FEDERAL INCOME TAX MATTERS

For tax years prior to the stock offerings, NCRIC filed a consolidated United States Federal income tax return. For tax years after the stock offerings, NCRIC will not file as part of a consolidated United States Federal income tax return with NCRIC, A Mutual Holding Company or NCRIC Holdings because NCRIC, A Mutual Holding Company and NCRIC Holdings will own directly and indirectly less than 80% of the outstanding shares of NCRIC Group. Tax years 1995, 1996 and 1997 are open but not currently under audit.

REGULATORY MATTERS

NAIC STATUTORY ACCOUNTING CODIFICATION. The NAIC is currently in the process of codifying statutory accounting practices, which are the accounting rules and guidelines prescribed or permitted by the state insurance regulators. Prescribed statutory accounting practices include state laws, regulations and NAIC guidelines. Permitted statutory accounting practices encompass all accounting practices that are not prescribed; permitted statutory accounting practices may differ from state to state and company to company. This project is intended to re-examine current statutory accounting practices and to ensure uniform accounting treatment from a regulatory standpoint. The accounting mandated by the codification is expected to apply commencing January 1, 2001, and is likely to result in changes to current accounting treatments permitted by state regulators. Any statutory accounting changes mandated as a result of this codification will not have an effect on the financial statements prepared in accordance with GAAP, which have been included in this document and filed with the Securities and Exchange Commission.

NAIC IRIS RATIOS. The NAIC Insurance Regulatory Information System or "IRIS," is an early warning system that is primarily intended to be utilized by the state and District of Columbia insurance department regulators to assist in their review and oversight of the financial condition and results of operations of insurance companies operating in their respective jurisdictions. IRIS is a ratio analysis system that is administered by the NAIC. The NAIC provides the state and District of Columbia insurance department regulators with ratio reports for each insurer within their jurisdiction based on standardized annual financial statements submitted by the insurers. IRIS identifies 12 ratios to be analyzed for a property-casualty insurer, and specifies a range of values for each of these ratios. The ratios address various aspects of each insurer's financial condition and stability including profitability, liquidity, reserve adequacy and overall analytical ratios. Departure from the "usual range" of a ratio may require the submission of an explanation to the state or District of Columbia insurance regulator. Departure from the usual range on four or more ratios may lead to increased regulatory oversight.

For both 1996 and 1997 National Capital Reciprocal was outside the usual range on the ratio of estimated current reserve deficiency to surplus. This ratio provides an estimate of the adequacy of loss reserves maintained based on the change in net premiums from year to year. This ratio fell outside the usual range for both years due to a change in National Capital Reciprocal's net premiums written, which takes into account premiums ceded under the reinsurance program. Due to favorable loss development, the previously estimated swing rated reinsurance premium due from prior years was reduced. In addition, the maximum premium rate due under the reinsurance program was reduced in 1996 and again in 1997. This premium ceded reduction resulted in an inappropriate indication of inadequate reserves. In addition, for 1996 the change in net writings or net premiums written, ratio was out of the usual range of values. This again was due to the reduction in reinsurance premiums. National Capital Reciprocal was within or favorably exceeded the usual range for the remainder of the IRIS ratios. The IRIS ratios for 1998 are not yet available.

NAIC RISK-BASED CAPITAL. The NAIC has established a methodology for assessing the adequacy of each insurer's capital position based on the level of statutory surplus and an evaluation of the risks in the insurer's product mix and investment portfolio profile. This risk-based capital or "RBC" formula is designed to allow state and District of Columbia insurance regulators to identify potentially under-capitalized companies. For property-casualty insurers, the formula takes into account risks related to the insurer's assets-- including risks related to its investment portfolio--and the insurer's liabilities--including risks related to the adverse development of coverages underwritten. The RBC rules provide for different levels of regulatory attention depending on the ratio of the insurer's total adjusted capital to the "authorized control level" of RBC. For all periods presented, NCRIC's and Commonwealth Medical Liability Insurance Company's total adjusted capital levels were significantly in excess of the authorized control level of RBC. Management believes that the RBC levels will be significantly in excess of the authorized control level of RBC as of the closing of the stock offerings. As a result, the RBC requirements are not expected to have an impact upon NCRIC's operations. Following is a presentation of the total adjusted capital for NCRIC and Commonwealth Medical Liability Insurance Company compared to the authorized control level of RBC:

                    Authorized Control Level
                    Risk-based Capital             Total Adjusted Capital
                    ------------------------       -------------------------
                      NCRIC      CML                 NCRIC         CML
                    ------------------------       -------------------------

                                     (in millions)

December 31,  1998   $  4.5     $  0.15            $  24.1       $   5.0

              1997      3.7        0.14               23.2           4.9

              1996      3.8        0.12               22.4           5.3

BUSINESS

NCRIC Group

NCRIC Group is a holding company which owns NCRIC, Inc., a medical professional liability insurance company, and NCRIC MSO, Inc., a physician practice management and financial services company. NCRIC, Inc.'s and NCRIC MSO's principal operations are in the District of Columbia, Maryland, Virginia and North Carolina.

Medical professional liability insurance

NCRIC, Inc. is a medical professional liability insurance company servicing healthcare providers in the District of Columbia and Maryland. NCRIC, Inc.'s wholly-owned subsidiary, Commonwealth Medical Liability Insurance Company, sells medical professional liability insurance to healthcare providers in Virginia, West Virginia and Delaware. Created by District of Columbia physicians in 1980 when medical professional liability insurance was either unavailable or prohibitively expensive, NCRIC has provided high quality insurance products to its insureds in the District of Columbia metropolitan area, a legal jurisdiction which has rejected tort reform and has the highest cumulative average medical professional liability jury awards of any jurisdiction in the United States. NCRIC, Inc's success rests, among other factors, on its ability to successfully litigate claims, reduce its insured's loss exposure through effective risk management and provide its insureds with individualized service. Recognizing the value of NCRIC's insurance products, 98% of NCRIC's insureds renewed their policies in 1998. NCRIC believes that it successfully managed the medical professional liability insurance crisis of the early 1980's and has prospered since through a combination of physician governance and professional management expertise.

Over the past three years, NCRIC has distributed a customer satisfaction survey. In 1998, 62% of NCRIC's insureds responded to the survey and 92% of those who responded indicated that they were "always pleased" or "almost always pleased" with NCRIC's service. Comparable ratings for 1998 and 1997 were 92% and 91%.

According to A.M. Best, in 1997 44% of the direct premiums written for physician and hospital professional liability insurance in the District of Columbia were written by NCRIC. In addition, during the year ended December 31, 1998, NCRIC generated 10% of its premiums in Maryland, Virginia and West Virginia. NCRIC's market share is less than 2% in each of these markets. As of December 31, 1998, NCRIC had approximately 1,200 medical professional liability policies outstanding in all of its markets. The majority of NCRIC's premiums are generated from individual and small-group practices, but it also has risk sharing programs with groups of physicians sponsored by metropolitan Washington, D.C. area hospitals. NCRIC primarily markets its products directly to its physician clients. NCRIC also markets

its products through independent brokers and agents who currently produce less than 2% of its direct premiums written.

Medical professional liability insurance insures the physician or other healthcare provider against liabilities arising from the rendering of, or failure to render, professional medical services. NCRIC's policies are written on a claims-made basis and include legal defense against asserted professional liability claims.

Our direct insurance premiums written and net income were $17.9 million and $959,000 for the year ended December 31, 1997 and were $19.2 million and $2.5 million for the year ended December 31, 1998. As of December 31, 1998, NCRIC Group had $134.3 million in total assets and $31.0 million of total equity.

NCRIC believes it can best leverage its strengths and appeal to customers by maintaining conservatism in its financial accounts. In line with this philosophy, as of December 31, 1998, NCRIC has established, on a gross basis, $87.7 million in loss reserves. NCRIC believes that its loss reserves are adequate to meet losses. NCRIC's conservative estimation of loss reserves is demonstrated by its favorable loss developments in each year since 1990. These favorable loss developments have contributed significantly to NCRIC's reported earnings.

PRACTICE MANAGEMENT AND FINANCIAL SERVICES

We believe that by developing a practice management and financial services business we will be able to diversify our operations while solidifying the already strong relationship NCRIC has with its existing insureds. If we successfully diversify into practice management and financial services, we will both increase our profits and provide NCRIC with an additional market for its core insurance products. NCRIC MSO was established in 1997 as our vehicle to provide practice management and financial services to physicians. NCRIC MSO's business strategy is to develop a range of practice management services which will give physicians the management expertise they need to conduct their practices without requiring them to relinquish ownership or control of their practices. NCRIC MSO intends to be a partner whom physicians can rely on to understand their problems and who has the foresight to develop services to fit their needs. In order to substantially accelerate its entry into the practice management, financial services and employee benefits markets, NCRIC MSO acquired HealthCare Consulting, HCI Ventures and Employee Benefits Services. Since the acquisition, NCRIC MSO has been doing business as HealthCare Consulting. On March __, 1999, HealthCare Consulting merged into NCRIC MSO.

OTHER NCRIC GROUP SUBSIDIARIES

In addition to our medical professional liability insurance and practice management and financial services operations, we have a Virginia insurance subsidiary, a reinsurance brokerage operation, an insurance agency, and a physicians organization.

Commonwealth Medical Insurance Liability Company, a wholly-owned subsidiary of NCRIC, Inc., provides medical professional liability insurance in Virginia and other jurisdictions. Commonwealth Medical Insurance Liability Company was formed in 1989 and started writing policies in Virginia in 1991. Currently, Commonwealth Medical Insurance Liability Company is licensed to write policies in the District of Columbia, Virginia, Delaware and West Virginia. Commonwealth Medical Insurance Liability Company's policies closely resemble NCRIC's policies except that insureds of Commonwealth Medical Insurance Liability Company do not become members of NCRIC, A Mutual Holding Company.

National Capital Insurance Brokerage, Inc., a wholly-owned subsidiary of NCRIC, Inc., was formed in 1984 to serve as NCRIC's domestic reinsurance broker. National Capital Insurance Brokerage, Inc. has retained commission income which would otherwise have been paid to outside reinsurance brokers. This income has been used by NCRIC to offset other operating expenses. National Capital Insurance Brokerage, Inc. has also played a critical role in restructuring NCRIC's reinsurance program to provide effective and comprehensive reinsurance coverage without reducing NCRIC's profitability. In 1996, National Capital Insurance Brokerage, Inc. conducted a thorough analysis of NCRIC's reinsurance program. As a result of this review and internal efforts undertaken by NCRIC, NCRIC significantly reduced its current and future reinsurance costs.

