
adversely affect the voting rights of the Common Stock.

Such rights, preferences, privileges, and limitations as may be established
for the Preferred Stock could also have the effect of delaying, deferring, or
preventing a change in control of The MIIX Group, making removal of the present
management of The MIIX Group more difficult, restricting the payment of
dividends and other distributions to the holders of Common Stock, diluting the
voting power of the Common Stock to the extent that the Preferred Stock has
voting rights, or diluting the equity interests of the Common Stock to the
extent that the Preferred Stock is convertible into Common Stock. Accordingly,
the issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the stockholders of The MIIX Group. See
"-- Delaware Law and Certain Charter and By-law Provisions."

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DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The following is a description of certain provisions of the DGCL, the
Certificate, and the By-laws. This summary does not purport to be complete and
is qualified in its entirety by reference to the DGCL, the Certificate, and the
By-laws.

The MIIX Group is subject to the provisions of Section 203 of the DGCL.
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless the business combination is approved
in a prescribed manner. A "business combination" includes certain mergers, asset
sales, and other transactions resulting in a financial benefit to the
"interested stockholder." Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the past three years did own, 15% of the corporation's voting stock.

Certain provisions of the Certificate and the By-laws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the policies formulated by The
MIIX Group Board. In addition, these provisions also are intended to ensure that
The MIIX Group Board will have sufficient time to act in a manner that The MIIX
Group Board believes to be in the best interests of The MIIX Group and its
stockholders. These provisions also are designed to reduce the vulnerability of
The MIIX Group to an unsolicited proposal for a takeover of The MIIX Group that
does not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of The MIIX
Group. The provisions are also intended to discourage certain tactics that may
be used in proxy fights. These provisions, however, could delay or frustrate the
removal of incumbent directors or the assumption of control of The MIIX Group by
the holder of a large block of Common Stock and could also discourage or make
more difficult a merger, tender offer, or proxy contest, even if such event
would be favorable to the interest of stockholders.

Classified Board of Directors. The Certificate provides for The MIIX Group
Board to be divided into three classes of directors, with each class as nearly
equal in number as possible, serving staggered three-year terms (other than
directors which may be elected by holders of Preferred Stock). As a result,
approximately one-third of The MIIX Group Board will be elected each year. The
classified board provision will help to assure the continuity and stability of
The MIIX Group Board and the business strategies and policies of The MIIX Group
as determined by The MIIX Group Board. The classified board provision could have
the effect of discouraging a third party from making an unsolicited tender offer
or otherwise attempting to obtain control of The MIIX Group without the approval
of the Board. In addition, the classified board provision could delay
stockholders who do not like the policies of The MIIX Group Board from electing
a majority of The MIIX Group Board for two years.

No Stockholder Action by Written Consent; Special Meetings. The
Certificate provides that stockholder action can only be taken at an annual or
special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The By-laws provide that special meetings of
stockholders may be called only by The MIIX Group Board, the Chief Executive
Officer (or in the event of his or her absence or disability, by any Vice
President) of The MIIX Group or the Chairman or Vice Chairman of The MIIX Group
Board. Stockholders are not permitted to call a special meeting of stockholders
or to require that The MIIX Group Board call a special meeting.

Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The By-laws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of The MIIX Group (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that
only persons who are nominated by, or at the direction of, The MIIX Group Board
or its Chairman, or by a stockholder who has given timely written notice to the
Secretary of The MIIX Group prior to the meeting at which directors are to be
elected, will be eligible for election as directors of The MIIX Group. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, The MIIX Group Board or its Chairman or by a stockholder who has
given timely written notice

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to the Secretary of The MIIX Group of such stockholder's intention to bring such
business before such meeting. Under the Stockholder Notice Procedure, if a
stockholder desires to submit a proposal or nominate persons for election as
directors at an annual meeting, the stockholder must submit written notice to
The MIIX Group not less than 90 days nor more than 120 days prior to the first
anniversary of the previous year's annual meeting. In the event that the date of
the annual meeting is advanced by more than 20 days or delayed by more than 70
days from such anniversary date, however, the By-laws provide additional time
for notice. In addition, under the Stockholder Notice Procedure, a stockholder's
notice to The MIIX Group proposing to nominate a person for election as a
director or relating to the conduct of business other than the nomination of
directors must contain certain specified information. If the chairman of a
meeting determines that business was not properly brought before the meeting, in
accordance with the Stockholder Notice Procedure, such business shall not be
discussed or transacted.

Number of Directors; Removal; Filling Vacancies. The Certificate and the
By-laws provide that The MIIX Group Board will consist of not less than 9 and
not more than 35 members (other than directors elected by holders of Preferred
Stock), the exact number to be fixed from time to time by resolution adopted by
the directors of The MIIX Group. The MIIX Group Board currently consists of 30
directors. Furthermore, subject to the rights of the holders of any series of
Preferred Stock, if any, the Certificate and By-laws authorize The MIIX Group
Board to elect additional directors under specified circumstances and fill any
vacancies that occur by reason of death, resignation, removal, or otherwise. A
director so elected by The MIIX Group Board to fill a vacancy or a newly created
directorship holds office until his successor is elected and qualified or until
his or her earlier death, resignation or removal. Subject to the rights of the
holders of any series of Preferred Stock, if any, the Certificate and the
By-laws also provide that directors may be removed only for cause and only by
the affirmative vote of holders of a majority of the combined voting power of
the then outstanding stock of The MIIX Group entitled to vote generally in the
election of directors. The effect of these provisions is to preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of The MIIX Group Board by filling the vacancies created by such
removal with its own nominees.

By-laws. The Certificate provides that the By-laws are subject to
adoption, amendment, alteration, repeal, or rescission either by (i) The MIIX
Group Board without the assent or vote of the stockholders or (ii) the
affirmative vote of the holders of not less than two-thirds of the combined
voting power of the outstanding shares entitled to vote generally in the
election of directors. This provision makes it more difficult for stockholders
to make changes in the By-laws by allowing the holders of a minority of the
voting securities to prevent the holders of a majority of voting securities from
amending the By-laws.

Indemnification and Limitations on Liability. The DGCL permits a Delaware
corporation to include in its charter and bylaws certain provisions to eliminate
the personal liability of directors for monetary damages and to indemnify its
directors and officers. The By-laws provide that subject to certain exceptions
in the case of actions by or in the right of The MIIX Group, The MIIX Group
shall indemnify its directors and officers, and may indemnify its agents and
employees, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her,
incurred by reason of the fact that such person was serving as a director,
officer, employee or agent of The MIIX Group, so long as such person acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interest of The MIIX Group, and, with respect to any criminal action, so
long as the indemnified party had no reason to believe that his or her conduct
was unlawful. The Certificate provides that directors shall not be liable to The
MIIX Group or The MIIX Group's stockholders for monetary damages for breach of
his or her fiduciary duty as a director, except that liability may not be
eliminated (i) for any breach of such person's duty of loyalty, (ii) for acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction in which such person received an improper personal benefit. Section
145 (a) of the DGCL provides that a corporation may indemnify a director,
officer, employee, or agent if such person acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe the conduct was unlawful. In addition, effective upon
consummation of the

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Reorganization, The MIIX Group will enter into indemnification agreements with
each of its directors and certain of its executive officers that generally
provide for similar indemnification.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is First
Chicago Trust Company of New York.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Reorganization and the Offering, The MIIX Group will
have approximately 15,926,155 shares (or approximately 16,376,155 shares if the
Underwriters' over-allotment option is granted and exercised in full) of Common
Stock issued and outstanding. All such shares of Common Stock will be freely
tradable without restriction or further registration under the Securities Act,
except for the shares issued to the Medical Society pursuant to the
Reorganization, and the directors and officers of the Company and other
affiliates of the Company. It is expected that the Company, and The MIIX Group
Board and executive officers, will enter into an agreement with the Underwriters
not to offer, sell, or otherwise dispose of any equity securities of the Company
for 180 days after the date of this Prospectus without the prior written consent
of First Union Capital Markets Corp.

In general, Rule 144 of the Securities Act ("Rule 144"), as currently in
effect, provides that an "affiliate" (as defined in Rule 144) is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of (i) the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the sale or (ii) 1% of the shares of Common Stock
then outstanding. Sales under Rule 144 are subject to certain holding periods,
manner of sale restrictions, notice requirements, and availability of current
public information concerning The MIIX Group.

Prior to the Reorganization and the Offering, there has been no public
market for the Common Stock and no prediction can be made as to the effect, if
any, that the sale or availability for sale of shares of Common Stock will have
on the market price of the Common Stock. Sales of substantial amounts of such
shares in the public market could adversely affect the market price of the
Common Stock.

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UNDERWRITING

Subject to the terms and conditions stated in the Underwriting Agreement,
each of the Underwriters named below, for whom First Union Capital Markets Corp.
is acting as the representative (the "Representative"), has agreed to purchase,
and The MIIX Group has agreed to sell, to each such Underwriter the number of
Shares set forth opposite the name of such Underwriter.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
------------ ----------------
<S> <C>
First Union Capital Markets Corp. ..........................
Friedman, Billings, Ramsey & Co., Inc. .....................
McDonald Investments Inc....................................
Hoefer & Arnett Incorporated................................

Total............................................. ,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Shares are subject to approval of certain legal
matters by counsel and to certain other conditions. The Underwriters are
obligated to purchase all the Shares (other than those covered by the
over-allotment option described below) if any of the Shares are purchased. In
the event of default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, the purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.

The Underwriters propose to offer part of the Shares directly to the public
at the Offering Price set forth on the cover page of this Prospectus and part of
the Shares to certain dealers at such price less a concession not in excess of
per share. The Underwriters may allow, and such selected dealers may
reallow, a concession not in excess of per share to certain brokers and
dealers. After the initial public offering of the Shares to the public, the
offering price to public, concessions and reallowance may be changed by the
Representative.

