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The following is an excerpt from a 10-K SEC Filing, filed by MIIX GROUP INC on 11/22/2004.
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MIIX GROUP INC - 10-K - 20041122 - PART_I

PART I

ITEM 1. BUSINESS

The MIIX Group, Incorporated ("The MIIX Group") was organized as a Delaware corporation in October 1997 and, until September 28, 2004 (see "Subsequent Events" below), was the parent company of a group of medical malpractice insurance and insurance-related subsidiaries. Upon its formation, The MIIX Group succeeded to the business of its predecessor. Until about 1991, the Company's business was based primarily in New Jersey and written through its largest insurance subsidiary, MIIX Insurance Company ("MIIX"). During 1991-2000, the Company expanded to 24 other states, writing through both MIIX and Lawrenceville Property and Casualty Company ("LP&C"). The MIIX Group began operating as a publicly traded company on July 30, 1999.

As a result of net losses reported in 2000 and 2001, the insurance subsidiaries ceased writing new or renewal business in all states by September 1, 2002, consistent with the withdrawal requirements of individual states. By December 31, 2003, all insurance policies written by MIIX had expired.

Since ceasing to write new insurance policies in 2002, the Company's business has consisted principally of managing the runoff of existing claims, the Company's investment portfolio, and the operations of a New Jersey insurance company, MIIX Advantage Insurance Company of New Jersey, which was renamed "MDAdvantage Insurance Company of New Jersey"("MDAdvantage").

For purposes of this Annual Report on Form 10-K, the "Company" refers at all times to The MIIX Group and its subsidiaries, collectively; the term "The MIIX Group" refers at all times to The MIIX Group, Incorporated, excluding its subsidiaries. "MIIX" refers to MIIX Insurance Company. "MIIX Advantage" and "MDAdvantage" both refer to MIIX Advantage Insurance Company of New Jersey, renamed in August 2004 to MDAdvantage Insurance Company of New Jersey. MDAdvantage is not owned by the Company, rather it has a contractual arrangement for its management with New Jersey State Medical Underwriters, Inc. (the "Underwriter"), a subsidiary of The MIIX Group. See Part I, Item 13 of this Form 10-K.

SUBSEQUENT EVENTS. In furtherance of the ongoing monitoring of the runoff of MIIX's insurance operations, the New Jersey Department of Banking and Insurance ("New Jersey Department") appointed an Administrative Supervisor in April 2004. MIIX continued to operate in voluntary solvent runoff until September 28, 2004 when it was placed in rehabilitation by the New Jersey Department. See "Regulation - Order of Rehabilitation" on page 17 of this Form 10-K.

MIIX's excess reinsurance contracts currently in place contain a provision allowing reinsurers to offer additional reinsurance coverage that MIIX is obligated to accept. In September and October 2004, the reinsurers initiated requests for

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additional premiums in accordance with contract terms. MIIX is without sufficient surplus to purchase the requested coverage. See "Reinsurance - Reinsurance Ceded."

During the summer of 2004, the Company retained financial advisors to assist in exploring all of its alternatives. In connection with that exploration, the financial advisors have contacted more than 50 prospective purchasers of assets of MIIX or investors in MIIX. As a consequence of that effort, the Company has received one indication of interest from MDAdvantage to acquire certain assets of the Underwriter and one additional possible offer. The Company is proceeding to negotiate with MDAdvantage the documentation relating to a possible sale of the Underwriter's assets, subject to the receipt of all necessary approvals and "higher or better offers" prior to closing. The Company is also continuing to seek other buyers for its assets. Lawrenceville Re, Ltd. ("Lawrenceville Re") is the sole remaining operating asset of the Company, and it has minimal activity. The Company anticipates that its current cash position will not allow it to continue to operate and that it will be required to wind up its business.

Significant aspects of the description of the Company's business contained in this report are historical in nature and are not necessarily reflective of the Company's current activities.