In 1989, NCRIC Insurance Agency, a wholly-owned subsidiary of NCRIC, Inc., acquired the life, health and disability insurance businesses of Medical Society Services, Inc. In 1992, NCRIC Insurance Agency also began offering property and casualty products. NCRIC Insurance Agency offers its products in the same markets as NCRIC. As an insurance agent, NCRIC Insurance Agency receives commissions for business it places for sponsored insurance companies. NCRIC Insurance Agency markets insurance products not underwritten by NCRIC. This permits NCRIC's core insureds to obtain a wider range of insurance products through NCRIC. NCRIC Insurance Agency's success to date has been modest.

NCRIC Physicians Organization, Inc., a wholly-owned subsidiary of NCRIC MSO, manages a coalition of physicians working with hospitals and ancillary healthcare providers which contract with managed care payers as an exclusive healthcare provider network. NCRIC Physicians Organization began with approximately 600 physicians in 1994 and currently is, we believe, the only physician-governed healthcare provider network in the Washington, D.C. metropolitan area, with 1,800 physicians. Approximately 600 of NCRIC Physicians Organization's members are insureds of NCRIC. NCRIC Physicians Organization achieved its 1998 growth through alliances with two major area networks, Suburban Hospital

PHO and Dimensions Health Network, which added 600 new physicians. NCRIC Physicians Organization has established two fee-for-service contracts with area payers, has formed alliances with other provider networks which have added seven additional fee-for-service contracts in 1998 and continues to work on achieving the goals it set for itself when it was organized. NCRIC Physicians Organization has also maintained a PPO contract with NYLCare of the Mid Atlantic Region which resulted in more than 2,000 patient encounters and $550,000 in provider billing to NCRIC Physicians Organization members in 1997.

CURRENT HEALTHCARE ENVIRONMENT

The greatest challenge to physicians in the current healthcare marketplace is that physician revenues are declining, while the cost of delivery of medical services is rising. Since the early 1990's, health insurance companies and other third party payers, including the federal and state governments through Medicare and Medicaid, have increasingly favored a "managed care" form of reimbursement. Third party payers believe that managed care plans will result in lower healthcare costs because the managed care plan, rather than physicians, manage the delivery of healthcare services. Instead of a traditional fee-for-service payment structure, managed care generally requires the physician to provide medical services to potential clients at a significantly reduced reimbursement rate or for a fixed capitation payment, with the physician bearing the risk that the actual costs of medical services to individual groups of patients will exceed the capitation payment.

An early response to managed care was the decision of national physician practice management companies ("PPMCs"), local hospital systems and health management organizations ("HMOs") to acquire numerous independent physician practices and form one large group under common ownership. Management believes that many PPMC and HMO acquisitions have failed due to the unwillingness of physicians to remain employees of practices they no longer controlled. Unsuccessful corporate restructuring by local hospital systems has resulted in additional failures. Many local hospital systems are currently attempting to control losses by divesting themselves of unprofitable physician practices.

We believe that acquisitions of physicians' practices across divergent market places prevented the larger groups from being closely integrated in any local market, an essential component of a successful medical practice. In addition, significant administrative fees and other costs were often imposed on acquired practices which were already facing revenue and expense constraints prior to being acquired. Conflicting goals on how physician services should be delivered frequently caused physicians to terminate their employment with the PPMC.

Despite the inability of some PPMCs, local hospital systems and HMOs to operate profitably , managed care will continue to profoundly affect the practice of medicine. Solo and small group practitioners, in particular, may have difficulty surviving in the managed care healthcare environment, unless they can pool their resources to economically obtain the management expertise and resources necessary to reduce costs and remain profitable. Medical

professional liability insurance costs are among the costs that physicians will seek to reduce. We anticipate that the stronger bargaining power of a group of physicians will enable these physicians to negotiate lower premium rates, thus reducing NCRIC's premium income. NCRIC intends to offset potential lower premium income from its traditional professional medical liability insurance products by providing products and services that appeal to the larger groups including:

. creating new risk sharing structures for larger groups;

. managing the risks of the larger groups as one risk versus separate risks;

. providing claims and risk management services independently of its core insurance products on a fee basis; and

. offering insurance-related products for managed care exposure.

We have already begun implementing this strategy by entering into risk sharing arrangements with and providing risk management services to large groups of physicians sponsored by metropolitan Washington, D.C. hospitals. We wish to assist independent physicians to remain independent and financially successful. We do not intend to adopt the PPMC model of purchasing physician practices.

OUR VISION

We intend to become a healthcare financial services organization which provides individual physicians and groups of physicians with economical high quality medical professional liability insurance and the practice management and financial services necessary for them to succeed in the managed care healthcare environment. We believe that we are well positioned to accomplish these goals because we have a loyal policyholder base to build upon and anticipate raising new capital in the subscription, community and syndicated community offerings. The HealthCare Consulting Acquisition substantially enhances our ability to provide independent physicians with essential practice management expertise.

The current direct channels of distribution and the strong retention of clients by NCRIC and HealthCare Consulting will assist us in cross-selling our expanded range of services and products. NCRIC will sell its medical professional liability products and services to some of HealthCare Consulting's approximately 1,100 physician clients (including affiliates) which will expand NCRIC's geographic coverage area. Since the HealthCare Consulting Acquisition closed on January 4, 1999, NCRIC has sold 8 medical malpractice insurance policies to clients of HealthCare Consulting and has provided quotes for an additional 33 policies. The HealthCare Consulting Acquisition will also permit NCRIC to provide practice management and employee benefit services to its approximately 1,200 physician

insureds. Together with the approximately 1,200 members of NCRIC Physicians Organization who are not insured by NCRIC since the completion of the HealthCare Consulting Acquisition, we provide products and services to approximately 3,000 physicians.

CORE INSURANCE PRODUCTS

NCRIC underwrites medical professional and office premises liability policy coverages for physicians, physician medical groups and clinics, managed care organizations and other providers in the healthcare industry. NCRIC currently issues policies on a claims-made basis. Claims-made policies provide coverage to the policyholder for claims occurring and reported during the period of coverage. NCRIC also offers prior acts insurance coverage to new insureds, subject to the new insureds' meeting NCRIC's underwriting criteria. This coverage extends the effective date of claims-made policies to designated periods prior to the physician's becoming an insured of NCRIC. Insureds are insured continuously while their claims-made policy is in force.

Physician and medical group liability. NCRIC offers separate policy forms for physicians who are solo practitioners and for those who practice as part of a medical group or clinic. The policy issued to solo practitioners includes coverage for professional liability that arises in the medical practice and also for a number of "premises" liabilities that may arise in the non-professional operations of the medical practice, like slip and fall accidents. The professional liability insurance for solo practitioners and for medical groups provides protection against the legal liability of the insureds for injury caused by or as a result of the performance of patient treatment, failure to treat and failure to diagnose and related types of malpractice.

Policy limits. NCRIC offers limits of insurance up to $5 million per claim, with up to a $7 million aggregate policy limit for all claims reported for each calendar year or other 12-month policy period. The most common limit is $1 million per claim, subject to a $3 million aggregate policy limit. Higher limits and excess coverage can also be written in conjunction with special reinsurance arrangements.

Reporting endorsements. Reporting endorsements are offered for physicians terminating their policies with NCRIC. This coverage extends the period indefinitely for reporting future claims resulting from incidents occurring while a claims-made policy was in effect. The price of the reporting endorsement coverage is based on the length of time the insured has been covered by NCRIC. NCRIC provides free reporting endorsement coverage for insured physicians who die or become disabled so that they cannot practice their specialty during the coverage period of the policy and those who have been insured by NCRIC for at least five consecutive years, attain the age of 55 and retire completely from the practice of medicine.

PracticeGuard. NCRIC has established a limited defense reimbursement benefit for proceedings by governmental disciplinary boards. NCRIC provides this coverage to its

insureds automatically without a surcharge. PracticeGuard provides legal counsel to defend licensure actions brought by the District of Columbia or a State Medical Licensing Board, actions involving medical staff credentialing committees, actions to remove physicians from participation in a managed care plan and actions to limit participation in government programs like Medicare and Medicaid.

Managed care organization errors and omissions. NCRIC has recently introduced a policy for managed care organizations that provides coverage for liability arising from the errors and omissions in managed care operations, for the vicarious liability of a managed care organization for the acts or omissions of non-employed physician providers and for liability of directors and officers of a managed care organization. These policies are issued on a claims-made basis. The annual aggregate limits of coverage under the current managed care organization policies issued by NCRIC are currently $2 million. Through NCRIC's reinsurance arrangements, it has the capacity to write managed care organization policies with aggregate limits of up to $10 million. Managed care organization policies were not a significant source of revenue in 1998.

Program for physicians who do not meet usual underwriting standards. NCRIC also has a program for physicians who do not meet some of NCRIC's usual underwriting standards. NCRIC carefully evaluates the additional risk it assumes when it insures these physicians. A surcharge is applied to the premiums of these physicians to compensate NCRIC for the higher level of risk NCRIC is assuming. NCRIC monitors the activities of these insureds more closely than those of its other insureds and attempts to rehabilitate these insureds through risk management training. This program was not a significant source of revenue in 1998.

Direct premiums. The following table summarizes NCRIC's physician and medical group professional liability direct annual premiums under policies in effect as of November 16, 1998.

                                                        Direct Premiums         Percentage of
                       Group Size                          Written                Total
-------------------------------------------          -------------------   --------------------
                                                        (In Thousands)
Solo practitioner physicians.......................       $ 7,685                   40.6%
Groups with two physicians.........................         1,162                    6.1%
Groups with three or more physicians...............         5,113                   27.0%
Sponsored Programs, including risk sharing.........         4,986                   26.3%
                                                         ========                   =====
                       Total                              $18,946                  100.0%
                                                          =======                  ======

Occurrence basis policies. Until July 1, 1986, NCRIC issued policies on an occurrence basis. Occurrence policies provide coverage to the policyholder for all losses

incurred during the policy year regardless of when the claims are reported. As of December 31, 1998, NCRIC has loss and LAE reserves in the amount of $7.7 million in connection with its potential liability under occurrence policies.