The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

The MIIX Group has granted to the Underwriters an option, exercisable
during the 30 day period after the date of this Prospectus, to purchase up to
450,000 additional Shares to cover over-allotments, if any, at the Offering
Price less the underwriting discount set forth on the cover of the Prospectus.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the Offering of Shares. To the
extent that the Underwriters exercise such option, each Underwriter will be
obligated, subject to certain conditions, to purchase such additional Shares in
approximately the same proportion as set forth in the above table.

The MIIX Group and the Company's officers and directors have agreed that,
for a period of 180 days from the date of this Prospectus, they will not,
without the prior written consent of the Representative, offer, sell, contract
to sell, or announce the offering of, or register, cause to be registered or
announce the registration or intended registration of, any shares of Common
Stock or any securities convertible into, or exercisable or exchangeable for,
Common Stock. The Representative, in its sole discretion, may release any of the
shares of Common Stock subject to these agreements at any time without notice.

The Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "MHU."

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<PAGE> 81

The Underwriting Agreement provides that The MIIX Group, the Exchange and
MIIX Insurance will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the Offering Price has been determined through negotiations
between The MIIX Group and the Representatives and was based on, among other
things, prevailing market conditions, the Company's financial and operating
history and condition, the prospects of the Company and its industry in general,
the management of the Company and the market prices of securities of companies
engaged in businesses similar to those of the Company. There can, however, be no
assurance that the prices at which the Shares will sell in the public market
after the Offering will not be lower than the price at which they are sold by
the Underwriters.

In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M of the Exchange Act, pursuant to which such
persons may bid for or purchase Common Stock for the purpose of stabilizing its
market price. The Underwriters also may create a short position for the account
of the Underwriters by selling more Common Stock in connection with this
Offering than they are committed to purchase from the Company and in such case
may purchase Common Stock in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters may
also cover all or a portion of such short position by exercising their
over-allotment options. In addition, the Representative may impose penalty bids
under contractual arrangements with the Underwriters whereby it may reclaim from
an Underwriter (or dealer participating in the Offering), for the account of the
other Underwriters, the selling concession with respect to the Shares that are
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and if any is undertaken,
it may be discontinued at any time.

First Union National Bank, a subsidiary of First Union Corporation, has a
$7.7 million share in a $22 million credit facility for Hamilton National
Leasing Corporation. First Union Capital Markets Corp. is a subsidiary of First
Union Corporation. In the ordinary course of their respective businesses, the
Underwriters and certain of their respective affiliates may in the future engage
in certain investment and commercial banking or other transactions of a
financial nature with the Company, including the provision of certain advisory
services and the making of loans to the Company.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which are omitted as permitted by
the rules and regulations of the Commission. For further information pertaining
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as part thereof. Statements contained in
this Prospectus regarding the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other documents, each such
statement being qualified in all respects by such reference.

Upon completion of the Offering, the Company will be subject to the
informational requirements of the Exchange Act and in accordance therewith, will
file reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information, as well as the Registration
Statement and the exhibits and schedules thereto, may be inspected, without
charge, at the public reference facility maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.

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20549, and at the Commission's regional offices located at Seven World Trade
Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such materials can also be inspected at a world wide web site maintained
by the Commission at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants (which, after
the Offering, will include the Company) that file electronically with the
Commission. The Company intends to furnish holders of the Common Stock with
annual reports containing financial statements audited by an independent
certified public accounting firm.

LEGAL MATTERS

The validity of the Common Stock to be issued pursuant to the Offering will
be passed upon for the Company by Dechert Price & Rhoads, Princeton, New Jersey,
counsel for the Company. Certain legal matters will be passed upon for the
Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New York.

EXPERTS

The consolidated financial statements and schedule of the Company at
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.

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GLOSSARY OF SELECTED INSURANCE TERMS

ALLOCATED LOSS ADJUSTMENT EXPENSES ("ALAE")

Loss Adjustment Expenses allocated to a specific claim.

A.M. BEST

An independent rating agency that reports on the financial condition of
insurance companies.

ASSUMED PREMIUMS

Premiums arising from reinsurance policies under which the insurer accepts
a portion of the risk insured by another insurer (the ceding company).

CAPACITY

An insurer's ability to provide coverage up to the stated amount of a
policy through the insurer's reinsurance arrangements.

CEDE

To transfer risk and related premium in connection with a reinsurance
transaction.

CLAIMS MADE (REPORTED) BASIS

A liability insurance policy written on a basis that generally insures only
claims that are reported (made) to the insurer during the policy period, or
reported (made) during any extended reporting period provided in the policy or
any endorsement thereto, but only if the claims arise from incidents that
occurred after a retroactive date stated in the policy. A claims made (reported)
policy is to be distinguished from an "occurrence policy."

COMBINED RATIO

The sum of the loss ratio and the expense ratio, expressed as a percentage.
Generally, a combined ratio below 100% indicates an underwriting profit and a
combined ratio above 100% indicates an underwriting loss.

DIRECT PREMIUMS WRITTEN

Total premiums written by an insurer other than premiums for reinsurance
assumed by an insurer.

EXCESS INSURANCE

Insurance which covers the insured only for losses in excess of a stated
amount or a specific primary policy.

EXCESS OF LOSS REINSURANCE

A generic term describing reinsurance that indemnifies the reinsured
against all or a specified portion of losses on underlying insurance policies in
excess of a specified dollar amount, called a "layer" or "retention."

EXPENSE RATIO

Policy acquisition costs and other underwriting expenses, divided by net
premiums earned under GAAP accounting, expressed as a percentage.

GAAP

Generally accepted accounting principles in use throughout the United
States in the preparation of financial statements, including the financial
statements presented in this Prospectus.

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GROSS PREMIUMS WRITTEN

Total of (i) direct premiums written, plus (ii) reinsurance assumed
premiums.

INCURRED BUT NOT REPORTED ("IBNR") RESERVES

The estimated liabilities for future payments of losses and LAE that have
occurred, but have not yet been reported to the insurer.

LOSS ADJUSTMENT EXPENSES ("LAE")

Expenses incurred in the settlement of claims, including outside adjustment
expenses, legal fees, and internal administration costs associated with the
claims adjustment process, but not including general overhead expenses.

LOSS ADJUSTMENT EXPENSE ("LAE") RESERVES

Liabilities established for LAE for existing claims reported and for IBNR.

LOSS RATIO

The ratio of net incurred losses and LAE to net premiums earned. Net
incurred losses include an estimated provision for IBNR.

MODIFIED CLAIMS MADE

A claims made policy called the Permanent Protection Plan ("PPP"), which
includes an automatic reporting endorsement (tail coverage) that is activated
when the policy is terminated for any reason, effectively resulting in
occurrence-like coverage.

NET PREMIUMS WRITTEN

Gross premiums written less premiums ceded.

NOVATION

An agreement of all parties to a contract to substitute a new party and
discharge one of the original parties to the contract.

OCCURRENCE BASIS

A liability insurance policy written on a basis that generally insures
claims that arise from incidents that occurred during the policy period,
irrespective of when the claims are reported.

PERMANENT PROTECTION PLAN ("PPP")

Modified claims made policy which includes an automatic reporting
endorsement (tail coverage) that is activated when the policy is terminated for
any reason, effectively resulting in occurrence-like coverage.

PREMIUMS CEDED

The consideration paid to reinsurers in connection with reinsurance
transactions.

PREMIUMS EARNED

The portion of premiums written applicable to the expired period of
policies and, accordingly, recognized as revenue during a given period.

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QUOTA SHARE BASIS

Reinsurance wherein the insurer cedes an agreed fixed percentage of
liabilities, premiums and losses for each policy covered on a pro rata basis.

REDUNDANCY (DEFICIENCY)

Estimates in reserves change as more information becomes known about the
frequency and severity of claims for each year. A redundancy (deficiency) exists
when the original liability estimate is greater (less) than the reestimated
liability. The cumulative redundancy (deficiency) is the aggregate net change in
estimates over time subsequent to establishing the original liability estimate.

REINSURANCE

A procedure whereby an original insurer cedes a portion of the premium to a
reinsurer as payment for the reinsurer's assumption of a portion of the risk;
referred to as reinsurance ceded by the original insurer and as reinsurance
assumed by the reinsurer.

RESERVES

Liabilities established by insurers to reflect the estimated cost of claims
and the related LAE expenses that the insurer will ultimately be required to pay
in respect of insurance it has written.

RETENTION

The amount or portion of risk that an insurer retains for its own account.
Losses in excess of the retention level are paid by the reinsurer. In quota
share treaties, the retention may be a percentage of the original policy's
limit. In excess of loss reinsurance, the retention is a dollar amount of loss,
a loss ratio or a percentage of loss.

RISK-BASED CAPITAL REQUIREMENTS ("RBC")

Regulatory and rating agency targeted surplus based on the relationship of
statutory surplus, with certain adjustments, to the sum of stated percentages of
each element of a specified list of company risk exposures.

SEVERITY

The average claim cost, statistically determined by dividing dollars of
losses by the number of claims.

STATUTORY ACCOUNTING PRACTICES ("SAP")

The accounting rules and procedures promulgated or permitted by the
National Association of Insurance Commissioners ("NAIC") for financial reporting
by insurers licensed in one or more states of the United States.

STATUTORY SURPLUS

Total assets less total liabilities as determined in accordance with SAP.

TAIL COVERAGE

A provision that offers protection for any incidents that occurred while
insured, even after coverage is discontinued.

UNALLOCATED LOSS ADJUSTMENT EXPENSE ("ULAE")

Loss adjustment expenses not allocated to a specific claim.

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UNDERWRITING

The process whereby an insurer, directly or through its agent, reviews
applications submitted for insurance coverage and determines whether it will
accept all or part of the coverage being requested, and sets the applicable
premium.

UNEARNED PREMIUMS

A reserve account that contains the portion of premium attributable to the
unexpired period of policies that has been written by an insurer but has not
been recognized as net earned premiums and accounted for as revenues.

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GLOSSARY OF REORGANIZATION TERMS

ADOPTION DATE

October 15, 1997, the date that the Board of Governors adopted the Plan of
Reorganization.

ATTORNEY-IN-FACT

New Jersey State Medical Underwriters, Inc., a New Jersey corporation that
is the Exchange's attorney-in-fact.