OVERVIEW

HISTORY OF BUSINESS

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

The Company had total revenues and a net loss of $15.4 million and $314.7 million, respectively, in 2003, total revenues and a net loss of $165.0 million and $116.0 million, respectively, in 2002 and total revenues and a net loss of $233.3 million and $157.6 million, respectively, in 2001. As of December 31, 2003, the Company had total assets of $1.3 billion and a deficiency in total stockholders' equity of $(278.5) million.

RESERVE ADJUSTMENTS

In 2001 and 2002, prior year gross loss and Loss Adjustment Expense ("LAE") reserves were adjusted by $117.9 million and $161.2 million, respectively, to reflect adverse development on several lines of business including New Jersey and other states' physicians, Pennsylvania hospitals and hospital excess. The adjustments were related to increases in severity and frequency. These trends continued in 2003 and were complicated by acceleration in the claims process attributable to tort and judicial reform in Pennsylvania and New Jersey and the impact of MIIX and LP&C entering voluntary solvent runoff in 2002. Loss and LAE reserves for 2003 were established by the Company as a result of an internal actuarial review, an external opining actuarial review and an external actuarial review performed in conjunction with the filing of MIIX's Annual Audited Statutory Financial Statements ("Audited Report"). As a result of these reviews, prior year gross loss and LAE reserves were increased by $353.0 million. The increase was attributable to adverse development and increased severity in the New Jersey and Pennsylvania physician and hospital excess lines of business.

As of December 31, 2003, MIIX's Total Adjusted Capital, as filed in its Audited Report, was a deficit of $(305.6) million, which is below the Mandatory Control Level. MIIX continued to operate in voluntary solvent runoff until September 28, 2004 when the State of New Jersey entered an Order of Rehabilitation of MIIX. See "Regulation - Order of Rehabilitation." Additionally, MIIX completed the merger of LP&C into MIIX on December 31, 2003.

As a result of the losses occurring in 2001 and 2002, the Company's various insurance subsidiaries were required by the New Jersey Department and other applicable state regulatory bodies to cease writing insurance by September 1, 2002. As a result, the Company's business activities since that date have been limited to managing claims, managing its investment portfolio and, through its underwriting subsidiary, providing claims management and underwriting and related services to MIIX and MDAdvantage. By December 31, 2003, all insurance policies written by the Company had expired.

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OTHER RECENT DEVELOPMENTS: 2003-2004

Primarily as a result of the dramatic increases in reserves over the past three years, the Company has experienced a number of adverse developments. The following are among the most significant.

During 2003, MIIX entered into an Order with the New Jersey Department that set forth the framework for the regulatory monitoring of MIIX and established certain operating limitations on MIIX. On September 28, 2004, the Superior Court of New Jersey entered an Order placing MIIX into rehabilitation. See "Regulation
- Order of Rehabilitation" on page 17 of this Form 10-K.

The trading of The MIIX Group's common stock was suspended at the opening of business on April 28, 2003 by the New York Stock Exchange ("NYSE") because The MIIX Group was "below criteria" as its total capitalization was less than $50 million over a 30-day trading period and stockholders' equity was less than $50 million. The MIIX Group's common stock now trades on the Over-The-Counter ("OTC") Bulletin Board under the ticker symbol "MIIX." See "Risks and Uncertainties."

During 2002, the Company engaged financial advisors to assist it in obtaining offers for the Company's assets. No viable offers to make a significant investment in the Company or to purchase all of the Company were received. In 2004, the Company engaged additional financial advisors to assist it in exploring all available alternatives, and the Company continues to be interested in entertaining any and all offers by any interested parties for its assets and/or for investment in the Company. In connection with that exploration, the financial advisors have contacted more than 50 prospective purchasers of assets of the Company or investors in the Company. As a consequence of that effort, the Company has received one indication of interest from MDAdvantage to acquire certain assets of the Underwriter and one additional possible offer. The Company is proceeding to negotiate with MDAdvantage the documentation relating to a possible sale of the Underwriter's assets, subject to the receipt of all necessary approvals and "higher or better offers" prior to closing. The Company is also continuing to seek other buyers for its assets.