MAINTENANCE AND EXPANSION OF CORE INSURANCE PRODUCTS

NCRIC's future success rests on its ability to ensure that its core insurance products continue to meet the needs of existing insureds and other healthcare providers. Growth and retention of NCRIC's core insurance business in a managed care environment will be sought through expanding NCRIC's relationship with larger groups of physicians and developing appropriate risk financing vehicles for larger groups. The key elements of NCRIC's strategy to compete effectively and create profitable long-term growth for its core insurance products are the following:

Maintain its strong franchise or close relationship with the District of Columbia metropolitan area medical community. National Capital Reciprocal Insurance Company was founded in 1980 with the strong support of the Medical Society of the District of Columbia and the District of Columbia's physicians. NCRIC maintains the exclusive endorsement of the Medical Society of the District of Columbia, as well as that of the Virginia-based Arlington County Medical Society. NCRIC plans to increase its direct business activity in its core markets by implementing a joint marketing plan with Medical Society of the District of Columbia and other metropolitan area medical societies. NCRIC has set a target of at least a 95% annual retention rate for its core insurance business in the future. The Articles of Incorporation of NCRIC, A Mutual Holding Company and NCRIC, Inc. require that at least two-thirds of the members of their respective boards of directors be physicians. This direct involvement of physicians enables NCRIC to better understand medical practice patterns, claims, customer needs and other relevant matters. It also strengthens NCRIC's ties with the physician community.

Enhance insurance product offerings to increase sales and strengthen ties with physicians. NCRIC has developed other insurance products in addition to its core medical professional liability insurance offerings. These products include comprehensive premises liability coverage for medical offices and NCRIC Practice Guard.

New products. NCRIC's current new product initiatives include expanding its dental professional liability offerings and providing claims and risk management services independently of its core insurance on an "unbundled" basis. Dental professional liability insurance policies will insure the dentist against liabilities arising from the rendering of, or failure to render, professional dental services. Policies will also include coverage for a dentist's office and equipment such as slip and fall cases. NCRIC's goal is to provide dentists with comprehensive insurance coverage for their practices. NCRIC's dental policies will be offered through direct selling by NCRIC and through brokers and agents.

Expand geographically. NCRIC intends to leverage off of its strong franchise in the District of Columbia area and its extensive claims and risk management expertise to expand into nearby states. It has recently expanded into Virginia, Maryland, Delaware and West Virginia. According to A.M. Best, these states produced $275 million in medical professional liability direct premiums written in 1997 for the industry, providing strong potential growth opportunities. NCRIC's premiums from these states equaled 10% of its total premiums in 1998. NCRIC is also pursuing potential expansion opportunities in other Mid-Atlantic states.

Grow through strategic acquisitions. NCRIC believes that consolidation will continue in the medical professional liability insurance industry. This may give rise to opportunities for NCRIC to make strategic acquisitions to expand its business, product offerings and geographic scope. As a result of the reorganization, NCRIC is better positioned to make acquisitions, since it has greater access to capital and can issue stock in connection with an acquisition. In addition, NCRIC intends to diversify into other healthcare-related enterprises through strategic acquisitions like the HealthCare Consulting Acquisition. NCRIC has no current acquisition plans.

Maintain conservative balance sheet and strong ratings. Management believes that existing and prospective clients evaluate, among other factors, the financial strength of NCRIC in any decision regarding the purchase of medical liability coverage.

Use legal and risk management expertise to vigorously reduce loss costs. NCRIC's experience with, commitment to and focus on medical professional liability insurance for 18 years has allowed it to develop strong knowledge of the local healthcare and legal environments and to build an extensive database of medical professional liability claims experience. NCRIC uses this expertise to select and price risks, to provide risk management services to prevent or reduce the severity of losses and to aggressively defend against unjustified claims or excessive settlement demands.

Build on direct distribution by adding sales from broker/agent channel. NCRIC's traditional direct distribution in the District of Columbia has held down expenses and provided closer ties to its insureds than is usually obtained through an intermediary. Direct distribution provided 98% of NCRIC's renewal premiums in 1998. Of premiums received from new insureds, 85% were obtained through direct distribution and 15% through brokers and independent agents. NCRIC believes it can further improve new business through greater use of brokers and independent agents, both in connection with geographic expansion and in marketing to larger healthcare providers. To this end, NCRIC intends to develop relationships with selected brokers who have demonstrated expertise in the medical professional liability insurance market.

HEALTHCARE CONSULTING ACQUISITION

After a lengthy search for a partner who shared its vision, on December 1, 1997 NCRIC MSO entered into a joint venture with HealthCare Consulting to provide practice management services to its insureds. Critical to the selection of HealthCare Consulting was its long history of working with physicians and its advocacy of the independent success of physicians. HealthCare Consulting had also developed successful independent group practice models which fit NCRIC MSO's business plan. Independent Group Practice models integrate groups of physicians with shared practice management services and common information systems, while permitting the physicians to maintain individual ownership of their practices. The joint venture between NCRIC MSO and HealthCare Consulting began providing services to NCRIC's insureds in early 1998.

As the joint venture progressed, NCRIC began discussions regarding the HealthCare Consulting Acquisition. On January 4, 1999, NCRIC Group acquired all of the outstanding shares of HealthCare Consulting and all of the outstanding membership interests of HealthCare Consulting's affiliate, HCI Ventures. NCRIC Group also purchased all of the assets of Employee Benefits Services, an employee benefits company formed by the three shareholders of HealthCare Consulting. NCRIC Group assumed all of the liabilities of HealthCare Consulting, HCI Ventures and those relating to the assets of Employee Benefits Services. HealthCare Consulting has been merged into NCRIC MSO, and HCI Ventures has become a wholly-owned subsidiary of NCRIC MSO. The HealthCare Consulting Acquisition will greatly enhance NCRIC's ability to provide practice management, employee benefit services and financial services to physicians in Washington, D.C. metropolitan area and throughout the Mid-Atlantic region.

HealthCare Consulting. Since 1978, HealthCare Consulting or its predecessor has provided practice management services, accounting and tax services and personal financial planning services to medical and dental practices throughout the Mid-Atlantic region. HealthCare Consulting offers its clients extensive experience and expertise in:

. practice management;

. managed-care contracting;

. information systems implementation;

. practice evaluations;

. billing and collections;

. personnel;

. practice structure; and

. management and market recognition among key players in the healthcare industry.

HealthCare Consulting has offices in Lynchburg, Virginia; Richmond, Virginia; Fredericksburg, Virginia; and Greensboro, North Carolina and Washington, D.C. On January 4, 1999, HealthCare Consulting had approximately 50 employees, of whom 12 served as practice management consultants.

The following table indicates the sources of HealthCare Consulting's revenues during the past three calendar years:

                                    1998             1997            1996
                                    ----             ----            ----
Practice Management               48.9%            46.1%           46.0%

Accounting and Tax                32.1%            32.4%           30.6%

Personal Financial Planning       13.2%            10.3%           11.0%

   Other                           5.8%            11.2%           12.4%
                                 ------           ------          ------
     Total                         100%             100%            100%
                                 ======           ======          ======

HCI VENTURES. HCI Ventures provides start-up capital to newly-formed management services organizations. HCI Ventures owns interests ranging from 5% to 20% in four management services organizations: Middle Fork MSO, L.L.C.; Central Virginia MSO, L.L.C.; Southwest Virginia MSO, L.L.C.; and Mid-Atlantic MSO-FBG, L.L.C. Created in 1997, HCI Ventures allows HealthCare Consulting to have an equity ownership interest in the various management services organizations for whom HealthCare Consulting provides practice management services. HCI Ventures' income has not been material.

EMPLOYEE BENEFITS SERVICES. Employee Benefits Services provides employee benefits services, plan design, plan administration and plan asset accounting to approximately 300 clients in the Mid-Atlantic region. Employee Benefits Services also manages documentation and required forms filings. Over 85% of HealthCare Consulting's physician practice clients who qualify for plan administration services utilize Employee Benefits Services as their employee benefit plan administrator. While Employee Benefits Services initially provided services only to healthcare businesses, currently over 50% of its clients are non-healthcare related. On January 4, 1999, Employee Benefits Services had nine employees.

The following table indicates the sources of Employee Benefits Services' revenues during the past three years:

                                      1998             1997            1996
                                      ----             ----            ----
 Retirement Plan Accounting and
Administration                          90%              89%              94%

Employee Benefit                        10%              11%               6%

      Total                            100%             100%             100%

Senior executive experience. The former three owners of HealthCare Consulting, HCI Ventures and Employee Benefits Services, all of whom have entered into five-year employment contracts with HealthCare Consulting to continue in their current positions , have the experience indicated in the following table:

                                 Years with Acquired         Total Years in
                                        Companies         Healthcare Consulting

L.E. Shepherd                             20                         26

William A. Hunter                         17                         17

Barry S. Pillow                           13                         19

HEALTHCARE CONSULTING, HCI VENTURES AND EMPLOYEE BENEFITS SERVICES PURCHASE PRICE. In accordance with the HealthCare Consulting Acquisition purchase agreements , NCRIC Group paid $5.1 million in cash, subject to adjustments, and delivered three mandatorily convertible notes in the aggregate principal amount of $300,000. On the completion of the subscription offering the notes will automatically convert into 42,857 shares of NCRIC Group's common stock. NCRIC Group will pay an additional $3.1 million if HealthCare Consulting, HCI Ventures and Employee Benefits Services achieve earnings targets in 2000, 2001 and 2002.

Sequoia National Bank ("Sequoia") loaned to NCRIC Group $2.2 million to finance a portion of the HealthCare Consulting Acquisition purchase price. The term of the loan is 7.5 years, and the interest rate is prime plus 0.75% per annum, with an additional one-half point being payable on closing. Monthly payments are interest only for the first six months and blended payments of interest and principal thereafter. Sequoia has the option to call the loan at the end of 6 months and 3.5 years of the term. NCRIC Group granted as security for the loan (1) an assignment of all of the capital stock of HealthCare Consulting and the membership interests of HCI Ventures and (2) a blanket lien on all of the receivables of HealthCare Consulting and Employee Benefits Services. There is no penalty for prepayment by NCRIC Group. NCRIC, Inc. loaned to NCRIC Group the balance of the purchase price of the HealthCare Consulting Acquisition that was payable at closing. The

terms of the loan from NCRIC, Inc. to NCRIC Group are the same as the terms of the Sequoia loan except that the loan from NCRIC, Inc. to NCRIC Group is unsecured and there was no obligation to pay a one-half point on closing.

NCRIC Group, NCRIC MSO, HealthCare Consulting, HCI Ventures, and L.E. Shepherd, Jr., William A. Hunter, Jr. and Barry S. Pillow (collectively, the "Executives") entered into an operating agreement dated January 4, 1999. The Executives are entitled to manage the operations of HealthCare Consulting, HCI Ventures and Employee Benefits Services, subject to the board of directors' approval of specified transactions and of provisions in the operating agreement which provide for minimum earnings targets. The term of the operating agreement expires December 31, 2003.