BOARD OF GOVERNORS

The Board of Governors of the Exchange.

CERTIFICATE OF AUTHORITY

A certificate issued by the Commissioner to the Stock Insurer to do
business for the same lines of insurance currently permitted of the Exchange.

CLOSING DATE

The date on which the closing of the transactions contemplated by the Plan
of Reorganization takes place.

CODE

Internal Revenue Code of 1986, as amended.

COMMISSIONER

The Commissioner of the New Jersey Department, or such governmental
officer, body or authority as may succeed such Commissioner as the primary
regulator of the Company's insurance business under applicable law.

CONVERSION VALUE

Either (i) the price per share at which the Common Stock is offered to the
public in the event an initial public offering is consummated simultaneously
with the Reorganization, or (ii) if no such initial public offering is
consummated simultaneously with the Reorganization, then the economic value of
one share of Common Stock as determined in good faith by the Board of Governors
of the Exchange.

DISTRIBUTEE

A Member or Look-Back Insured.

EARNED PREMIUM

For the applicable period, earned premiums in respect of a Policy.

EFFECTIVE DATE

The date on which the Certificate of Authority issued by the Commissioner
becomes effective, provided that in no event shall the Effective Date be less
than 30 days after the Final Order Date nor more than 18 months after the Final
Order Date, unless such period is extended by the Commissioner. The Plan of
Reorganization shall be deemed to have become effective on the Effective Date at
the time specified in the Certificate of Authority.

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EXCHANGE

The Medical Inter-Insurance Exchange of New Jersey, a New Jersey reciprocal
insurer.

HOLDING COMPANY

The MIIX Group, Incorporated, a newly-formed Delaware corporation that will
be the parent company for all of the MIIX companies upon the consummation of the
Plan of Reorganization.

IN FORCE

A Policy shall be deemed to be In Force as of any date if, as shown on the
Exchange's records, (1)(i) such Policy has been issued and the status of such
Policy has been changed from pending to In Force on the Exchange's records, or
(ii) in the case of an individual Policy, the Exchange's administrative office
has received by such date in respect of such Policy an application, complete on
its face, together with payment of the full initial premium (unless submission
of such premium is precluded by the Exchange's underwriting rules), provided
that any Policy referred to in this clause (ii) is issued as applied for and the
status of such Policy has been changed from pending to In Force on the
Exchange's records within 30 days of such date, and (2) such Policy has not been
surrendered, canceled, or otherwise terminated; provided that a Policy shall be
deemed to be In Force after lapse for nonpayment of premiums until expiration of
any applicable grace period (or other similar period however designated in such
Policy) during which the Policy is in full force for its basic benefits.

INITIAL PUBLIC OFFERING

An initial public offering by the Holding Company of shares of Holding
Company Stock.

INSURANCE SUBSIDIARIES

At all times prior to the Closing Date, LP&C, MIIX New York and
Lawrenceville Re. At all times on or after the Closing Date, MIIX Insurance
Company, MIIX New York, LP&C, and Lawrenceville Re.

LOOK-BACK INSURED

A Person who is not a Member, but who at any time during the three-year
period prior to the Adoption Date was the Named Insured in one or more Policies
issued by the Exchange and who, therefore, was a member of the Exchange during
such period under Article II of the Exchange's Rules & Regulations.

MEMBER

A Person who is the Named Insured in one or more Policies that are In Force
on the Adoption Date and who, therefore, is a member on the Adoption Date under
Article II of the Exchange's Rules & Regulation.

MEMBERS' MEETING

A special meeting of Members held after the Commissioner's approval of the
Plan of Reorganization, at which Members shall be entitled to vote on the
proposal to approve the Plan.

MEMBERSHIP INTERESTS

As of the Effective Date, all the rights or interests of the Members of the
Exchange arising under the Exchange's Rules & Regulations or otherwise by law,
including, but not limited to, any right to vote and any right to a return of
the surplus of the Exchange, which may exist with regard to the surplus of the
Exchange not apportioned or declared prior to the Effective Date by the Board of
Governors for policyholder dividends. For purposes of the Plan of
Reorganization, Membership Interests shall not include any other right expressly
conferred by an insurance policy.

87
<PAGE> 89

NAMED INSURED

The Named Insured in any Policy as of any date shall be determined on the
basis of the Exchange's records as of such date in accordance with the following
provisions: (a) the Named Insured in a Policy shall be as shown on the Policy
Declarations page in the Exchange's records; (b) the Named Insured in a Policy
that is a group insurance policy shall be the Person or Persons specified as
Named Insureds; (c) except as otherwise set forth here, the identity of the
Named Insured of a Policy shall be determined without giving effect to any
interest of any other Person in such Policy; (d) in any situation not expressly
covered by the foregoing provisions, the first Named Insured, as reflected on
the records of, and as determined in good faith by, the Exchange, shall
conclusively be presumed to be the Named Insured in such Policy, provided such
Named Insured is a Person, and the Exchange shall not be required to examine or
consider any other facts or circumstances; (e) any dispute as to the identity of
the Named Insured in a Policy or the right to vote or receive consideration
shall be resolved in accordance with the foregoing and such other procedures as
may be acceptable to the Commissioner.

NEW JERSEY DEPARTMENT

The Department of Banking and Insurance of the State of New Jersey.

PERSON

A natural person. A Person who is the Named Insured of Policies in more
than one legal capacity (e.g., a trustee under separate trusts) shall be deemed
to be a separate Person in each such capacity.

PLAN OF REORGANIZATION

The Plan of Reorganization, including all Exhibits thereto.

POLICY

Each insurance policy duly issued by the Exchange.

REORGANIZATION

The reorganization of the Exchange as a stock insurer pursuant to, and the
related transactions contemplated by, the Plan of Reorganization.

REORGANIZATION SHARES

The 12,000,000 shares of Common Stock that may be allocated among
Distributees in the Reorganization.

STOCK INSURER

MIIX Insurance, a newly-incorporated New Jersey domestic stock insurer that
is a wholly-owned subsidiary of the Holding Company and is the successor to the
Exchange.

88
<PAGE> 90

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Equity for the three years ended
December 31, 1998......................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Schedule I -- Summary of Investments -- Other than
Investments in Related Parties............................ F-21
</TABLE>

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

F-1
<PAGE> 91

REPORT OF INDEPENDENT AUDITORS

Board of Governors
Medical Inter-Insurance Exchange

We have audited the accompanying consolidated balance sheets as of December
31, 1998 and 1997, of Medical Inter-Insurance Exchange and subsidiaries and the
related consolidated statements of income, equity, and cash flows for each of
the three years in the period ended December 31, 1998. Our audits also included
the financial statement schedule listed in the Index at page F-1. These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of the Medical
Inter-Insurance Exchange and subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.

ERNST & YOUNG LLP

New York, New York
March 24, 1999

F-2
<PAGE> 92

MEDICAL INTER-INSURANCE EXCHANGE

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Securities available-for-sale:
Fixed-maturity investments, at fair value (amortized cost:
1998 -- $1,041,192; 1997 -- $832,822).................. $1,057,739 $ 852,746
Equity investments, at fair value (cost: 1998 -- $3,159;
1997 -- $66,520)....................................... 3,159 89,080
Short-term investments, at cost which approximates fair
value.................................................. 104,800 85,145
---------- ----------
Total investments................................. 1,165,698 1,026,971
Cash........................................................ 1,408 4,877
Accrued investment income................................... 13,563 10,324
Premium receivable, net..................................... 23,876 4,817
Reinsurance recoverable on unpaid losses.................... 325,795 270,731
Prepaid reinsurance premiums................................ 26,921 19,814
Reinsurance recoverable on paid losses, net................. 724 2,692
Deferred policy acquisition costs........................... 2,810 100
Due from Attorney-in-Fact................................... 3,949 13,347
Deferred income taxes....................................... 34,731 17,696
Other assets................................................ 74,787 75,190
---------- ----------
Total assets...................................... $1,674,262 $1,446,559
========== ==========

LIABILITIES AND EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses.................. $ 951,659 $ 876,721
Unearned premiums........................................... 54,139 20,886
Premium deposits............................................ 28,392 21,024
Funds held under reinsurance treaties....................... 228,148 182,590
Payable for securities...................................... 34,115 229
Other liabilities........................................... 54,966 35,135
---------- ----------
Total liabilities................................. $1,351,419 $1,136,585
---------- ----------
Commitments and contingencies (Notes 5 and 8)
EQUITY
Surplus..................................................... 312,087 282,359
Accumulated other comprehensive income...................... 10,756 27,615
---------- ----------
Total equity...................................... 322,843 309,974
---------- ----------
Total liabilities and equity...................... $1,674,262 $1,446,559
========== ==========
</TABLE>

See accompanying notes
F-3
<PAGE> 93

MEDICAL INTER-INSURANCE EXCHANGE

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Net premiums earned........................................ $162,501 $123,330 $107,887
Net investment income...................................... 65,107 53,892 49,135
Realized investment gains, net............................. 36,390 10,296 5,832
Other revenue.............................................. 891 2,884 3,164
-------- -------- --------
Total revenues................................... 264,889 190,402 166,018
EXPENSES
Losses and loss adjustment expenses........................ 155,868 120,496 110,593
Underwriting expenses...................................... 42,063 25,415 17,553
Funds held charges......................................... 13,420 13,361 10,273
Impairment of capitalized system development costs......... 12,656 -- --
-------- -------- --------
Total expenses................................... 224,007 159,272 138,419
Income before income taxes................................. 40,882 31,130 27,599
Provision for income taxes................................. 11,154 2,006 10,004
-------- -------- --------
Net income................................................. $ 29,728 $ 29,124 $ 17,595
======== ======== ========
Earnings per share (pro forma unaudited)................... $ 1.97
========
</TABLE>