CLAIMS

Although entry of the Order of Rehabilitation for MIIX on September 28, 2004, gave the New Jersey Department authority over claims, the Company's Claims Department was responsible for claims investigation, establishment of appropriate case reserves for loss and Allocated Loss Adjustment Expense ("ALAE"), defense planning and coordination, supervision of attorneys engaged by the Company to defend a claim and negotiation of the settlement or other disposition of a claim at December 31, 2003. All of the Company's primary policies require it to defend its insureds. Medical malpractice claims often involve the evaluation of highly technical medical issues, severe injuries and conflicting medical opinions. In almost all cases, the person bringing the claim against the insured is already represented by legal counsel when the claim is reported to the Company.

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

LOSS AND LAE RESERVES

As discussed above, the Company has recorded substantial increases in its loss and LAE Reserves in each of the past three years. In consequence, the Company ceased writing medical malpractice insurance in New Jersey as of September 1, 2002, and in all other states in accordance with their respective specific requirements. In September 2004, MIIX was determined by the New Jersey Department to be in hazardous financial condition, and on September 28, 2004, an Order of Rehabilitation was entered with respect to MIIX. The discussion that follows summarizes the methodology employed by the Company in establishing loss and LAE reserves and some of the adverse developments experienced by the Company over the past few years.

Loss reserves recorded by the Company include estimates of amounts to be paid for losses and for LAE. LAE consists of two types of costs, ALAE and Unallocated Loss Adjustment Expenses ("ULAE"). ALAE are settlement costs that can be allocated to a specific claim such as attorney fees and court costs. ULAE consists of costs that are general in nature and cannot be allocated to any specific claim, including

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mainly salaries and overhead associated with the Company's Claims Department. ULAE reserves recorded by the Company represent management's best estimate of the internal costs necessary to settle all incurred claims, including Incurred But Not Reported ("IBNR") claims.

The determination of loss and LAE reserves involves the projection of ultimate losses through quarterly actuarial analyses. Included in the Company's claims history are losses and LAE paid by the Company in prior periods, and case reserves for anticipated losses and ALAE developed by the Company's Claims Department as claims are reported and investigated. Management relies primarily on such historical loss experience in determining reserve levels on the assumption that historical loss experience provides a good indication of future loss experience despite the uncertainties in loss trends and the delays in reporting and settling claims.

There are significant uncertainties in estimating ultimate losses in the casualty insurance business. The uncertainties are even greater for companies writing long-tail casualty insurance, such as medical malpractice insurance, and in particular the occurrence-like coverage that make up a substantial portion of the Company's current reserves. These additional uncertainties are due primarily to the longer period of time during which an insured may seek coverage for a claim with respect to an occurrence-like policy as opposed to a claims-made policy. In 2004, the Company is still experiencing development on claims associated with coverage written in the 1970's. With the longer claim reporting and development period, reserves are more likely to be affected by, among other factors, changes in judicial liability standards and interpretation of insurance contracts, changes in the rate of inflation and changes in the propensities of individuals to file claims.

These uncertainties inherent in estimating losses have been exacerbated by several factors in the past several years. The Company's entry into runoff in 2002 resulted in a continuous decline of policies in force during 2003, with no policies remaining in force as of December 31, 2003. This caused a significant and continuing decrease in new claim reports as well as an overall significant decrease in total pending claims. The decreased pending claims, and especially the decreased new claim reports, which consumed disproportionately longer set-up time, have allowed a greatly increased time for each claim handler to work on existing claims. This has resulted in an acceleration in the setting up of case reserves, departing significantly from the historic patterns the Company has relied upon to estimate future development and IBNR.

Simultaneously, significant changes in the litigation environment in New Jersey, which represents approximately 50% of the Company's reserves, resulted in faster processing of claims and a corresponding acceleration in case reserving. The court system in New Jersey instituted its "Best Practices" initiative in September 2000 which was intended to speed cases through the courts. This initiative has substantially speeded up trials in New Jersey and thus has affected the entire claims management process. In June 2003, the courts issued a public report stating that the court system in New Jersey had reached its lowest level of backlogged cases since 1980.