The Executives' employment agreements provide that each Executive will not compete with NCRIC, NCRIC MSO, HealthCare Consulting or HCI Ventures for a period of two years after the termination of his employment with HealthCare Consulting and HCI Ventures.

THE REORGANIZATION

On April 20, 1998, the board of governors of National Capital Reciprocal Insurance Company adopted the plan of reorganization, which authorized the reorganization. The Commissioner of Insurance and Securities held a public hearing on the reorganization on September 9 and 10, 1998. The plan of reorganization was approved by National Capital Reciprocal Insurance Company's members on September 16, 1998. The Commissioner of Insurance and Securities approved the plan of reorganization on November 25, 1998, and the plan of reorganization became effective on December 31, 1998.

The reorganization authorized National Capital Reciprocal Insurance Company to form NCRIC, A Mutual Holding Company as a mutual insurance holding company and to convert into NCRIC, Inc., a stock medical professional liability insurance company. Through a series of stock transfers effected in connection with the reorganization, NCRIC, A Mutual Holding Company owns all of the outstanding shares of NCRIC Holdings, Inc., which owns all of the outstanding shares of NCRIC Group, which owns all of the outstanding shares of NCRIC, Inc. and NCRIC MSO. District of Columbia law provides that NCRIC, A Mutual Holding Company must at all times own, directly or indirectly, a majority of the outstanding voting stock of NCRIC, Inc.

In his order approving the reorganization, the Commissioner of Insurance and Securities imposed various conditions including the following:

. At least two-thirds of the members of the boards of directors of NCRIC, A Mutual Holding Company and NCRIC, Inc. must at all times be policyholders of NCRIC.

. NCRIC, A Mutual Holding Company, NCRIC Holdings, Inc., NCRIC Group and NCRIC are prohibited from pledging assets having an aggregate value in excess of 49% of the equity of NCRIC, based on the most recent financial statements prepared and calculated in accordance with statutory accounting principles, without the prior approval of the Commissioner of Insurance and Securities.

. NCRIC Group must first utilize funds raised from capital sources, if needed in the best judgment of the board of directors of NCRIC, A Mutual Holding Company, to improve the quality of NCRIC, Inc.'s medical professional liability insurance product, maintain its competitive pricing structure and ensure the stability and longevity of NCRIC, Inc.

. The Department of Insurance and Securities Regulation retains regulatory authority over NCRIC Group, NCRIC Holdings, Inc. and any other intermediate holding companies that may in the future be inserted between NCRIC, A Mutual Holding Company and NCRIC.

. NCRIC may not, without approval of the Commissioner of Insurance and Securities, by way of an acquisition or investment in a subsidiary, or otherwise, diversify out of the healthcare and insurance fields.

. In the event that NCRIC Group makes an initial public offering, the terms of the proposed offering must be submitted to the Department of Insurance and Securities Regulation for its prior approval in the form of an order from the Commissioner of Insurance and Securities. On January 27, 1999, the Commissioner of Insurance and Securities issued an order approving the subscription, community and syndicated community offerings subject to NCRIC Group's registration statement being declared effective by the Securities and Exchange Commission.

REASONS FOR THE REORGANIZATION

As a reciprocal insurance company, National Capital Reciprocal Insurance Company had no ability to issue shares of capital stock and consequently had no access to market sources of equity capital and limited ability to increase its surplus and fund future growth while maintaining the financial strength necessary to assure policyholders that their obligations would be met. In view of the changing climate affecting the practice of medicine, physicians require assistance in addition to insurance. The reorganization enables NCRIC to raise funds to use in providing the additional assistance.

REGULATION OF NCRIC, A MUTUAL HOLDING COMPANY AFTER THE REORGANIZATION

NCRIC, A Mutual Holding Company, as a mutual insurance holding company organized in the district of columbia, is subject to regulation at a level substantially equal to that of a District of Columbia domestic insurance company. The Commissioner of Insurance and Securities retains jurisdiction over NCRIC, A Mutual Holding Company, NCRIC Holdings, Inc., NCRIC Group and NCRIC to assure that policyholders' interests are protected.

CONVERSION OF NCRIC, A MUTUAL HOLDING COMPANY TO THE STOCK FORM OF ORGANIZATION

District of Columbia law provides that NCRIC, A Mutual Holding Company may fully demutualize, which is a conversion from a mutual holding company form of organization to a stock form of organization. There is a risk that such a transaction will never occur, and the Board of Directors has no current intention or plan to undertake such a transaction. Under District of Columbia law, if such a transaction occurs, eligible policyholders would receive the right to subscribe for additional shares of the new stock holding company that would be formed in the full demutualization. By order dated January 27, 1999, the Commissioner of Insurance and Securities stated that in a full demutualization, each share of common stock outstanding and held by persons other than NCRIC, A Mutual Holding Company would be converted automatically into shares of common stock of the new stock holding company. Specifically, the number of shares that each stockholder would receive would be determined under an exchange ratio that ensures that after the transaction, the percentage of the to-be outstanding shares of the new stock holding company received by a stockholder in exchange for his or her common stock equals the percentage of the outstanding shares of common stock owned by the stockholder immediately prior to the full demutualization. To date, the Commissioner of Insurance and Securities has not issued regulations regarding the conversion of a District of Columbia mutual holding company to stock form, and there is a risk that any regulations will not be effective when NCRIC, A Mutual Holding Company may wish to undertake a full demutualization. Moreover, there is a risk as to what form any regulations may take and what conditions the Commissioner of Insurance and Securities may impose on a full demutualization of NCRIC, A Mutual Holding Company.

Under legislation recently approved by the Council of the District of Columbia, prior to the implementation of a proposed full demutualization, a tender offer for more than 50% of the outstanding shares of the corporation is prohibited unless approved by the Commissioner of Insurance and Securities.

GOVERNANCE OF NCRIC

An order of the District of Columbia Commissioner of Insurance and Securities requires that at least two-thirds of the members of NCRIC, A Mutual Holding Company's board of directors be NCRIC policyholders. Currently, there are three non-policyholders on NCRIC, A Mutual Holding Company's 18-member board of directors. In addition, 7 of 10 members of NCRIC Group's and NCRIC Holdings' boards of directors and 6 of 8 members of NCRIC, Inc.'s board of directors are currently policyholders of NCRIC, Inc.

MARKETING AND POLICYHOLDER SERVICES

NCRIC markets directly to its insureds through eight employees providing sales solicitation and communications services. NCRIC markets directly to solo practitioner physicians and other prospective insureds through its relationships with medical associations, referrals by existing insureds, advertisements in medical journals, the presentation of seminars on timely topics for physicians and direct solicitation to licensed physicians. NCRIC attracts new physicians through special rates for medical residents and discounts for physicians just entering medical practice. In addition, NCRIC participates as a sponsor and participant in various medical group and hospital administrators' programs, medical association and specialty society conventions and similar programs. NCRIC believes that this personal, comprehensive approach to marketing is essential to providing medical professional liability insurance, where special knowledge and experience are a prerequisite.

In addition to these direct marketing channels, NCRIC sells its products through independent brokers and agents who currently produce less than 2% of NCRIC's direct premiums written in NCRIC's market areas. Healthcare institutions frequently prefer brokers over direct solicitation when they purchase medical professional liability insurance. Therefore, NCRIC believes that developing its broker relationships in Virginia, Maryland, West Virginia and Delaware is important to grow its market share. NCRIC selects brokers and agents that it believes have demonstrated growth and stability in the medical professional liability insurance industry, strong sales and marketing capabilities, and expertise in selling medical professional liability insurance. Brokers and agents receive market rate commissions and other incentives averaging 7% based on the business they produce. NCRIC strives to maintain relationships with those brokers and agents who are committed to promoting NCRIC's products and are successful in producing business for NCRIC.

NCRIC also has a policyholder services department that provides account information to all insureds and maintains relationships with the small medical groups and solo practitioners insured by NCRIC. Each of these smaller insureds has a designated client service representative who can answer most inquiries and, in other instances, can provide the insured with immediate access to the person with expertise in a particular department. For hospitals and large and mid-size medical groups, NCRIC has an account manager assigned to each group who heads a service team comprised of underwriting, risk management and claims management

representatives, each of whom may be contacted directly by the policyholder for prompt response.

RISK MANAGEMENT

NCRIC provides risk management services that are designed to reduce potential loss exposures by informing insureds about methods of implementing risk reduction measures to improve their medical practices. The risk management committee assists the risk management department to identify loss trends in the local as well as national market. The risk management committee is comprised of physicians representing various medical specialties. Through these efforts, NCRIC can identify and present topical loss prevention programs.

The majority of NCRIC's claims result, in part, from a physician's failure to adequately communicate or document his or her activities. NCRIC addressed these topics as well as others in its 1998 Risk Management Seminar Educational Program. Seminars on "Constructing an Operative or Procedure Note" and "Medicare Documentation Guidelines" highlighted the documentation needs of physicians. Communication issues were the focal point in "Communication in the Medical Practice" and "Basic Risk Management Principles." In addition, the Risk Management Program also advises physicians of medical topics which give rise to malpractice claims. An example of this was NCRIC's seminar on "Chest Pain Diagnosis and Treatment." In 1998, 66% of NCRIC's insureds attended risk management seminars, earning continuing medical education credits.

NCRIC also produces a quarterly newsletter to present additional topics of interest to physicians. When immediate dissemination of information is warranted, a risk management alert is distributed. NCRIC's risk management staff are also available for consultation with insureds on an individual basis to review issues which may arise in the insured's practice.

Risk management services supplement NCRIC's marketing efforts. The risk management department conducts physician office visits on both a voluntary and involuntary basis to review practice procedures and focus on specific areas in which concerns arise. NCRIC provides office assessments for physicians on a voluntary basis, consisting of an on-site visit with review of medical records and office practices. Feedback is given to the physicians in the form of suggestions made to reduce risk factors in their office.

Risk management reviews are also performed at the request of the underwriting and claims committees. Once the reviews have been completed, a report is provided to the requesting committee.

NCRIC intends to begin offering its risk management services independently of its core insurance products. Healthcare providers, such as hospitals and large clinics, who self insure will be able to purchase risk management services directly from NCRIC. The risk

management services will be offered through direct marketing efforts and by agents and brokers to their larger self-insured accounts.