See accompanying notes
F-4
<PAGE> 94

MEDICAL INTER-INSURANCE EXCHANGE

CONSOLIDATED STATEMENTS OF EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
SURPLUS INCOME TOTAL EQUITY
-------- ------------- ------------
<S> <C> <C> <C>
Balance at January 1, 1996............................. $235,640 $ 18,991 $254,631
Net income........................................... 17,595 17,595
Other comprehensive income, net of tax:
Unrealized depreciation on securities
available-for-sale, net of deferred taxes......... (9,914) (9,914)
-------- -------- --------
Balance at December 31, 1996........................... 253,235 9,077 262,312
Net income........................................... 29,124 29,124
Other comprehensive income, net of tax:
Unrealized appreciation of securities
available-for-sale, net of deferred tax........... 18,538 18,538
-------- -------- --------
Balance at December 31, 1997........................... 282,359 27,615 309,974
Net income........................................... 29,728 29,728
Other comprehensive income, net of tax:
Unrealized depreciation on securities
available-for-sale, net of deferred tax........... (16,859) (16,859)
-------- -------- --------
Balance at December 31, 1998........................... $312,087 $ 10,756 $322,843
======== ======== ========
</TABLE>

See accompanying notes
F-5
<PAGE> 95

MEDICAL INTER-INSURANCE EXCHANGE

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 29,728 $ 29,124 $ 17,595
Adjustments to reconcile net income to net cash
provided by operating activities:
Unpaid losses and loss adjustment expenses......... 74,938 81,272 46,789
Unearned premiums.................................. 33,253 12,588 1,883
Premium deposits................................... 7,368 (16,224) (3,873)
Premium receivable, net............................ (19,059) (271) (751)
Reinsurance balances, net.......................... (14,645) (14,649) (20,326)
Deferred policy acquisition costs.................. (2,710) 351 (451)
Realized gains..................................... (36,390) (10,296) (5,832)
Depreciation, accretion and amortization........... (980) (1,029) 976
Deferred income tax provision...................... (7,957) (1,417) 776
Due from Attorney-in-Fact.......................... (3,258) (3,687) (2,307)
Impairment of capitalized system development
costs............................................ 12,656 -- --
Accrued investment income.......................... (3,239) (142) 2,159
Other assets....................................... 578 (9,185) (2,101)
Other liabilities.................................. 19,831 (2,461) 8,667
--------- --------- ---------
Net cash provided by operating activities............. 90,114 63,974 43,204
========= ========= =========
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed-maturity investment sales......... 664,988 228,005 606,172
Proceeds from fixed-maturity investments matured,
called, or prepaid................................. 112,473 120,034 97,325
Proceeds from equity investment sales, net of equity
collar expiration.................................. 91,789 24,249 3,386
Cost of investments acquired.......................... (976,889) (444,168) (704,486)
Change in short-term investments, net................. (19,655) 1,085 (33,979)
Payable for securities................................ 33,886 229 --
Acquisition of goodwill............................... (175) -- (1,700)
--------- --------- ---------
Net cash used in investing activities................. (93,583) (70,566) (33,282)

CASH FLOWS FROM FINANCING ACTIVITIES
Subordinated loan certificates redeemed............... -- -- (248)
--------- --------- ---------
Net cash used in financing activities................. -- -- (248)
Net change in cash.................................... (3,469) (6,592) 9,674
Cash at beginning of year............................. 4,877 11,469 1,795
--------- --------- ---------
Cash at end of year................................... $ 1,408 $ 4,877 $ 11,469
========= ========= =========
</TABLE>

See accompanying notes
F-6
<PAGE> 96

MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND RELATED MATTERS

The Medical Inter-Insurance Exchange ("The Exchange") was organized as a
New Jersey reciprocal insurance exchange in 1977. A New Jersey reciprocal
insurance exchange is an entity that may be formed by persons seeking a
particular type of insurance coverage. In the case of the Exchange, medical and
osteopathic physicians formed the Exchange to provide medical malpractice
insurance. Under New Jersey law, the business of a reciprocal insurance exchange
must be conducted by a separate entity acting as the attorney-in-fact of such
exchange.

The Attorney-in-Fact is a corporation that is wholly owned by the Medical
Society of New Jersey (the "Medical Society") and was originally formed to
fulfill the statutory role of attorney-in-fact for the Exchange. In recent years
the Attorney-in-Fact has diversified its business, but its principal activity
continues to be managing the Exchange. The Attorney-in-Fact manages the
Exchange, subject to the oversight of the Board of Governors of the Exchange,
pursuant to a management contract that requires the Exchange to reimburse the
costs of the Attorney-in-Fact. In addition to the power of attorney contained in
such management contract, each member of the Exchange is required to execute a
power of attorney in favor of the Attorney-in-Fact to affirm the
Attorney-in-Fact's power to act on behalf of the Exchange pursuant to the
management contract.

The rights of a member of the Exchange are similar to the rights of a
policyholder of other types of insurance companies. Because members of the
Exchange are accorded certain voting rights, members' rights are more closely
analogous to the rights of a person insured by a mutual insurance company than
the rights of a person insured by a stock insurance company. Members' rights
include the right to elect the Board of Governors, which has oversight authority
over the Attorney-in-Fact. Therefore, while the day-to-day affairs of the
Exchange are managed by the Attorney-in-Fact, the Exchange is ultimately
controlled by its members through their power to elect the Board of Governors.

The Exchange is permitted by law to engage in any line of insurance
permitted by its rules and regulations, its certificate of authority, and the
applicable New Jersey laws, its state of domicile, and other states where it is
authorized to do business. All aspects of the Exchange's operations are
regulated by state regulatory authorities, particularly the regulatory
authorities of New Jersey, which is the state in which the Exchange is
domiciled. 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 utilized for regulatory
matters, 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
Exchange. See Note 9.

In 1996, the Exchange formed a down-stream holding company, Lawrenceville
Holdings, Inc. ("LHI"). On April 16, 1996, LHI acquired all of the common stock
of a property and casualty insurance company, Lawrenceville Property and
Casualty Co., Inc. ("LP&C"), which is domiciled in Virginia, and is licensed in
twenty-five states and the District of Columbia. On July 14, 1998, LHI acquired
all of the common stock of a property and casualty insurance company, MIIX
Insurance Company of New York ("MIIX New York"), which is domiciled in New York.
The Exchange owns all of the common stock of The MIIX Group, Incorporated, ("The
MIIX Group") a Delaware holding company formed in 1997. The MIIX Group owns all
of the common stock of MIIX Insurance Company ("MIIX Insurance"), a New
Jersey-domiciled property and casualty insurance company incorporated on May 14,
1998.

The Exchange, LHI, LP&C, MIIX New York and MIIX Insurance (collectively,
"the Company") provide a wide range of insurance products to the medical
profession and health care institutions primarily in the states of New Jersey
and Pennsylvania. The primary business of the Company is medical professional

F-7
<PAGE> 97
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

liability and it issues claims-made, modified claims made with prepaid extended
reporting endorsements and occurrence policies. The Company currently maintains
licenses in 31 states and the District of Columbia.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Exchange, LHI, LP&C (from the date of acquisition, April 16, 1996), MIIX New
York (from the date of acquisition, July 14, 1998) and MIIX Insurance (from the
date of incorporation, May 14, 1998). During 1996, no business was written by
LP&C subsequent to its acquisition. No business was written by MIIX New York or
MIIX Insurance during 1998. 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. The Company designates its investment portfolio as
available-for-sale to provide the Company flexibility to respond to changes in
market conditions and tax planning considerations. As such, all investments are
carried at their fair values. The Company has no securities classified as
"trading" or "held-to-maturity." Transfers to these categories are restricted.
Investments are recorded at the Trade date.

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
and, accordingly, have no effect on net income.

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

Derivative financial instruments are held as part of a hedging strategy and
are classified as other than trading. As such, all derivatives are carried at
their fair values. Changes in fair values, net of deferred taxes, are reported
as unrealized appreciation or depreciation directly in equity as a component of
other comprehensive income and, accordingly, have no effect on net income.

F-8
<PAGE> 98
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

Losses and Loss Adjustment Expenses

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

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

Premiums

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

Reinsurance

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

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

F-9
<PAGE> 99
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Premium Receivable

Premium receivable is net of an allowance for doubtful accounts as of
December 31, 1998 and 1997 of $455,000 and $627,000, respectively. Amounts
charged to expense in 1998, 1997 and 1996 were ($172,000), $627,000 and $0.

Reinsurance Recoverable on Paid Losses

Reinsurance recoverable on paid losses at December 31, 1998 is net of an
allowance of $1,300,000. A corresponding amount was reflected in 1998
operations.

Deferred Policy Acquisition Costs

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

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.

Income Taxes

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

Reclassification

Certain amounts have been reclassified for the prior years to be comparable
to the 1998 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 generally three months or less.

Pro forma Unaudited Earnings per Share

The earnings per share reflected on the consolidated statements of income
is calculated on a pro forma basis and gives effect in 1998 to the assumed
aggregate issuance of approximately 11,900,000 shares of Common Stock to
eligible MIIX Members upon consummation of the Plan of Reorganization (see Note
15), 3,000,000 shares of Common Stock for the anticipated Public Offering and
180,001 shares of Common Stock to be issued to certain officers of the Company
on the initial public offering date. The calculation does not give effect to the
issuance of Common Stock to the Medical Society in connection with the purchase
of the Attorney-in-Fact.

Recent Accounting Pronouncements

In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-3 "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." The SOP provides guidance for
determining when a liability for guaranty fund and other insurance-related
assessments
F-10
<PAGE> 100
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

should be recognized and how such liability should be measured. The SOP is
effective for financial statements for fiscal years beginning after December 15,
1998. The adoption of this statement will not have a significant impact on the
Company's financial position or results of operations.

Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS No.
131). SFAS No. 131 superseded FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. SFAS
No. 131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The Company's operations are
classified into one reportable segment: providing professional liability and
related insurance coverages to the healthcare industry. In connection therewith
the company generally offers three products, occurrence policies, claims made
policies with prepaid tail coverage and claims made policies in each of its
markets. The Company distributes its products both directly to the insureds and
through intermediaries. The Company does not currently prepare discrete
financial information for any individual component of the Company's operations
that are regularly reviewed by the chief operating decision maker and utilized
to allocate resources and assess performance.

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 1999. Adoption of this
statement is not expected to have a significant impact on the Company's
financial position or results of operations.

3. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

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

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverable of
$270.7 million, $221.7 million and $165.7 million,
respectively............................................. $605,990 $573,700 $582,931
Incurred related to:
Current year............................................. 157,952 120,496 110,593
Prior years.............................................. (2,084) -- --
-------- -------- --------
Total incurred............................................. 155,868 120,496 110,593
Paid related to:
Current year............................................. 1,328 3,930 3,630
Prior years.............................................. 134,666 84,276 116,194
-------- -------- --------
Total paid................................................. 135,994 88,206 119,824
-------- -------- --------
Balance as of December 31, net of reinsurance
recoverable.............................................. 625,864 605,990 573,700
Reinsurance recoverable.................................... 325,795 270,731 221,749
-------- -------- --------
Balance, gross of reinsurance.............................. $951,659 $876,721 $795,449
======== ======== ========
</TABLE>

The Company increased prior year gross reserves in the amount of $3.8
million and $0.2 million during 1998 and 1997, respectively. No adjustment to
prior year gross reserves was made in 1996. At December 31, 1998, 1997 and 1996,
reserves for gross losses and loss adjustment expenses on incurred but not
reported claims amounted to $623.8 million, $591.2 million and $500.0 million,
respectively, of which $436.3 million, $430.3 million and $350.9 million related
to prior years.

F-11
<PAGE> 101
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Loss and loss adjustment expense reserve estimates have been reviewed
regularly and adjusted where judged prudent to do so. Medical malpractice
business, particularly occurrence or occurrence-like coverage, has a very long
development period. Cases may take years to be reported, and, as a rule, take
several years to adjust, settle or litigate. In addition, general long term
trends impacting ultimate reserve values such as changes in liability standards
and expanding views of contract interpretation increase the uncertainty. While
certain individual cases were settled during 1998, 1997 and 1996 at values more
or less than specific case reserve amounts established in prior years, there
were no overall indications that prior established best estimates, including the
significant portion of reserves for incurred but not reported claims, should be
adjusted beyond the amounts recorded.

The Company maintains aggregate excess reinsurance contracts that provide
coverage, above aggregate retentions for most losses and allocated loss
adjustment expenses. The aggregate excess reinsurance contracts, therefore, have
the effect of holding net incurred losses and allocated loss adjustment expenses
at a constant level as long as losses and allocated loss adjustment expenses
remain within the coverage limits, which occurred for the years ended December
31, 1998, 1997 and 1996. The adjustment to net reserves in 1998 relates to loss
and loss adjustment expenses not covered by the aggregate excess reinsurance
contracts.

4. MANAGEMENT SERVICES AGREEMENT

Management services agreements between the Exchange and the
Attorney-in-Fact and LP&C and the Attorney-in-Fact provide, among other things,
that the Attorney-in-Fact is responsible for the administration and management
of the Exchange and LP&C. These agreements have been filed with the insurance
departments of the Exchange's and LP&C's respective domiciliary states. The
agreement between the Exchange and the Attorney-in-Fact empowers the
Attorney-in-Fact to issue, modify, reinsure, or cancel contracts; to adjust and
settle claims; to accept service of process; to collect and have charge of all
funds coming into the Exchange; to keep the books and accounts of the Exchange;
and to do any and all things necessary to comply with any laws, subject to the
control, oversight and direction of the Board of Governors of the Exchange. This
agreement is automatically renewable each year unless notice of termination by
either party has been provided by December 1 of the preceding year. No such
notice has been given.

The agreement between LP&C and the Attorney-in-Fact provides for similar
services to be performed by the Attorney-in-Fact for LP&C, subject to the
general supervision of the Board of Directors of LP&C. This agreement is
automatically renewable for three-year terms unless notice of termination by
either party has been provided by April 16 of the year preceding the expiration
of the agreement.

In exchange for services provided, fees are paid to the Attorney-in-Fact by
the Exchange and LP&C equal to actual direct expenses of the Attorney-in-Fact
incurred in performing services on behalf of the Exchange and LP&C, plus in the
case of the LP&C agreement, 3 percent of LP&C's revenues of the preceding
calendar year. Expenses of the Attorney-in-Fact reimbursed by the Exchange and
LP&C amounted to $30.6 million in 1998, $22.7 in 1997 and $18.6 in 1996. LP&C
was acquired by the Exchange in 1996 and generated no revenue during such year.
Therefore, 1997 payments to the Attorney-in-Fact under the LP&C agreement were
only in respect of actual direct expenses of the Attorney-in-Fact. 1998 payments
to the Attorney-in-Fact included $0.2 million related to the percentage of
revenue feature of the LP&C agreement.

5. RELATED PARTY TRANSACTIONS

As of December 31, 1998 and 1997, the Exchange is guarantor for space
leased by the Attorney-in-Fact. The lease expires in May 2001, with total
minimum lease payments remaining of $1.3 million. Additionally, the Exchange has
extended a line of credit to an Attorney-in-Fact subsidiary in an amount up to
$5.0 million, none of which was outstanding at December 31, 1998 or 1997. The
Exchange guarantees a bank loan on behalf of the Attorney-in-Fact, which had an
outstanding balance of $0.8 million and $1.6 million at December 31, 1998 and
1997, respectively. Lawrenceville Re, Ltd., a subsidiary of the Attorney-in-Fact
assumes premiums,
F-12
<PAGE> 102
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

losses, commissions and other insurance balances pursuant to reinsurance
contracts with the Exchange, principally a one percent participation on the
Exchange's aggregate excess of loss programs. In addition, other subsidiaries of
the Attorney-in-Fact received commissions related to the placement of the
Company's reinsurance programs. During 1998, 1997 and 1996, the Company assumed
premiums from a risk retention group managed by the Attorney-in-Fact. In
addition, the Company made contributions to the Medical Society in 1998, 1997
and 1996.

The Company held a note receivable of $2.8 million and $3.0 million,
included in other assets, at December 31, 1998 and 1997, respectively, from the
Medical Society of New Jersey, collateralized by the building in which the
Company maintains its home office. The note provides for monthly payments of
$40,000, which includes interest at 9.05% until September 1, 2004 and reduced
payments thereafter until June 1, 2009.

6. INVESTMENTS

The Company's investment strategy focuses primarily on the purchase of
intermediate-term, investment-grade securities along with a modest allocation to
below investment-grade (i.e., high yield) fixed maturity investments not to
exceed 7.5% of invested assets. At December 31, 1998 and 1997, the average
credit quality of the fixed income portfolio was AA- and AA+, respectively. The
portfolio does not include any investments in real estate.

The actual or amortized cost and estimated market value of the Company's
available-for-sale securities as of December 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED ----------------- MARKET
COST GAINS LOSSES VALUE
---------- ------- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 119,083 $ 4,451 $ 270 $ 123,264
Obligations of states and political
subdivisions.................................. 176,798 8,420 2 185,216
Foreign securities -- U.S. dollar denominated... 15,694 352 918 15,128
Corporate securities............................ 322,477 6,874 5,021 324,330
Mortgage-backed and other asset-backed
securities.................................... 407,140 4,415 1,754 409,801
---------- ------- ------ ----------
Total fixed maturity investments................ 1,041,192 24,512 7,965 1,057,739
Equity investments.............................. 3,159 -- -- 3,159
---------- ------- ------ ----------
Total investments..................... $1,044,351 $24,512 $7,965 $1,060,898
========== ======= ====== ==========
1997
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 188,715 $ 4,348 $ 56 $ 193,007
Obligations of states and political
subdivisions.................................. 202,386 7,224 5 209,605
Corporate securities............................ 130,159 3,747 567 133,339
Mortgage-backed and other asset-backed
securities.................................... 311,562 5,702 469 316,795
---------- ------- ------ ----------
Total fixed maturity investments................ 832,822 21,021 1,097 852,746
Equity investments.............................. 66,520 23,154 594 89,080
---------- ------- ------ ----------
Total investments..................... $ 899,342 $44,175 $1,691 $ 941,826
========== ======= ====== ==========
</TABLE>

F-13
<PAGE> 103
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair values for fixed maturity investments are based on quoted marked
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, 1998, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less..................................... $ 14,784 $ 14,810
Due after one year through five years....................... 109,671 110,704
Due after five years through ten years...................... 207,892 212,155
Due after ten years......................................... 301,705 310,269
Mortgage-backed and other asset-backed securities........... 407,140 409,801
---------- ----------
Total............................................. $1,041,192 $1,057,739
========== ==========
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity investments............................ $59,037 $49,241 $44,914
Equity investments.................................... 878 1,678 2,096
Short-term investments................................ 7,376 4,925 3,774
Other................................................. 361 775 588
------- ------- -------
Subtotal.................................... 67,652 56,619 51,372
Investment expenses................................... 2,545 2,727 2,237
------- ------- -------
Net investment income................................. $65,107 $53,892 $49,135
======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity investments
Gross realized gains................................ $13,084 $ 2,803 $11,522
Gross realized losses............................... 1,052 1,158 3,279
------- ------- -------
Net realized gains on fixed maturity investments...... 12,032 1,645 8,243
Equity investments
Gross realized gains................................ 38,823 8,719 474
Gross realized losses............................... 465 68 2,885
------- ------- -------
Net realized gains (losses) on equity investments..... 38,358 8,651 (2,411)
------- ------- -------
Net realized losses on equity collar investments...... 14,000 -- --
------- ------- -------
Net realized gains on investments..................... $36,390 $10,296 $ 5,832
======= ======= =======
</TABLE>

F-14
<PAGE> 104
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The change in the Company's unrealized appreciation (depreciation) on fixed
maturity investments was $(3,377), $17,856 and ($24,896) for the years ended
December 31, 1998, 1997 and 1996, respectively. The corresponding amounts for
equity investments were $(22,560), $10,664, and $9,643.

At December 31, 1998 and 1997, investments in fixed maturity investments
with a carrying amount of approximately $10.1 million and $6.8 million,
respectively, were on deposit with state insurance departments to satisfy
regulatory requirements.