As a result of these various uncertainties, estimates reflected in earlier loss reserves may be revised, as has been the case in each of the past three years.

METHODOLOGIES. The Company sets and adjusts financial statement loss and LAE reserves beginning with the claims adjudication process. Claims examiners establish case reserves by a process that includes extensive development and use of statistical information that allows for comparison of individual claim characteristics against historical patterns and emerging trends. This process also provides critical information for use in establishing the IBNR component of the financial statement reserves.

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

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

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

A brief description of each of these methods follows:

o Incurred Development Method: Historical patterns of loss and ALAE emergence are observed and selections of period-to-period development factors are made to estimate the relative development within a Coverage Year from one maturity point to the next. These selected factors are applied to the latest reported incurred loss and ALAE amounts for each Coverage Year. This method is used mainly for relatively mature Coverage Years.
o Berquist-Sherman Method: Changing conditions in the claim management process can cause significant distortions in reserve projections. The Berquist-Sherman Method adjusts the historical data to the conditions inherent in the most recent data. This allows selections of period-to-period development factors which take into account the changes in conditions.
o Bornhuetter-Ferguson Method: This method relies on the assumption that the remaining unreported loss and ALAE amounts are a function of the total expected amounts rather than a function of the latest reported incurred loss and ALAE amounts. Expected future development amounts are added to current reported incurred loss and ALAE amounts for each Coverage Year. The expected future development amounts for each Coverage Year are derived by multiplying an a-priori expected ultimate loss and ALAE amount by the estimated percentage of ultimate loss and ALAE unreported, to date. This percentage is based on the factors selected within the Incurred Development Method. The a-priori expected ultimate loss and ALAE amount is derived via either of two approaches: (1) it is assumed to match the prior quarter's selected ultimate loss and ALAE amount; or (2) it is based upon a more mature Coverage Year's selected ultimate loss and ALAE amount as a ratio to earned premium, the current Coverage Year's earned premium and estimated effects of rate and mix-of-business differences between the more mature and current Coverage Years. This method is used mainly for relatively immature Coverage Years.
o Frequency-Severity Method: Ultimate reported claim counts and ultimate average loss and ALAE per claim are projected separately, and then multiplied together. Ultimate claim counts are derived in a manner similar to the Incurred Development Method; however, the implied ultimate claim counts are analyzed as ratios to exposure level to achieve implied frequencies. Final frequencies are selected judgmentally and multiplied by the exposure measure to obtain final ultimate reported claim counts. Ultimate average loss and ALAE per claim are derived through curve-fitting techniques in which the a-priori parameters are the estimated ultimate reported claim counts and ultimate loss and ALAE amounts achieved via another method. Selected curve fits are extrapolated to more recent Coverage Years for which credible severity information may not yet exist. This method is used mainly for relatively immature Coverage Years.
o ALAE-to-Indemnity Ratio Method: This method is only used to estimate ultimate ALAE amounts when loss and ALAE are projected independently. Both ALAE and indemnity amounts must have been projected to ultimate using other methodologies. Then ratios of (ultimate ALAE)-to-(ultimate indemnity) are calculated for each Coverage Year, and appropriate ratios are judgmentally selected for each year. More mature Coverage Years serve as a basis for the selections in immature years. Then, the selected ratios are multiplied by the ultimate indemnity amounts. This method is used mainly for relatively immature Coverage Years.
o Audit Method: Claims personnel review individual claims and estimate their ultimate loss and ALAE amounts based on their specific characteristics. This method is mainly used for segments of the business with low frequency and high severity exposures.
o Paid-to-Paid Ratio Method: Historical ratios of (paid ULAE)-to-(paid indemnity and ALAE) are calculated and serve as a basis for the judgmental selection of a corresponding ratio to be expected in the future. This ratio is applied to the estimated indemnity and ALAE reserves.