CLAIMS AND LITIGATION EXPERIENCE

The claims department of NCRIC is responsible for claims investigation, establishment of appropriate case reserves for loss and LAE, defense planning and coordination, control of attorneys engaged by NCRIC to defend a claim and negotiation of the settlement or other disposition of a claim. NCRIC's policies obligate it to provide a defense for its insureds in any suit involving a medical incident covered by its policy, which is in addition to the limit of liability under the policy. The cost of this defense is in addition to any payments made by NCRIC in connection with the claim. Medical professional liability claims often involve the evaluation of highly technical medical issues, severe injuries and conflicting expert opinions. In almost all cases, the person bringing the claim against the physician is already represented by legal counsel when NCRIC learns of the potential claim.

NCRIC emphasizes early evaluation and aggressive management of claims. When a claim is reported, claims department professionals complete an initial evaluation and set the initial reserve. After a full evaluation of the claim has been completed, which generally occurs within seven months, the initial reserve may be adjusted. NCRIC has established different levels of authority within the claims department for settlement of claims.

As of December 1, 1998, NCRIC had approximately 280 open cases with an average of 65 cases being handled by each claims representative. The claims representatives at NCRIC are all certified paralegals who have on average over 11 years of experience with NCRIC and an average of 12 years of prior experience handling medical professional liability cases. NCRIC limits the number of claims handled by each representative to approximately 70 cases. Management believes that by limiting the case loads of its claims representatives, all of its insureds who face claims will receive personalized, professional service, thus enabling claims to be thoroughly investigated, well-managed and, if they have merit, quickly resolved.

NCRIC retains locally-based attorneys specializing in medical professional liability defense to defend claims. NCRIC also obtains the services of medical experts who are leaders in their specialties and who bring integrity, credibility and expertise to the litigation process.

NCRIC's claims committee is composed of eight physicians from various specialties including anesthesiology, general surgery and neurosurgery, obstetrics, internal medicine and radiology. The claims committee meets monthly to provide evaluation and guidance on claims. The multi-specialty approach of these physicians adds a unique perspective to the claims handling process in that there is an opportunity to obtain the opinions of several different specialists meeting to share their expertise and experience in the area of liability evaluation and general peer review. This service is invaluable to the claims representatives and insureds as it provides in-depth analysis of claims.

Federal law requires that any claim payment, regardless of amount, be reported to a national practitioner data bank which can be accessed by various state licensing and disciplinary boards, hospitals, other healthcare entities and professional societies. Thus, the physician is often placed in a difficult position of knowing that a settlement may result in the initiation of a disciplinary proceeding or some other impediment to the physician's ability to practice. The claims department staff must be able to fully evaluate considerations of settlement or trial and to communicate effectively NCRIC's recommendation to its insured. NCRIC may investigate a claim and, with the written consent of the named insured, settle any claim or suit as it deems expedient. In the event the named insured and NCRIC fail to agree that a claim or suit should be settled, either party may request a review and decision by a peer review panel selected in accordance with established NCRIC procedures.

District of Columbia Superior Court rules impact NCRIC's claims handling, particularly in the area of claims handling expenses. The discovery period, during which the plaintiff's case must be discerned and, in conjunction with an attorney, the defense developed, generally takes place over a six- to eight-month period of intense activity, which increases claims handling expenses. The court-imposed mediation process has not proven to successfully resolve NCRIC's cases in part because the volunteer mediators are frequently plaintiffs' attorneys. Trials are being set about one to one and a half years from the date of service of the complaint. Despite obstacles presented by the legal environment, management believes its aggressive claims handling procedures effectively assist NCRIC to reduce losses and obtain favorable results.

Proactive approaches to reducing NCRIC's exposure and improving its favorable results include the annual claims/legal seminar at which defense attorneys retained by NCRIC are present for coordination, discussion and presentations on all aspects of claims handling.

Trial results from the 36-month period from January 1996 through December 1998 reveal that of the 70 cases tried, 53, or 76%, were won by NCRIC, 11 trials resulted in verdicts for the plaintiff, 5 ended in hung juries, and one was settled. Trial results for 1998 reveal that of the 21 cases tried, 18, or 86%, were won by NCRIC, one trial resulted in a verdict for the plaintiff, and two ended in mistrials or hung juries.

UNDERWRITING

NCRIC's underwriting committee consists of 12 physicians, all of whom are insureds of NCRIC. Members of the committee are not employees of NCRIC, but receive compensation for their services on the committee. In addition to the underwriting committee, NCRIC has an underwriting department consisting of three underwriters and two technical and administrative assistants. NCRIC believes that this combination of medical professionals and insurance industry professionals gives NCRIC a competitive advantage in underwriting services. The physicians on the underwriting committee are able to assist the underwriting department's insurance professionals by applying their medical knowledge to better assess risk.

NCRIC's underwriting department is responsible for the evaluation of applicants for medical professional liability coverage, the issuance of policies and the establishment and implementation of underwriting standards for all of the coverages underwritten by NCRIC. The underwriting department provides information to the underwriting committee to assist the physicians on the committee in making their decisions.

NCRIC follows what it believes to be consistent and conservative procedures with respect to the issuance of all physician professional liability policies. Each applicant or member of an applicant medical group is required to complete a detailed application that provides a personal and professional history, the type and nature of the applicant's professional practice, information relating to specific practice procedures, hospital and professional affiliations and a complete history of any prior claims and incidents. NCRIC performs its own independent verification of these matters and conducts an investigation to determine if there are any lawsuits that may not have been disclosed in the application.

NCRIC performs a continuous process of reunderwriting its insured physicians. Information concerning physicians with large losses, a high frequency of claims or changing or unusual practice characteristics is developed through renewal applications, claims and risk management reports. Each year, NCRIC also sends current practice questionnaires to all of its insured physicians. These questionnaires request information similar to that submitted in connection with the physician's original application for insurance, and are designed to detect any changes in the specialty or practice characteristics of the physician that may require a higher or lower premium rate or possible non-renewal of insurance.

The underwriting department submits all recommendations for premium surcharges or non-renewal to the underwriting committee for a final decision. Physicians have the right to seek reconsideration of surcharges by NCRIC's board of directors, although to date, every request for reconsideration has resulted in the underwriting committee's decision being upheld. As insureds are often more comfortable discussing claims and practice issues with their peers, NCRIC has found that physician interchange with the committee is a strength of NCRIC.

RATES

NCRIC establishes, through its management and independent actuaries, rates and rating classifications for its physician and medical group insureds based on the loss and LAE experience it has developed over the past 18 years and the loss and LAE experience for the entire medical professional liability market. NCRIC has various rating classifications based on practice location, medical specialty and other factors. NCRIC utilizes various discounts, including discounts for part-time practice, physicians just entering medical practice, claim-free insureds and risk management participation. Most discounts are designed to encourage lower risk physicians to insure with NCRIC. Total discounts granted to a policyholder cannot exceed 25% of the policyholder's premium. Effective rates equal NCRIC's base rate, less any discounts and renewal credits provided to the insured. NCRIC utilizes national data in

developing rates for managed care, since the data for managed care organization errors and omissions liability is extremely limited, as tort exposures for these organizations are only recently beginning to develop.

NCRIC's base rates increased 6% in 1998, were unchanged in 1997 and increased 5.6% in 1996. NCRIC raised its rates in 1998 because of an increase in the average severity of claims. NCRIC established its rates based on its previous loss experience, loss expense adjustments, anticipated policyholder discounts and NCRIC's fixed and variable expenses.

Since 1993, National Capital Reciprocal Insurance Company has authorized renewal premium dividend credits to insureds who renew their policies. Renewal credits are a premium credit on the renewal policy's premium. Renewal credits stabilize policyholder premiums and improve NCRIC's competitive position relative to other insurers by encouraging policyholder renewals. For accounting purposes, renewal credits are accrued for the period declared as a reduction of premium income. NCRIC's insureds are not automatically entitled to renewal credits and only renewing insureds receive renewal credits. National Capital Reciprocal Insurance Company has in the past, and NCRIC will in the future, consider general insurance market conditions as well as the previous years' loss and loss adjustment expenses in determining whether or not to authorize renewal credits and the amounts of any renewal credits. Since 1993, National Capital Reciprocal Insurance Company authorized renewal credits in the following amounts:

                                          Percentage of
                                            Earned
Year                  Amount            Renewal Premiums
----                  ------            ----------------
1998               $1,762,976                 12.5%
====               ==========                 ====
1997               2,245,918                    16%
1996               1,452,308                    10%
1995               1,560,907                    10%
1994               1,806,450                    10%
1993               1,829,078                    10%

Actual renewal credits issued by NCRIC will generally be lower than declared renewal credits because some policyholders do not renew their policies each year and, as a result, do not receive renewal credits. In 1997, the actual renewal credits issued to policyholders exceeded renewal credits declared because NCRIC began to stagger policy renewal dates in 1997.

RISK SHARING ARRANGEMENTS

Since its inception, NCRIC has maintained good relationships with various hospitals in the Washington, D.C. metropolitan area which has led to the creation of integrated risk sharing

programs for groups of physicians practicing at these hospitals. By entering into a risk sharing arrangement, physicians practicing at a hospital will pay lower individual premiums if the physicians in their hospital group, taken as a whole with risk management protocols. Under a risk sharing arrangement, physicians receive an initial premium reduction or credit. At the end of the calendar year covered by the premium, a review of the actual loss experience of the physician group is completed. Should the group's loss experience be unfavorable, NCRIC will require additional premium payments to offset the unfavorable losses.

Another type of risk sharing arrangement offered by NCRIC involves the initial funding of a portion of a premium being held by NCRIC to pay losses. In this type of arrangement, NCRIC receives its full gross premium, less applicable credits otherwise granted, and pays losses from the amount being held; thereafter, any remaining funds are returned to the insured should a review of actual loss experience show favorable loss experience.

Risk sharing arrangements help lower NCRIC's risk associated with medical care provided by the hospital's attending physicians. The arrangements also establish a cost-effective source of professional liability coverage for physicians participating in the program.

LOSS AND LAE RESERVES

The determination of loss and LAE reserves involves projection of ultimate losses through an actuarial analysis of the claims history of NCRIC and other medical professional liability insurers, subject to adjustments deemed appropriate by NCRIC due to changing circumstances. Included in its claims history are losses and LAE paid by NCRIC in prior periods, and case reserves for losses and LAE developed by NCRIC's Claims Department as claims are reported and investigated. Actuaries rely primarily on 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 or decrease in the amount of reserves, including reserves for insured events of prior years, would have a corresponding adverse or beneficial effect on NCRIC's results of operations for the period in which the adjustments are made.