7. REINSURANCE

Certain premiums, losses and loss adjustment expenses are ceded to other
insurance companies under various reinsurance agreements in-force during 1998,
1997 and 1996. These reinsurance agreements protect the underwriting and
operating results from unexpected increases in frequency, severity, and
acceleration of the payments of losses and loss adjustment expenses, and contain
the following significant terms:

<TABLE>
<CAPTION>
CONTRACT COVERAGE TYPE RETENTION COVERAGE LIMIT OTHER
-------- ------------- --------- -------------- -----
<S> <C> <C> <C> <C>
1998 Specific Excess Per loss $2-$3 million $48 million Aggregate deductible
Aggregate limits
1998 Aggregate Excess Aggregate 75% loss and ALAE ratio 75% loss and ALAE ratio Aggregate limit
1997 Specific Excess Per loss $2-$3 million $38 million Aggregate deductible
Aggregate limits
1997 Aggregate Excess Aggregate 75% loss and ALAE ratio 75% loss and ALAE ratio Aggregate limit
1996 Specific Excess Per loss $2-$3 million $28 million Aggregate deductible
Aggregate limits
1996 Aggregate Excess Aggregate 75% loss and ALAE ratio 75% loss and ALAE ratio Aggregate limit
</TABLE>

In addition, in 1992, the Company entered into a combined aggregate and
specific excess of loss contract to protect statutory underwriting and operating
results from adverse development on those losses and ALAE which occurred on or
before December 31, 1992. This contract is being accounted for using deposit
accounting on a GAAP basis. The net deposit carried related to this contract is
$0 as the initial consideration under this contract was retained by the Company
as an unrestricted funds held liability. The deposit has not been adjusted since
initially recorded in 1992.

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

<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Direct............... $230,314 $195,591 $162,430 $150,099 $143,218 $142,399
Assumed.............. 1,543 3,015 15,478 15,568 3,550 2,187
Ceded................ (37,685) (36,105) (44,522) (42,337) (34,890) (36,699)
-------- -------- -------- -------- -------- --------
Net premiums......... $194,172 $162,501 $133,386 $123,330 $111,878 $107,887
======== ======== ======== ======== ======== ========
</TABLE>

During 1998, 1997 and 1996, approximately $62.4 million, $68.9 million and
$56.8 million, respectively, of losses and loss adjustment expenses were ceded
to reinsurers.

The Company remains liable in the event that amounts recoverable from
reinsurers are uncollectible. To minimize its exposure to losses from reinsurer
insolvencies, the Company enters into reinsurance arrangements with carriers
rated "A" or better by A.M. Best. At December 31, 1998 and 1997, the Company
held

F-15
<PAGE> 105
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

collateral under related reinsurance agreements for all unpaid losses and loss
adjustment expenses ceded in the form of funds withheld of $228.1 million and
$182.6 million and letters of credit of $143.0 million and $126.7 million,
respectively. The Company also held collateral at December 31, 1998 and 1997 of
$126 million and $192 million, respectively, under the deposit contract referred
to above. However, the corresponding funds held liability was offset by a
receivable of the same amount representing the minimum amount due to the Company
if that arrangement was terminated at December 31, 1998.

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

8. COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET RISK

The Company's securities lending program was terminated during 1998.
Investment securities with an aggregate market value of $92.1 million were
loaned to various brokers in connection with a securities lending program at
December 31, 1997. The Company received lending fees and earned interest on the
loaned securities.

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

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

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

The Company currently purchases annuities without recourse on a competitive
basis to fund settlements of indemnity losses. The nature and terms of the
annuities vary according to settlements. The current value of annuities
purchased in prior years from other insurance companies, but with recourse to
the Company, and reflected as an other asset and an other liability in the
consolidated balance sheets, totaled $19.3 million and $18.8 million as of
December 31, 1998 and 1997, respectively. The Company becomes liable only in the
event that an insurance company cannot meet its obligations under existing
agreements and state guarantee funds are not available. To minimize its exposure
to such losses, the Company only utilizes insurance companies with an A.M. Best
rating of "A+" or better.

There were no pending legal proceedings beyond the ordinary course of
business at December 31, 1998, except that three individual insured physicians
filed an appeal of the order issued by the Commissioner of the New Jersey
Department of Banking and Insurance approving the Company's Plan of
Reorganization. The plaintiffs are seeking a remand of the matter to the
Department for reconsideration. The court has denied
F-16
<PAGE> 106
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

plaintiffs' request for a stay of the order; the appeal remains pending.
Additional court challenges to the reorganization were filed in 1999. (See Note
15)

9. STATUTORY ACCOUNTING PRACTICES

The Exchange and MIIX Insurance domiciled in New Jersey, LP&C, domiciled in
Virginia, and MIIX New York, domiciled in New York, prepare statutory-basis
financial statements in accordance with accounting practices prescribed or
permitted by the New Jersey Department of Banking and Insurance, the Virginia
Department of Insurance, and the New York State Insurance Department,
respectively. "Prescribed" statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners (the
"NAIC"). "Permitted" statutory accounting practices encompass all accounting
practices that are not prescribed; such practices may differ from state to
state, may differ from company to company within a state, and may change in the
future. The NAIC currently is in the process of codifying statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Combined policyholders' surplus and
net income, as reported to the domiciliary state insurance departments in
accordance with its prescribed or permitted statutory accounting practices for
these four companies, are summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income for the year.................. $ 29,631 $ 30,302 $ 20,078
Statutory surplus at year-end...................... $253,166 $242,395 $208,478
</TABLE>

The maximum amount of dividends that domestic insurance companies in New
Jersey, Virginia and New York can pay to their policyholders without prior
approval of the respective insurance commissioners of those states is subject to
restrictions relating to statutory surplus and statutory net income. No
dividends were paid or declared in 1998, 1997 or 1996. In 1998, the Exchange,
MIIX Insurance, LP&C, and MIIX New York could have paid maximum dividends
totaling approximately $30.9 million without the prior approval of the
respective insurance commissioners.

10. INCOME TAXES

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

The components of the income tax provision in the accompanying statements
of income are summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense............................ $19,111 $ 3,423 $ 9,228
Deferred income tax expense........................... (7,957) (1,417) 776
------- ------- -------
Total income tax expense.............................. $11,154 $ 2,006 $10,004
======= ======= =======
</TABLE>

F-17
<PAGE> 107
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax at 35%............................. $14,309 $10,896 $ 9,660
Increase (decrease) in taxes resulting from:
Tax-exempt interest................................. (2,810) (3,583) (4,490)
Provision for (reversal of) tax contingencies and
other tax matters................................ -- (4,217) 5,224
Other............................................... (345) (1,090) (390)
------- ------- -------
Total income taxes.......................... $11,154 $ 2,006 $10,004
======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Discounting of loss reserves.............................. $37,181 $30,820
Other..................................................... 5,255 2,186
------- -------
Total deferred tax assets......................... 42,436 33,006
------- -------
Deferred tax liabilities:
Unrealized gains on fixed maturity investments............ 5,791 6,973
Unrealized gains on equity investments.................... -- 7,896
Other..................................................... 1,914 441
------- -------
Total deferred tax liabilities.................... 7,705 15,310
------- -------
Net deferred tax assets........................... $34,731 $17,696
======= =======
</TABLE>

Deferred tax assets are presently considered by management to be realizable
based on the level of anticipated future taxable income. Net deferred tax assets
and income tax expense in future years can be significantly affected by changes
in enacted tax rates or by unexpected adverse events that would impact
management's conclusions as to the ultimate realizability of deferred tax
assets.

At December 31, 1998 and 1997, the Company had income taxes payable
included in other liabilities of $4.5 million and $2.2 million, respectively.

The amount of income taxes paid in 1998, 1997 and 1996 was $17.4 million,
$6.0 million and $3.6 million, respectively.

As a result of developments during 1996 related to Internal Revenue Service
examinations, the Company established a provision for tax contingencies of $5.2
million. During 1997, the Company reached favorable resolutions and was able to
release $4.2 million of that amount. 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.

11. IMPAIRMENT OF CAPITALIZED SYSTEM DEVELOPMENT COSTS

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of "
("SFAS No. 121") requires recognition of impairment

F-18
<PAGE> 108
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

losses for long-lived assets whenever events or changes in circumstances result
in the carrying amount of an asset to exceed the sum of the expected future cash
flow associated with the asset. During 1998, management replaced its policy
administration system, and accordingly, recognized a $12.7 million pre-tax
charge which represented the net book value of capitalized system development
costs associated with the old computer system at the time of disposal.

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 year ended December
31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period....................... $ 100 $ 451 $ 0
Cost deferred during the period...................... 14,648 4,379 1,917
Amortization expense................................. (11,938) (4,730) (1,466)
-------- ------- -------
Balance at end of period............................. $ 2,810 $ 100 $ 451
======== ======= =======
</TABLE>

13. COMPREHENSIVE INCOME

Statement of Financial Accounting Standard No. 130 -- Reporting
Comprehensive Income, ("SFAS 130") became effective for years beginning after
December 15, 1997. For purposes of comparison, all previous financial statements
presented include the SFAS 130 disclosures. The Company considers its investment
portfolio as available-for-sale and had unrealized gains at each balance sheet
date that are reflected as comprehensive income in the Consolidated Statements
of Equity.