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RESERVES BY POLICY TYPE AND YEAR. The Company also reserves by policy type and by year. In addition to claims-made insurance coverage, the Company offered traditional occurrence professional liability insurance coverage from 1977 through 1986 and offered a form of occurrence-like coverage, "modified claims-made," from 1987 to August 31, 2002. The Company's modified claims-made policy was the Permanent Protection Policy ("PPP"). Under the PPP, coverage was provided for claims reported to the Company during the policy period arising from incidents since inception of the policy. The PPP included "tail coverage" for claims reported after expiration of the policy for occurrences during the policy period, and thus was reserved on an occurrence basis. As displayed in the table below, loss and LAE reserves carried for PPP policies and traditional occurrence professional liability policies constituted approximately 67% of the gross loss and LAE reserves at December 31, 2003.

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

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

                                              Professional Liability
                              ---------------------------------------------------
                                Occurrence/        % of        Claims       % of                    % of       Total Gross
                              Occurrence-Like      Total        Made        Total       Other       Total        Reserves
                              ---------------      -----      --------      -----      -------      -----      -----------
Gross Reserves Held as of:
December 31, 2001                $832,290          69.5%      $357,495      29.9%       $7,213       0.6%      $1,196,998
December 31, 2002                 750,175          65.1%       395,774      34.4%        5,686       0.5%       1,151,635
December 31, 2003                 812,527          66.7%       401,564      32.9%        4,866       0.4%       1,218,957

As displayed in the above table, the proportion of the gross loss and LAE reserves held on claims-made medical professional liability policies has grown from 29.9% of total gross loss and LAE reserves held at December 31, 2001 to 32.9% at December 31, 2003. This has primarily been the result of the Company's claims-made policy form writings during 1997 through 2002. New Jersey Physician business was primarily written under the occurrence-like PPP policy. The majority of policies sold in other states were claims-made.

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

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


                                Loss and                   Loss and                                             Total
                                ALAE Case      % of        ALAE IBNR      % of          ULAE        % of        Gross
                                Reserves       Total       Reserves       Total       Reserves      Total      Reserves
                                ---------      ------      ---------      ------      --------      -----     ----------
Gross Reserves Held as of:
December 31, 2001                $429,493       35.9%       $719,268       60.1%      $48,237        4.0%     $1,196,998
December 31, 2002                 436,873       37.9%        696,287       60.5%       18,475        1.6%      1,151,635
December 31, 2003                 463,686       38.0%        737,070       60.5%       18,201        1.5%      1,218,957

The Company issued occurrence policies since 1977 and occurrence-like PPP policies since 1987. There is a significant lag in reporting of incidents or occurrences inherent in the medical malpractice insurance industry. As a result the Company continues to adjust open claims that are associated with coverage written in the 1970's.

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The following table illustrates the amount and percentage of gross loss and LAE reserves held by the Company at December 31, 2003 categorized by year.

Gross Loss and Loss Adjustment Expense Reserves By Coverage Year

                             As of December 31, 2003
                                 (In thousands)

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

1977-93.....................................     $     54,046           4.4%
1994........................................           22,686           1.9%
1995........................................           24,410           2.0%
1996........................................           48,590           4.0%
1997........................................           65,042           5.3%
1998........................................          127,485          10.5%
1999........................................          173,043          14.2%
2000........................................          219,946          18.0%
2001........................................          264,136          21.7%
2002........................................          186,341          15.3%
2003........................................           33,232           2.7%
                                                 ------------         ------
Total Gross Reserves held by the Company....     $  1,218,957         100.0%
                                                 ============         ======

As shown in the above tables, at December 31, 2003, approximately 67% of gross reserves are occurrence based; over 60% of gross reserves are IBNR reserves, and approximately 72% of gross reserves relate to the most recent five coverage years, which are the most immature (and, therefore, most subject to variability) in terms of loss development.