The uncertainties inherent in estimating ultimate losses on the basis of past experience have grown significantly in recent years principally as a result of judicial expansion of liability standards and expansive interpretations of insurance contracts. These uncertainties may be further affected by, among other factors, changes in the rate of inflation and changes in the propensities of individuals to file claims. The inherent uncertainty of establishing reserves in the casualty insurance business is even greater for companies writing long-tail casualty insurance,

like medical professional liability insurance, even on a claims-made basis. This is due primarily to the longer time that typically elapses between the covered incident and the resolution of the claim.

NCRIC's independent actuaries review NCRIC's reserves for losses and LAE periodically and prepare semi-annual reports that include a recommended level of reserves. NCRIC considers this recommendation as well as other factors, like loss retention levels and anticipated or estimated changes in frequency and severity of claims, in establishing the amount of its reserves for losses and LAE. NCRIC continually refines reserve estimates as experience develops and claims are settled. Medical professional liability insurance is a line of business for which the initial loss and LAE estimates may change significantly as a result of events occurring long after the reporting of the claim. For example, loss and LAE estimates may prove to be inadequate because of sudden severe inflation or adverse judicial or legislative decisions.

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

                                                         Year Ended December 31,
                                              --------------------------------------------
                                                1998              1997               1996
                                              -------            ------            -------
                                                            (in thousands)
BALANCE, Beginning of period                  $75,136           $71,206            $72,033

    Less reinsurance recoverable on
   unpaid claims                               17,077            14,679             16,182
                                              -------           -------            -------

 NET BALANCE                                   58,059            56,527             55,851
                                              -------           -------            -------
    Incurred related to:
      Current year                             19,140            19,444             16,775
                                              -------           -------            -------
      Prior years                              (3,463)           (3,853)            (1,539)
                                              -------           -------            -------

           Total incurred                      15,677            15,591             15,236
                                              -------           -------            -------
    Paid related to:
      Current year                              1,247             1,867              2,145
                                              -------           -------            -------
      Prior years                               9,335            12,192             12,415
                                              -------           -------            -------

           Total paid                          10,582            14,059             14,560
                                              -------           -------            -------

 NET BALANCE                                   63,154            58,059             56,527
                                              -------           -------            -------

    Plus reinsurance recoverable  on
   unpaid claims                               24,546            17,077             14,679
                                              -------           -------            -------

BALANCE, End of period                        $87,700           $75,136            $71,206
                                              =======           =======            =======

The amounts shown above are presented in conformity with generally accepted accounting principles, and the amounts on the chart located on the next page are presented on a statutory reporting basis. The difference in the net reserves shown in each table is due to differences in classification of reported liability balances between the two reporting bases.

The following table reflects the development of reserves for unpaid losses and LAE for the years indicated, at the end of that year and each subsequent year. The first line shows the reserves, net of reinsurance recoverable, as originally reported at the end of the stated year. Each calendar year-end reserve includes the estimated unpaid liabilities for that coverage year and for all prior coverage years. The section under the caption "Cumulative Liability Paid Through End of Year" shows the cumulative amounts paid through each subsequent year on those claims for which reserves were carried as of each specific year end. The section under the caption "Re-estimated Liability" shows the original recorded reserve as adjusted as of the end of each

subsequent year to reflect the cumulative amounts paid and any other facts and circumstances discovered during each year. The line "Redundancy (deficiency)" sets forth the difference between the latest re-estimated liability and the liability as originally established.

The table reflects the effects 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 favorable loss development, being the original estimate minus the actual loss, would be included in the cumulative redundancy in each of the years 1988 through 1997 shown below. This table presents development data by calendar year and does 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.

                                   1988      1989      1990       1991      1992      1993       1994      1995       1996      1997

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

Reserve for Unpaid                $24,463   $26,098   $32,151    $49,178   $54,783    $55,826   $55,747   $52,748   $53,422  $54,955

Losses and LAE


Cumulative Liability Paid
Through End of Year:
     One year later.                8,977     6,836    12,561      8,110    11,556     14,424    12,917    14,002    13,076    9,335

     Two years later               13,130    16,479    18,552     16,358    23,952     25,181    24,118    23,612    20,065

     Three years later             17,143    19,949    21,605     23,002    30,999     31,651    30,586    28,062

     Four years later              19,188    22,191    25,891     26,878    34,900     35,160    32,305

     Five years later              20,803    25,307    28,387     29,148    36,738     36,069
     Six years later               23,234    26,335    29,115     29,681    37,495
     Seven years later             24,242    27,057    29,595     30,418

     Eight years later             24,632    27,252    29,939

     Nine years later              24,829    27,597
     Ten years later               25,173


Re-estimated Liability:
     One year later                25,020    27,326    35,942     43,124    47,009     48,459    49,319    49,316    47,313   51,492
     Two years later               22,967    30,014    29,123     35,855    41,689     43,830    48,000    41,408    45,496
     Three years later             24,599    26,603    28,085     32,879    39,524     44,856    41,998    41,709
     Four years later              23,348    26,135    30,692     31,807    41,270     42,600    42,597
     Five years later              23,493    27,898    30,136     32,224    41,415     43,732
     Six years later               25,368    27,602    30,311     32,964    42,834
     Seven years later             25,016    27,997    30,999     34,591
     Eight years later             25,541    28,493    31,461
     Nine years later              26,025    29,010
     Ten years later               26,475


Redundancy (deficiency)            (2,012)   (2,912)      690     14,587    11,949     12,094    13,150    11,039     7,926    3,463

General office premises liability incurred losses have been less than 1% of medical professional liability incurred losses in the last five years. NCRIC does not have reserves for pollution claims as NCRIC's policies exclude liability for pollution. NCRIC has never been presented with a pollution claim brought against it or its insureds.

REINSURANCE

NCRIC follows customary industry practice by reinsuring a portion of its risks and paying a reinsurance premium based upon the premiums received on all policies subject to reinsurance. By reducing NCRIC's potential liability on individual risks , reinsurance protects NCRIC against large losses. NCRIC has full underwriting authority for professional liability policies including premises liability policies issued to physicians, surgeons, dentists and

professional corporations and partnerships. The reinsurance program cedes to the reinsurers up to the maximum reinsurance policy limit (1) those risks insured by NCRIC in excess of NCRIC's retention -- an amount of exposure retained by NCRIC and (2) quota share participation -- a percentage of exposure retained by NCRIC.

Although reinsurance does not discharge NCRIC from its primary liability for the full amount of its insurance policies , it contractually obligates the reinsurer to pay successful claims against NCRIC to the extent of risk ceded. NCRIC's current reinsurance program consists of three separate reinsurance treaties:

(1) SWING RATED TREATY. NCRIC's first treaty is a swing rated treaty which reinsures NCRIC for losses in excess of $500,000 per claim, subject to an inner aggregate deductible of 5% of Gross Net Earned Premium Income ("GNEPI"), up to $1,000,000. GNEPI is NCRIC's gross premium earned less reinsurance premiums, discounts and renewal credits. The ultimate reinsurance premium is subject to incurred losses and ranges between a minimum premium of 4% of GNEPI and a maximum premium of 22.5% of GNEPI. The inner aggregate deductible means that NCRIC must pay losses within the reinsurance layer until the inner aggregate deductible is satisfied. NCRIC pays a deposit premium equal to 14% of GNEPI that is ultimately increased or decreased based on actual losses, subject to the minimum and maximum premium. Following are the reinsurance premium terms for the swing rated treaty for calendar years 1999, 1998, 1997, 1996 and 1995.

                                                             Percentage of GNEPI
                                                             -------------------

                                         1999         1998        1997         1996         1995
                                         ====         ----        ----         ----         ----
Deposit Premium                          14.0%        14.0%       14.0%        14.0%        14.0%

Maximum Premium                          22.5%        22.5%       22.5%        30.0%        40.0%

Minimum Premium                           4.0%         4.0%        4.0%         4.0%         4.0%

 Inner Aggregate Deductible               5.0%         5.0%        5.0%        10.0%        10.0%

NCRIC has recorded, based on management's best estimate, its maximum premium expense under the terms of the swing rated treaty in the current and the preceding treaty years and will adjust the liability and expense as losses develop in subsequent years.

(2) FIRST EXCESS LAYER TREATY. This treaty covers losses up to $1,000,000 in excess of $1,000,000 per claim. NCRIC cedes 91% of its risks to the $1,000,000 excess layer treaty program and retains 9% of the risks. The premium payable by NCRIC for the $1,000,000 excess layer treaty is 91% of the premium collected from insureds for this coverage. NCRIC receives a ceding commission from the reinsurers to cover the cost associated with issuing this coverage to its insureds.

(3) Second excess layer treaty. This treaty covers losses up to $3,000,000 in excess of $2,000,000 per claim. NCRIC cedes 100% of its risks to the $2,000,000 excess layer treaty program and retains none of the risks. The premium for the $2,000,000 excess layer treaty is 100% of the premium collected from insureds for this coverage. NCRIC receives a ceding commission from the reinsurers to cover the cost associated with issuing this coverage to its insureds.

Ceding commissions, which are 15% of gross ceded reinsurance premiums in the $1,000,000 excess layer treaty and $2,000,000 excess layer treaty, are deducted from other underwriting expenses. Ceding commissions were $300,000, $223,000 and $235,000 in 1998, 1997 and 1996.

Ninety percent of Commonwealth Medical Insurance Liability Company's risks are reinsured by NCRIC. Commonwealth Medical Insurance Liability Company's risks are in turn reinsured by NCRIC's reinsurance treaties.

Additionally, NCRIC's reinsurance program protects NCRIC from paying multiple retentions for claims arising out of one event. NCRIC will only pay one $500,000 retention regardless of the number of original policies or claimants involved. NCRIC also has protection against losses in excess of its existing reinsurance. Following is a table that summarizes the structure of NCRIC's current reinsurance program:

TOTAL AMOUNT OF INDIVIDUAL LOSS                Company             Reinsurers
                                               -------             ----------
  $0 - $500,000                                 100%                    0
  $500,000 - $1,000,000                           4%                   96%

  $1,000,000 - $2,000,000                         9%                   91%

  $2,000,000 - $5,000,000                         0                   100%

The table does not reflect the effect of the inner aggregate deductible.

NCRIC may provide policy limits in excess of $5,000,000 which are reinsured through facultative reinsurance programs. Facultative reinsurance programs are reinsurance programs which are specifically designed for a particular risk not covered by NCRIC's existing reinsurance arrangements. NCRIC currently has facultative reinsurance in connection with a group of physicians who desire policy limits greater than $5,000,000.