The components of comprehensive income, net of related tax, for the years
ended December 31, 1998, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income.................................................. $ 29,728 $29,124 $17,595
Other comprehensive income:
Unrealized holding gains (losses) arising during period
(net of tax of $3,659, $13,586, and $3,297,
respectively).......................................... 6,795 25,230 (6,124)
Reclassification adjustment for (gains) losses realized in
net income (net of tax of $12,736, $3,604, and $2,042,
respectively).......................................... (23,654) (6,692) (3,790)
-------- ------- -------
Net unrealized gains (losses) (net of tax of $9,078,
$9,982, and $5,339, respectively)...................... $(16,859) $18,538 $(9,914)
-------- ------- -------
Comprehensive income........................................ $ 12,869 $47,662 $ 7,681
======== ======= =======
</TABLE>

F-19
<PAGE> 109
MEDICAL INTER-INSURANCE EXCHANGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. UNAUDITED QUARTERLY FINANCIAL DATA

The following is a summary of unaudited quarterly results of operations for
1998 and 1997:

<TABLE>
<CAPTION>
1998
-----------------------------------------
1ST 2ND 3RD 4TH
-------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Direct written premiums............................ $143,521 $15,129 $40,184 $31,480
Net premiums earned................................ 35,817 38,563 40,286 47,835
Net investment income.............................. 14,803 16,051 16,769 17,484
Realized investment gains.......................... 1,441 2,805 29,317 2,827
Losses and loss adjustment expenses................ 36,050 36,902 40,098 42,818
Underwriting expenses.............................. 8,194 9,125 10,419 14,325
Impairment of capitalized system development
costs............................................ -- 12,656 -- --
Net income......................................... $ 3,461 $(1,530) $21,497 $ 6,300
Earnings per share (pro forma)..................... $ 0.23 $ (0.10) $ 1.42 $ 0.42
</TABLE>

<TABLE>
<CAPTION>
1997
-----------------------------------------
1ST 2ND 3RD 4TH
-------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Direct written premiums............................ $126,689 $ 8,114 $19,904 $ 7,723
Net premiums earned................................ 27,035 30,724 34,411 31,160
Net investment income.............................. 13,163 12,875 14,628 13,226
Realized investment gains (losses)................. 195 (491) 1,169 9,423
Losses and loss adjustment expenses................ 27,708 30,842 34,159 27,787
Underwriting expenses.............................. 5,330 5,641 8,748 5,696
Net income......................................... $ 4,233 $ 3,928 $ 3,305 $17,658
</TABLE>

15. PLAN OF REORGANIZATION

In 1997, the Exchange's Board of Governors unanimously approved a plan to
convert from a reciprocal insurance exchange to a New Jersey domestic stock
insurer (Plan of Reorganization). On March 5, 1998, the Commissioner of the
Department of Banking and Insurance of the State of New Jersey approved the Plan
of Reorganization. On February 3, 1999, the Securities and Exchange Commission
declared the Plan of Reorganization prospectus effective. The Plan of
Reorganization was ratified by members of the Exchange at a special meeting held
on March 17, 1999.

Under the Plan of Reorganization: The MIIX Group will issue shares ("the
Reorganization Shares") to the Exchange solely in consideration of the
contemplated asset and liability transfers between the Exchange and MIIX
Insurance; MIIX Insurance will assume the assets and liabilities of the Exchange
(except for the Reorganization Shares and certain cash amounts to be distributed
pursuant to the Reorganization), The MIIX Group will acquire the
Attorney-in-Fact from the Medical Society for $11 million worth of Common Stock
and $100,000 in cash; the Reorganization Shares and certain cash amounts will be
distributed to the distributees by the Exchange and the Exchange dissolved; and,
thereby, The MIIX Group will be the holding company for MIIX Insurance, the
other subsidiaries of the Exchange and the Attorney-in-Fact.

The earnings per share reflected on the consolidated statements of income
is calculated on a pro forma basis and gives effect in 1998 to the assumed
aggregate issuance of approximately 12,000,000 shares of Common Stock to
eligible MIIX members upon consummation of the Plan of Reorganization, and does
not give effect to the sale of Common Stock in the anticipated Public Offering
or to the issuance of Common Stock to the Medical Society in connection with the
purchase of the Attorney-in-Fact.

F-20
<PAGE> 110

SCHEDULE I

SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
AMOUNT ON
COST FAIR VALUE BALANCE SHEET
---------- ---------- -------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and government agencies
and authorities.................................. $ 330,759 $ 337,245 $ 337,245
States, municipalities and political subdivisions... 176,798 185,216 185,216
Public utilities.................................... 48,668 49,264 49,264
Foreign securities -- U.S. dollar denominated....... 15,694 15,128 15,128
All other corporate bonds........................... 468,473 470,086 470,086
Certificates of deposit............................. 800 800 800
---------- ---------- ----------
Total fixed maturities........................... 1,041,192 1,057,739 1,057,739
---------- ---------- ----------
Equity securities:
Common stock:
Banks, trust and insurance companies............. 3,159 3,159 3,159
---------- ---------- ----------
Total equity securities.......................... 3,159 3,159 3,159
---------- ---------- ----------
Short-term investments................................ 104,800 104,800 104,800
---------- ---------- ----------
Total investments..................................... $1,149,151 $1,165,698 $1,165,698
========== ========== ==========
</TABLE>

F-21
<PAGE> 111

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

NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................... 2
Prospectus Summary........................... 4
Risk Factors................................. 12
The Reorganization........................... 21
Use of Proceeds.............................. 25
Dividend Policy.............................. 26
Capitalization............................... 27
Selected Financial and Operating Data........ 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 29
Business..................................... 38
Management................................... 62
Ownership of Common Stock.................... 73
Description of Capital Stock................. 75
Shares Eligible for Future Sale.............. 78
Underwriting................................. 79
Available Information........................ 80
Legal Matters................................ 81
Experts...................................... 81
Glossary of Selected Insurance Terms......... 82
Glossary of Reorganization Terms............. 86
Index to Financial Statements................ F-1
</TABLE>

UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

3,000,000 SHARES

THE MIIX GROUP,
INCORPORATED

COMMON STOCK
MED INTER LOGO
---------
PROSPECTUS

, 1999

---------

FIRST UNION CAPITAL MARKETS CORP.

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

MCDONALD INVESTMENTS, INC.

HOEFER & ARNETT INCORPORATED

- ---------------------------------------------------------------
- ---------------------------------------------------------------
<PAGE> 112

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 13,275
NASD Filing Fee............................................. 5,000
NYSE Listing Fee............................................ 10,500
Blue Sky Fees and Expenses.................................. 0
Legal Fees and Expenses..................................... 350,000
Accounting Fees and Expenses................................ 290,000
Registrar and Transfer Agent Fees........................... 50,000
Printing and Engraving Expenses............................. 176,000
Miscellaneous............................................... 105,000
--------
Total............................................. $999,775
========
</TABLE>

- ---------------
* To be completed by amendment.

Each amount set forth above, except the SEC registration fee and NYSE
listing fee, is estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Delaware General Corporation Law (the "DGCL") permits a Delaware
corporation to include in its charter and bylaws certain provisions to eliminate
the personal liability of directors for monetary damages and to indemnify its
directors and officers. The MIIX Group By-laws (the "By-laws") provide that
subject to certain exceptions in the case of actions by or in the right of The
MIIX Group, The MIIX Group shall indemnify its directors and officers, and may
indemnify its agents and employees, against judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her, incurred by reason of
the fact that such person was serving as a director, officer, employee or agent
of The MIIX Group, so long as such person acted and in a manner reasonably
believed to be in or not opposed to the best interest of The MIIX Group, and,
with respect to any criminal action, so long as the indemnified party had no
reason to believe that his or her conduct was unlawful. The MIIX Group's
Certificate of Incorporation provides that directors shall not be liable to The
MIIX Group or The MIIX Group's stockholders for monetary damages for breach of
his or her fiduciary duty as a director, except that liability may not be
eliminated (i) for any breach of such person's duty of loyalty, (ii) for acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction in which such person received an improper personal benefit. Section
145(a) of the DGCL provides that a corporation may indemnify a director,
officer, employee, or agent if such person acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe the conduct was unlawful. In addition, effective upon
consummation of the Reorganization, The MIIX Group will enter into
indemnification agreements with each of its directors and certain of its
executive officers that generally provide for similar indemnification. Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.

The Underwriting Agreement provides for indemnification by the Underwriters
of the registrant and its directors, officers and controlling persons for
certain liabilities, including liabilities arising under the Securities Act of
1933, as amended.

II-1
<PAGE> 113

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The MIIX Group was incorporated under the laws of the State of Delaware on
October 14, 1997. On October 15, 1997, The MIIX Group issued 10 shares of its
Common Stock, par value $.01 per share, to the Medical Inter-Insurance Exchange
of New Jersey for an aggregate purchase price of $10. Such issuance was exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof, because such issuance did not involve any public offering
of securities.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

The following exhibits are filed herewith unless otherwise indicated:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Underwriting Agreement among The MIIX Group, Incorporated,
First Union Capital Markets Corp. and Friedman, Billings,
Ramsey & Co., Inc. and McDonald Investments and Hoefer &
Arnett Incorporated.(1)
2.1 Plan of Reorganization of Medical Inter-Insurance
Exchange.(2)
2.2 Stock Purchase Agreement between The Medical Society of New
Jersey and the MIIX Group, Incorporated (incorporated by
reference to Exhibit 2.1).
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.(2)
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.(2)
2.5 Resolution of the Medical Inter-Insurance Exchange of New
Jersey Board of Governors amending the Plan of
Reorganization.(2)
3.1 Restated Certificate of Incorporation of The MIIX Group,
Incorporated.(2)
3.2 Bylaws of The MIIX Group, Incorporated.(2)
5.1 Opinion of Dechert Price & Rhoads.(1)
8.1 Tax Opinion of PricewaterhouseCoopers LLP.(2)
10.1 Lease Between the Medical Society of New Jersey and New
Jersey State Medical Underwriters, Inc. dated June 29,
1981.(2)
10.2 Extension of Lease between the Medical Society of New Jersey
and New Jersey State Medical Underwriters, dated June 26,
1998.(2)
10.3 Lease Between Princeton Pike Corporate Center Associates IV
and Physician Healthcare Plan of New Jersey Inc. dated May
24, 1991 and assigned to New Jersey State Medical
Underwriters, Inc. on February 11, 1997.(2)
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.(2)
10.5 Specific Excess Reinsurance Contract, effective January 1,
1997, between Medical Inter-Insurance Exchange of New Jersey
and American Re-Insurance Company.(2)
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.(2)
</TABLE>