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

                                                            Years Ended December 31,
                                                     --------------------------------------
                                                       2003           2002           2001
                                                     --------       --------       --------
                                                                 (In thousands)
Balance at January 1, gross of reinsurance
  recoverable...................................   $1,151,635     $1,196,998    $1,142,530

Incurred related to:
     Current year...............................       33,582        150,612       230,399
     Prior years................................      352,983        161,207       117,881
                                                   ----------     ----------    ----------
Total incurred..................................      386,565        311,819       348,280
                                                   ----------     ----------    ----------
Paid related to:
     Current year...............................          350          2,648         2,570
     Prior years................................      318,893        354,534       291,242
                                                   ----------     ----------    ----------
Total paid......................................      319,243        357,182       293,812
                                                   ----------     ----------    ----------
Balance at December 31, gross of reinsurance
  recoverable...................................    1,218,957      1,151,635     1,196,998
Reinsurance recoverable.........................      425,785        457,005       463,275
                                                   ----------     ----------    ----------
Balance at December 31, net of reinsurance......   $  793,172     $  694,630    $  733,723
                                                   ==========     ==========    ==========

The Company increased prior year gross reserves by $353.0 million, $161.2 million and $117.9 million during 2003, 2002 and 2001, respectively. Notwithstanding management's analysis and determination in setting its best estimate of aggregate reserves reported in the financial statements, which may or may not require adjustments to aggregate prior year reserves, management regularly evaluates, and adjusts when appropriate, its estimates of coverage year ultimate losses and LAE. Accordingly, reserves established for losses and LAE on individual coverage years may experience greater volatility than aggregate reserves reported in the Company's financial statements. Individual coverage year reserves cover a smaller amount of

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business over a shorter period of time than do the aggregate reserves, which are an accumulation of reserves pertaining to all coverage years. Estimated ultimate losses and LAE associated with individual coverage years were adjusted in 2003, 2002 and 2001. The following table presents the estimated ultimate losses and LAE gross of reinsurance (including changes in such estimates) by coverage year:

                                                      Coverage Year Development
                                                           (In thousands)

                                                                                                    Changes in Estimated
                                                                                                   Ultimate Losses and LAE
                                                       Estimated Ultimate                            for the Years Ended
                                               Losses and LAE as of December 31,                         December 31,
                                    ----------------------------------------------------     --------------------------------------
Coverage Year                           2000          2001           2002          2003          2001          2002         2003
-------------                       ----------    ----------    ----------    ----------     ---------     ---------     ---------
1993 and Prior                      $1,330,901    $1,332,284    $1,336,850    $1,360,565     $   1,383     $   4,566       $23,715

1994                                   143,651       152,787       159,170       168,681         9,136         6,383         9,511
1995                                   155,128       156,665       163,978       170,515         1,537         7,313         6,537
1996                                   179,902       186,510       217,126       238,018         6,608        30,616        20,893
1997                                   205,156       226,797       235,972       255,709        21,641         9,175        19,737
1998                                   242,349       278,821       303,113       339,270        36,472        24,292        36,156
1999                                   307,246       332,052       358,724       414,796        24,806        26,672        56,071
2000                                   276,261       292,559       321,075       374,179        16,298        28,516        53,104
2001                                                 230,399       254,073       330,614                      23,674        76,541
2002                                                               150,612       201,329                                    50,717
2003                                                                              33,582                                    33,582
                                    ----------    ----------    ----------    ----------     ---------     ---------      --------
Total Estimated Ultimate Losses
and LAE                              2,840,594     3,188,874     3,500,693     3,887,258     $ 117,881     $ 161,207      $386,565
                                                                                             =========     =========      ========
Less:  Total Paid Loss and LAE       1,698,064     1,991,876     2,349,058     2,668,301
                                    ----------    ----------    ----------    ----------
Gross Loss and LAE Reserves at
December 31                         $1,142,530    $1,196,998    $1,151,635    $1,218,957
                                    ==========    ==========    ==========    ==========

2001, 2002, 2003 ADJUSTMENTS. In 2001 and 2002, prior year gross loss and LAE reserves were adjusted by $117.9 million and $161.2 million, respectively, to reflect adverse development on several lines of business including New Jersey and other states' physicians, Pennsylvania hospitals and hospital excess. The adjustments were related to increases in severity and frequency.