NCRIC determines the amount and scope of reinsurance coverage to purchase each year based upon its evaluation of the risks accepted, consultations with reinsurance consultants and a review of market conditions, including the availability and pricing of reinsurance. NCRIC's reinsurance treaties are placed with non-affiliated reinsurers for three-year terms with annual renegotiations. NCRIC's current three-year treaty expires January 1, 2000.

The reinsurance program is placed with a number of individual reinsurance companies and Lloyds' syndicates to mitigate the concentrations of reinsurance credit risk. Most of the reinsurers are London companies or Lloyds' syndicates; there is a small percentage placed with a domestic reinsurer. NCRIC relies on its wholly-owned brokerage firm, National Capital Brokerage, Inc., Willis Faber North America and a London-based intermediary to assist it in the analysis of the credit quality of its reinsurers. NCRIC also requires reinsurers that are not authorized to do business in the District of Columbia to post a letter of credit to secure reinsurance recoverable on paid losses.

The following table reflects reinsurance recoverable on paid and unpaid losses at December 31, 1998 by reinsurer:

Reinsurer                                                 Reinsurance
                                                          Recoverable
                                                          -----------
                                                         (in thousands)
 Lloyd's of London syndicates                              $14,098
                   ==========                                =====
Hannover Reinsurance                                         2,147
                                                              ====
CNA Reinsurance of London Limited                            2,908
                                                             =====
Unionamerica Insurance                                       2,785
                                                             =====
 Zurich Reinsurance                                          1,410
==================                                            ====
5 other reinsurers                                           1,596
                                                          ========

         Total                                             $24,944
                                                          ========

The effect of reinsurance on premiums written and earned for the years ended December 31, 1998, 1997 and 1996 is as follows:

                                                 Year Ended December 31,
                   ------------------------------------------------------------------------------------
                              1998                       1997                       1996
                   ---------------------------  -----------------------  ------------------------------
                     Written       Earned       Written        Earned       Written        Earned
                                                   (in thousands)
Direct              $19,214       $16,270       $17,869        $17,466      $19,017        $19,017
                    =======       ========

 Ceded                3,699         4,089        (1,854)        (1,854)      (4,239)        (4,239)
                    ----===       ========     ---------      ---------    ---------      --------

 Net                $22,913       $20,359       $16,015        $15,612      $14,778        $14,778
                    =======                    =========      =========    =========      ========

In 1997, NCRIC introduced an errors and omissions policy for managed care organizations and a provider stop loss coverage for health care providers accepting financial risk associated with providing health care services on a fixed or capitated reimbursement rate.

NCRIC's limited knowledge regarding both of these exposures led NCRIC to structure a reinsurance program unique to these exposures. NCRIC does not have underwriting authority and only retains 5% of the premiums and losses under each of these policies. Individual risks are submitted to the reinsurer for underwriting and pricing. NCRIC receives a ceding commission of 15% in connection with provider stop loss coverage but does not receive ceding commissions in connection with errors and omissions policies. NCRIC intends to accept higher levels of risk as it learns the characteristics of these risk exposures and begins to generate profitable revenue volume.

INVESTMENT PORTFOLIO

Investment income is an important component of the operating results of NCRIC. Investments of NCRIC are made by investment managers and internal management under policies established and supervised by the Investment Committee of the board of directors of NCRIC, Inc. NCRIC's current investment policy has placed primary emphasis on investment grade, fixed maturity securities and seeks to maximize after-tax yields and minimize credit risk of the portfolio. However, NCRIC's investment guidelines which set the parameters for NCRIC's investment policy permit NCRIC to invest up to 10% of its investments in tax-advantaged preferred stocks. Currently, NCRIC's investments in equity securities consist exclusively of investments in preferred stock. NCRIC, Inc.'s investment committee is currently considering investing up to 10% of its investment assets in common stocks, which will require an amendment to NCRIC's investment guidelines.

Since 1996, NCRIC has conducted a DYCARR analysis of its investment portfolio on an annual basis. DYCARR is a proprietary financial model of Prime Advisors, Inc. designed specifically for property and casualty insurance companies to maximize after-tax investment income while simultaneously managing interest rate risk. DYCARR measures the amount and probability of operational cash flow stress and defines maturity schedules which will produce the selected confidence level that all resulting negative operating cash flows will be covered by maturing assets. The new schedule of maturities increased the portfolio's duration from a target of 4.8 years to 5.7 years with a +/- 0.5-year band. In addition, DYCARR estimates the amount of income gained or lost from changes in the selected confidence level and identifies the impact each variable has on negative operating cash flows. As a result of the 1996 DYCARR analysis, 25% of National Capital Reciprocal Insurance Company's investment portfolio was shifted to tax-advantaged securities like municipals and preferred stocks. NCRIC now conducts a DYCARR analysis annually.

NCRIC currently uses Brown Brothers Harriman and Prime Advisors as outside investment managers for fixed income maturity securities. NCRIC also uses Brown Brothers Harriman as an outside investment manager for equity securities.

The following table sets forth the fair value and the amortized cost of the investment portfolio of NCRIC at the dates indicated.

                                                      Gross            Gross
                                   Amortized        Unrealized       Unrealized          Fair
                                      Cost            Gains            Losses           Value
As of  December 31, 1998                                 (in thousands)

U.S. Government and agencies       $23,728           $1,032             $(16)          $24,744
Corporate                           18,823              704              (40)           19,487
Tax-exempt obligations              19,329            1,045                -            20,374
Mortgage-backed securities          26,218              381              (69)           26,530

                                    88,098            3,162             (125)           91,135
Preferred Stocks                     5,195               88              (70)            5,213

Total                              $93,293           $3,250            $(195)          $96,348
                                 =========           ======            ======           ======

As of December 31, 1997

U.S. Government and agencies       $28,293             $115              $(7)          $28,401
Corporate                           16,168              394              (28)           16,534
Tax-exempt obligations              20,811              383              (11)           21,183
Mortgage-backed securities          23,683              241               (6)           23,918
                                 ---------           ------            ------          -------

                                    88,955            1,133              (52)           90,036
Preferred stocks                     4,208              136              (18)            4,326
                                 ---------           ------            ------          -------

Total                              $93,163           $1,269             $(70)          $94,362
                                 =========           ======            ======          =======

As of December 31, 1996

U.S. Government and agencies       $20,182              $29            $(429)          $19,782
Corporate                           13,371               70              (53)           13,388
Tax-exempt obligations              20,116               18               (7)           20,127
Mortgage-backed securities          31,513                -              (80)           31,433
                                 ---------           ------            ------          -------

                                    85,182              117             (569)           84,730
Preferred stocks                     4,877               27              (48)            4,856
                                 ---------           ------            ------          -------

Total                              $90,059             $144            $(617)          $89,586
                                 =========           ======            ======          =======

NCRIC's investment portfolio of fixed maturity securities consists primarily of intermediate-term, investment-grade securities. NCRIC's investment policy provides that all security purchases be limited to rated securities or unrated securities approved by management on the recommendation of NCRIC's investment advisor. As of December 31, 1998, NCRIC held 50 mortgage-related securities most of which had a quality of Agency/AAA . Collectively, NCRIC's mortgage-related securities had an average yield-to-maturity of approximately 6.41%. Approximately 46% of the mortgage-related securities are pass-thru securities. NCRIC does not have any interest only or principal only pass-thru securities.

The following table sets forth information concerning the maturities of fixed maturity securities in NCRIC's investment portfolio as of December 31, 1998, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

                                                      December 31, 1998
                                                      -----------------
                                          Amortized                   Percentage of
                                          ---------                   -------------
                                             Cost       Fair Value      Fair Value
                                             ----       ----------      ----------
                                               (in thousands)
Due in one year or less                   $  1,611       $ 1,619           1.7%
Due after one year through five years        9,552         9,767          10.2%
Due after five years through ten years      20,275        21,028          21.8%
Due after ten years                         30,442        32,191          33.4%
                                          --------      --------      --------
                                            61,880        64,605          67.1%
Preferred stocks                             5,195         5,213           5.4%
Mortgage-backed securities                  26,218        26,530          27.5%
                                          --------      --------      --------
Total                                     $ 93,293       $96,348         100.0%

Proceeds from bond maturities and redemptions of available for sale investments during the years 1998, 1997 and 1996 were $58,811,000, $35,475,000 and $59,577,000. Gross gains of $521,000, $300,000 and $451,000 and gross losses of $362,000, $210,000 and $221,000 were realized on available for sale investment redemptions during 1998, 1997 and 1996.

The average effective maturity and the average modified duration of the securities in NCRIC's fixed maturity portfolio as of December 31, 1998, was 13.56 years and 5.75 years.

               NAME                       AGE                   POSITION
--------------------------------------    ---    ---------------------------------------
Nelson P. Trujillo, M.D...............    61     Chair of the Board of  NCRIC, A Mutual
                                                 Holding Company and NCRIC Group
R. Ray Pate, Jr.......................    39     Director, President and Chief Executive
                                                 Officer of  NCRIC, A Mutual Holding
                                                 Company and NCRIC Group
Bruce J. Ammerman, M.D................    51     Director of  NCRIC, A Mutual Holding
                                                 Company
Arthur A. Becker, M.D.................    62     Director of  NCRIC, A Mutual Holding
                                                 Company
----------------------------------------------------------------------------------------

               NAME                       AGE                   POSITION
--------------------------------------    ---    ---------------------------------------
Vincent C. Burke, III.................    47      Director of  NCRIC, A Mutual Holding
                                                  Company and NCRIC Group
Thomas Calhoun, M.D...................    66      Director and Secretary of  NCRIC, A
                                                  Mutual Holding Company
Pamela W. Coleman, M.D................    42      Director of  NCRIC, A Mutual Holding
                                                  Company and NCRIC Group
Charles H. Epps, Jr., M.D.............    68      Director of NCRIC Group
Robert A. Fischer, M.D................    66      Vice  Chair of the Board of  NCRIC, A
                                                  Mutual Holding Company
Major P. Gladden, M.D.................    63      Director of  NCRIC, A Mutual Holding
                                                  Company
Leonard M. Glassman, M.D..............    52      Director of NCRIC Group
Luther W. Gray, Jr., M.D..............    58      Director and Assistant Secretary of
                                                  NCRIC, A Mutual Holding Company
Joseph E. Gutierrez, M.D..............    64      Director of  NCRIC, A Mutual Holding
                                                  Company
Sheila Hafter-Gray, M.D...............    68      Director of  NCRIC, A Mutual Holding
Florie Hirsch, M.D....................    49      Director of  NCRIC, A Mutual Holding
                                                  Company
J. Paul McNamara......................    50      Director of  NCRIC, A Mutual Holding
                                                  Company and NCRIC Group
Leonard Parver, M.D...................    54      Director of NCRIC Group
David W. Patterson, M.D...............    39      Director of  NCRIC, A Mutual Holding
                                                  Company
Raymond Scalettar, M.D.                   70      Director of NCRIC Group
David M. Seitzman, M.D................    69      Director of NCRIC Group
Joel M. Taubin, M.D...................    57      Director of  NCRIC, A Mutual Holding
                                                  Company
Anthony S. Unger, M.D.................    43      Director of  NCRIC, A Mutual Holding
                                                  Company
Mervin H. Zimmerman, M.D..............    64      Director of  NCRIC, A Mutual Holding
                                                  Company
Stephen S. Fargis.....................    39      Chief Operating Officer and Senior
                                                  Vice President of NCRIC Group and
                                                  NCRIC, A Mutual Holding Company
William E. Burgess....................    43      Senior Vice President (Claims and Risk
                                                  Management) and Secretary of NCRIC
                                                  Group and  NCRIC, A Mutual Holding
                                                  Company
----------------------------------------------------------------------------------------