II-2
<PAGE> 114

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.(2)
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.(2)
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.(2)
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.(2)
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.(2)
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.(2)
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.(2)
10.14 1998 Long Term Incentive Equity Plan of The MIIX Group,
Incorporated.(2)
10.15 Employment Agreement among The MIIX Group, Incorporated, New
Jersey State Medical Underwriters, Inc. and Daniel
Goldberg.(2)
10.16 Employment Agreement among The MIIX Group, Incorporated, New
Jersey State Medical Underwriters, Inc. and Kenneth
Koreyva.(2)
10.17 Employment Agreement among The MIIX Group, Incorporated, New
Jersey State Medical Underwriters, Inc. and Joseph
Hudson.(2)
10.18 Employment Agreement between New Jersey State Medical
Underwriters, Inc. and Lisa Kramer.(2)
10.19 Employment Agreement between New Jersey State Medical
Underwriters, Inc. and Ronald Wade.(2)
10.20 Form of Stock Purchase and Loan Agreement between The MIIX
Group, Incorporated and Daniel Goldberg.(2)
10.21 Form of Stock Purchase and Loan Agreement between The MIIX
Group, Incorporated and Kenneth Koreyva.(2)
10.22 Form of Stock Purchase and Loan Agreement between The MIIX
Group, Incorporated and Joseph Hudson.(2)
</TABLE>

II-3
<PAGE> 115

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.23 Restricted Split-Dollar Life Insurance Agreement between
Daniel Goldberg and Medical Underwriters, Inc. dated
September 12, 1996.(2)
10.24 Split-Dollar Life Insurance Agreement dated November 3, 1995
between Daniel Goldberg and Medical Underwriters, Inc.(2)
10.25 Split-Dollar Life Insurance Agreement dated June 8, 1995
between Medical Underwriters, Inc. and Joseph Hudson.(2)
10.26 Split-Dollar Life Insurance Agreement dated December 27,
1991 between Medical Inter-Insurance Exchange, Inc. and
Kenneth Koreyva.(2)
10.27 Split-Dollar Life Insurance Agreement dated December 27,
1991
10.28 Amendment and Restatement, dated December 31, 1998, to the
Non-Qualified Deferred Compensation Agreement originally
entered into and effective November 1, 1996, by and between
New Jersey State Medical Underwriters, Inc. and Daniel
Goldberg.(3)
10.29 Non-Qualified Deferred Compensation Agreement entered into
and effective December 31, 1998 by and between New Jersey
State Medical Underwriters, Inc. and Kenneth M. Koreyva.(3)
10.30 Non-Qualified Deferred Compensation Agreement entered into
and effective December 31, 1998, by and between New Jersey
State Medical Underwriters, Inc. and Joseph J. Hudson.(3)
10.31 Draft Excess Cession Contract and Excess Event Protection,
effective January 1, 1999 among Medical Inter-Insurance
Exchange of New Jersey and Swiss Reinsurance Company,
American Re-Insurance Company and Hannover
Ruckversicherungs.(3)
10.32 Draft Addendum No. 2 to Combined Quota Share, Aggregate and
Specific Excess of Loss Reinsurance Treaty, effective
January 1, 1999, among Medical Inter-Insurance Exchange and
Hannover Reinsurance (Ireland) Ltd.; E&S Reinsurance
(Ireland) Ltd.; Underwriters Reinsurance Company (Barbados)
Inc.; and European Reinsurance Company of Zurich.(3)
10.33 Draft Addendum No. 3 to Combined Quota Share, Aggregate and
Specific Excess of Loss Reinsurance Treaty, effective
November 1, 1998, among Medical Inter-Insurance Exchange and
Hannover Reinsurance (Ireland) Ltd.; E&S Reinsurance
(Ireland) Ltd.; Underwriters Reinsurance Company (Barbados)
Inc.; and European Reinsurance Company of Zurich.(3)
10.34 Draft Addendum No. 4 to Combined Quota Share, Aggregate and
Specific Excess of Loss Reinsurance Treaty, effective
November 1, 1998, among Medical Inter-Insurance Exchange and
Hannover Reinsurance (Ireland) Ltd.; E&S Reinsurance
(Ireland) Ltd.; Underwriters Reinsurance Company (Barbados)
Inc.; and European Reinsurance Company of Zurich.(3)
21.1 Subsidiaries of The MIIX Group, Incorporated.(2)
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney (included in the signature pages to this
Registration Statement).
27.1 Financial Data Schedules.
</TABLE>

- ---------------
(1) To be filed by amendment.

(2) Incorporated by reference to the same numbered exhibit in the Registrant's
Registration Statement on Form S-1 (Reg. No. 333-59371).

(3) Incorporated by reference to the same numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1998.

II-4
<PAGE> 116

(b) Financial Statement Schedules:

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

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-5
<PAGE> 117

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Lawrenceville and State of New Jersey on April 23, 1999.

THE MIIX GROUP, INCORPORATED

By:/s/ DANIEL GOLDBERG

------------------------------------
Daniel Goldberg
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

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

/s/ DANIEL GOLDBERG President, Chief Executive Officer April 23, 1999
- ------------------------------------------------ and Director (principal executive
Daniel Goldberg officer)

/s/ KENNETH KOREYVA Executive Vice President and Chief April 23, 1999
- ------------------------------------------------ Financial Officer (principal
Kenneth Koreyva financial accounting officer)

* Director April 23, 1999
- ------------------------------------------------
Angelo S. Agro, M.D.

* Director April 23, 1999
- ------------------------------------------------
Hillel M. Ben-Asher, M.D.

* Director April 23, 1999
- ------------------------------------------------
Harry M. Carnes, M.D.

* Director April 23, 1999
- ------------------------------------------------
Palma E. Formica, M.D.

* Director April 23, 1999
- ------------------------------------------------
John S. Garra, M.D.

* Director April 23, 1999
- ------------------------------------------------
Paul Hirsch, M.D.

* Director April 23, 1999
- ------------------------------------------------
Louis L. Keeler, M.D.

* Director April 23, 1999
- ------------------------------------------------
Henry R. Liss, M.D.

* Director April 23, 1999
- ------------------------------------------------
Arganey Lucas, Jr., M.D.
</TABLE>

II-6
<PAGE> 118

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Director April 23, 1999
- ------------------------------------------------
S. Stuart Mally, M.D.

* Director April 23, 1999
- ------------------------------------------------
Vincent A. Maressa, Esq.

* Director April 23, 1999
- ------------------------------------------------
S. Stuart Mally, M.D.

* Director April 23, 1999
- ------------------------------------------------
Murray N. Matez, D.O.

* Director April 23, 1999
- ------------------------------------------------
Robert S. Maurer, D.O.

* Director April 23, 1999
- ------------------------------------------------
A. Richard Miskoff, D.O.

* Director April 23, 1999
- ------------------------------------------------
Charles J. Moloney, M.D.

* Director April 23, 1999
- ------------------------------------------------
Eileen Marie Moynihan, M.D.

* Director April 23, 1999
- ------------------------------------------------
John J. Pastore, M.D.

* Director April 23, 1999
- ------------------------------------------------
Pascal A. Pironti, M.D.

* Director April 23, 1999
- ------------------------------------------------
Joseph A. Riggs, M.D.

* Director April 23, 1999
- ------------------------------------------------
Bernard Robins, M.D.

* Director April 23, 1999
- ------------------------------------------------
Herman M. Robinson, M.D.

* Director April 23, 1999
- ------------------------------------------------
Gabriel F. Sciallis, M.D.

* Director April 23, 1999
- ------------------------------------------------
Martin L. Sorger, M.D.

* Director April 23, 1999
- ------------------------------------------------
Bessie M. Sullivan, M.D.
</TABLE>

II-7
<PAGE> 119

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Director April 23, 1999
- ------------------------------------------------
Harvey P. Yeager, M.D.

*By: /s/ DANIEL GOLDBERG
------------------------------------------
Daniel Goldberg
Attorney-in-Fact
</TABLE>

II-8

<PAGE> 1
Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 24, 1999, in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-64707) and related Prospectus of The MIIX Group,
Incorporated for the registration of shares of its Common Stock.

/s/ Ernst & Young
----------------
New York, New York
April 21, 1999

<PAGE> 1

Exhibit 23.3

[PricewaterhouseCoopers Letterhead]

April 12, 1999

The Board of Governors
Medical Inter-Insurance Exchange of New Jersey
Two Princess Road
Lawrenceville, New Jersey 08648

RE: REORGANIZATION OF MEDICAL INTER-INSURANCE EXCHANGE

Ladies and Gentlemen:

We consent to the filing of, and reference to, our opinion dated October 14,
1998 regarding the reorganization of the Medical Inter-Insurance Exchange of New
Jersey and the use of our name in the Registration Statement (Registration
Number 333-64707) and the related Prospectus of The MIIX Group, Incorporated.

Very truly yours,

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION STATEMENT ON FORM S-1 OF
WHICH THIS SCHEDULE FORMS A PART AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<DEBT-HELD-FOR-SALE> 852,746 1,057,739
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 89,080 3,159
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 1,026,971 1,165,698
<CASH> 4,877 1,408
<RECOVER-REINSURE> 270,731 325,795
<DEFERRED-ACQUISITION> 100 2,810
<TOTAL-ASSETS> 1,446,559 1,674,262
<POLICY-LOSSES> 876,721 951,659
<UNEARNED-PREMIUMS> 20,886 54,139
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 309,974 322,843
<TOTAL-LIABILITY-AND-EQUITY> 1,446,559 1,674,262
123,330 162,501
<INVESTMENT-INCOME> 53,892 65,107
<INVESTMENT-GAINS> 10,296 36,390
<OTHER-INCOME> 2,884 891
<BENEFITS> 120,496 155,868
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 25,415 42,063
<INCOME-PRETAX> 31,130 40,882
<INCOME-TAX> 2,006 11,154
<INCOME-CONTINUING> 29,124 29,728
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 29,124 29,728
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 573,700 605,990
<PROVISION-CURRENT> 120,496 157,952
<PROVISION-PRIOR> 0 (2,084)
<PAYMENTS-CURRENT> 3,930 1,328
<PAYMENTS-PRIOR> 84,276 134,666
<RESERVE-CLOSE> 605,990 625,864
<CUMULATIVE-DEFICIENCY> 0 0

</TABLE>