               NAME                       AGE                   POSITION
--------------------------------------    ---    ---------------------------------------
Rebecca B. Crunk......................    47      Chief Financial Officer and Senior Vice
                                                  President of NCRIC Group and  NCRIC, A
                                                  Mutual Holding Company

NCRIC Group's board of directors has established an Audit Committee. The Audit Committee recommends the firm to be appointed as independent accountants to audit financial statements, reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants NCRIC's year-end audit and considers the adequacy of NCRIC's internal accounting controls. The Audit Committee consists of Drs. Seitzman and Coleman and Mr. Burke.

The positions listed above commenced upon the reorganization. Set forth below with respect to each of the directors and executive officers of NCRIC, A Mutual Holding Company and NCRIC Group is a description of the director's or officer's business experience, principal occupation and employment during at least the last five years.

Nelson P. Trujillo, M.D. was a Governor and Chair of the Board of National Capital Reciprocal Insurance Company from 1980 until the reorganization. Dr. Trujillo is currently President of Metropolitan Gastroenterology Group where he is a physician.

R. Ray Pate, Jr. was the Treasurer of National Capital Reciprocal Insurance Company and President and Chief Executive Officer of National Capital Underwriters, Inc. from 1996 until the reorganization. From 1993 to 1995, Mr. Pate was Vice President, Hospital Division of FPIC, Inc., a medical professional liability insurance company.

Bruce J. Ammerman, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1986 until the reorganization. Dr. Ammerman is a neurological surgeon with Washington Neurosurgical Associates.

Arthur A. Becker, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1982 until the reorganization. Dr. Becker is President of the Obstetrical and Gynecological Group, P.A. where he practices as an obstetrician/gynecologist. He is a former Chair of the Medical Economics and Ob- Gyn Peer Review Committees of the Medical Society of the District of Columbia.

Vincent C. Burke, III has been a partner with the firm of Furey, Doolan & Abell, LLP since June 1, 1998. From April 1992 to May 1998, he was counsel to the law firm of Reed Smith Shaw & McClay. Mr. Burke's practice is in the areas of corporate, business, real estate and closely-held businesses. He practices in the District of Columbia and Maryland.

Thomas Calhoun, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1980 until the reorganization. Dr. Calhoun is also a consultant for Birch &

Davis Associates, Inc., specializing in the utilization and quality review of Veterans Administration hospitals. He is a member of the Expert Peer Review Panel (Surgery) whose responsibility is to review surgical cases for utilization and quality assurance. He is a past President of the medical staff at Providence Hospital and the Washington Academy of Surgery and is a past Regional Medical Director of the Delmarva Professional Organization.

Pamela W. Coleman, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1989 until the reorganization. Dr. Coleman is a urologist in private practice.

Charles H. Epps, Jr., M.D. was the Chair of the board of directors of National Capital Underwriters, Inc. from 1980 until the reorganization. Dr. Epps is also a director of National Capital Insurance Brokerage, Ltd. and Commonwealth Medical Liability Insurance Company. Currently, he is Special Assistant to the President for Health Affairs and Professor Emeritus, Orthopaedic Surgery at Howard University. Dr. Epps is past Vice President for Health Affairs and Dean Emeritus of Howard University College of Medicine. He has served as a delegate to the American Medical Association House of Delegates and a member of the AMA Council on Ethical and Judicial Affairs. In addition, he has been President of the American Orthopaedic Association, a Governor of the American College of Surgeons and a member of the American Board of Orthopaedic Surgery.

Robert A. Fischer, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1980 until the reorganization. Dr. Fischer is a clinical physician and part owner of Washington Internal Medicine Group. He was Vice Chair of the NCRIC Board of Governors and a member of the Executive Committee of the NCRIC Board of Governors. He is also a member of the Board of Directors of NCRIC MSO, Inc. Dr. Fischer is a past member of the Executive Board of Medical Society of the District of Columbia and a past member of the Board of Trustees of Blue Cross/Blue Shield of the National Capital Area. He is a past member of the Executive Committee of the George Washington University Hospital and Chair of the Clinical Faculty Advisory Committee to the Chair of the Department of Medicine, George Washington University School of Health Sciences.

Major P. Gladden, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1982 until the reorganization. Dr. Gladden is an orthopedic surgeon and Chief of Ortho pedics at DC General Hospital.

Leonard M. Glassman, M.D. was a Director of National Capital Underwriters, Inc. from 1993 until the reorganization. Dr. Glassman is a physician with Washington Radiology Associates, P.C. He is a past member of the Finance Committee of the Medical Society of the District of Columbia and has been Chief of Radiology of Columbia Hospital for Women Medical Center since 1984.

Luther W. Gray, Jr., M.D. was a Governor of National Capital Reciprocal Insurance Company from 1984 until the reorganization. He was a member of the executive committee of the board and is Chair of the Underwriting Committee. Dr. Gray is a physician and general surgeon with Luther W. Gray, Jr., M.D., P.C. and is Chair of the Department of Surgery at Sibley Memorial Hospital.

Joseph E. Gutierrez, M.D. was a Governor of National Capital Reciprocal Insurance Company from November 1995 until the reorganization. Dr. Gutierrez is the President of Joseph E. Gutierrez, M.D., P.C., where he is a general and vascular surgeon. He is the President-Elect of the Medical Society of the District of Columbia and serves on the Medical Society of the District of Columbia board of directors. He serves as delegate to the AMA House of Delegates and is chair of the District of Columbia Delegation. In addition, Dr. Gutierrez serves on the Board of Columbia Hospital for Women Medical Center where he is Secretary of the board and chairs the Performance Improvement Committee.

Sheila Hafter-Gray, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1981 until the reorganization. Dr. Hafter-Gray is a physician in private practice and is a Trustee of the American Academy of Psychoanalysis and Clinical Professor of Psychiatry at the Uniformed Services University of the Health Sciences in Bethesda, Maryland. Dr. Hafter-Gray recently retired as a member of the Commission on Mental Health of the Superior Court of the District of Columbia.

Florie Hirsch, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1987 until the reorganization. Dr. Hirsch is an obstetrician/gynecologist with Florie Hirsch, M.D., P.C.

J. Paul McNamara has been President and Chief Operating Officer of Sequoia National Bank/Sequoia BancShares, Inc. since 1988. From 1976 to 1988, Mr. McNamara was employed by the National Bank of Washington in several senior management positions.

Leonard Parver, M.D. is the Chair of the Board of NCRIC MSO, Inc. and has practiced medicine in Washington, D.C. for the past 22 years. Dr. Parver served previously on the board of directors of NCRIC Physicians Organization.

David W. Patterson, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1992 until the reorganization. Dr. Patterson is a physician with Drs. Arling & Patterson, P.C.

Raymond Scalettar, M.D. was a Vice Chair of the board of directors of National Capital Underwriters, Inc. from 1980 until the reorganization. He has also been Chair of National Capital Insurance Brokerage, Inc. since its inception. He is affiliated with and is a founder of the Washington Internal Medicine Group, a Health Policy Consultant, a past trustee

and Chair of the Board of the AMA, and past Commissioner and Senior Consultant to the Joint Commission on Accreditation of Healthcare Organizations.

David M. Seitzman, M.D. was a member of the board of directors of National Capital Underwriters, Inc. from 1980 until the reorganization. Dr. Seitzman is now retired from the practice of medicine. He has served on the boards of Blue Cross and Blue Shield of the National Capital Area, the Medical Society of the District of Columbia and National Capital Underwriters, Inc., and has served as President and co-founder of the Center for Ambulatory Surgery, Inc. Since 1993, Dr. Seitzman has served as a director of 59 Wall Street Fund, Inc. Dr. Seitzman is also a director of Brown Brothers Harriman, one of NCRIC's investment advisors.

Joel M. Taubin, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1994 until the reorganization. Dr. Taubin is a physician with Joel M. Taubin, M.D., P.C.

Anthony S. Unger, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1997 until the reorganization. Dr. Unger is a physician. Dr. Unger serves on the board of directors of NCRIC, A Mutual Holding Company under an agreement between NCRIC and the Medical Society for the District of Columbia.

Mervin H. Zimmerman, M.D. was a Governor of National Capital Reciprocal Insurance Company from 1995 until the reorganization. Dr. Zimmerman is an ophthalmologist with Mervin H. Zimmerman, M.D., F.A.C.S., P.C. and is a member of the American Board of Ophthalmology and the American College of Surgeons.

Stephen S. Fargis was Senior Vice President (Business Development) of National Capital Reciprocal Insurance Company from November 1995 until the reorganization. He is also Chief Operating Officer of NCRIC, Inc. From 1990 to 1995, he was Vice President of The Virginia Insurance Reciprocal.

William E. Burgess was Senior Vice President (Claims and Risk Management) of National Capital Reciprocal Insurance Company from August 1997 until the reorganization. From April 1997 to August 1997, he was Vice President (Claims, Risk Management) of NCRIC, and from 1993 to April 1997, he was Vice President (Claims, Risk Management and Underwriting) of NCRIC.

Rebecca B. Crunk was Chief Financial Officer of National Capital Reciprocal Insurance Company from April 1998 until the reorganization. Ms. Crunk is a certified public accountant and is a member of the American Institute of Certified Public Accountants. From 1995 to 1998, she was Vice President, Treasurer and Controller of ReliaStar United Services Life Insurance Company . From 1985 to 1995, she was Senior Vice President and Controller of United Services Life Insurance Company.