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

Specific factors in management's actuarial analysis giving rise to the coverage year development in 2002 were increased loss severity, re-underwriting initiatives undertaken by the Company since 1999 and the acceleration of claim reporting, settlement and payments experienced by the Company during 2002.

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

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Company believes the acceleration in New Jersey is attributable to its runoff status, as well as the continued effects of the "Best Practices" initiative mandated by the New Jersey Supreme Court in September 2000.

These trends continued in 2003 and were complicated by acceleration in the claims process attributable to tort and judicial reform in Pennsylvania and New Jersey and the impact on the internal claim process of the Company entering voluntary solvent runoff in 2002. After extensive analyses, the Company's prior year gross loss and LAE reserves were adjusted by $353.0 million for 2003. The increase was primarily attributable to adverse development and increased severity in New Jersey and Pennsylvania physician lines of business and the hospital excess lines in all jurisdictions.

The 2003 adjustments were established as a result of an extensive process, which included an internal actuarial review of data valued at September 30, 2003, December 31, 2003, March 31, 2004, and June 30, 2004, an external opining actuarial review of data valued at September 30, 2003, December 31, 2003 and June 30, 2004 and an external actuarial review performed in conjunction with filing MIIX's Audited Report.

The reason for the extensive actuarial analyses on multiple quarters of data was to determine how much of the development in the loss experience of the Company from quarter to quarter was attributable to acceleration in the claim handling process and environment as opposed to adverse development in terms of increased severity.

Management and 2 external actuarial analyses concur that there is acceleration in the development of the Company's data. Determining, however, what portion is acceleration versus adversity is extremely difficult. Management sought out multiple actuarial reviews over four successive quarters of development data to evaluate the volatile data. The extreme uncertainty in the data and analyses has been the result of several factors.

The Company's entry into runoff in 2002 resulted in a continuous decline of policies in force during 2003, with no policies remaining in force as of December 31, 2003. This caused a significant and continuing decrease in new claim reports as well as an overall significant decrease in total pending claims. The decreased pending claims and especially the reduced new claim reports, which consumed a disproportionately longer time to initially set up, have allowed greatly increased time for each claim handler to work on existing claims. This has resulted in an acceleration in the setting up of case reserves, departing significantly from the historic patterns the Company has relied upon to estimate future development and IBNR.

Simultaneously, significant changes in the litigation environment in New Jersey, which represents approximately 50% of the Company's reserves, resulted in the faster processing of claims and a corresponding acceleration in case reserving. The court system in New Jersey instituted its "Best Practices" initiative in September 2000, which was intended to speed cases through the courts. This initiative has substantially speeded up trials in New Jersey and, thus, has affected the entire claims management process. In June 2003, the courts issued a public report stating that the court system in New Jersey had reached its lowest level of backlogged cases since 1980.

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

                                                               Years Ended December 31,
                                                      -------------------------------------------
                                                         2003             2002             2001
                                                      ---------        ---------        ---------
                                                               (In thousands)
Balance at January 1, net of
  reinsurance recoverable..........................  $  694,630       $  733,723       $  710,484

Incurred related to:
     Current year..................................      33,582          146,619          203,975
     Prior years...................................     237,357           49,868           46,793
                                                     ----------       ----------       ----------
Total incurred.....................................     270,939          196,487          250,768
                                                     ----------       ----------       ----------
Paid related to:
     Current year..................................         350            2,648            2,571
     Prior years...................................     172,047          232,932          224,958
                                                     ----------       ----------       ----------
Total paid.........................................     172,397          235,580          227,529
                                                     ----------       ----------       ----------
Balance at December 31, net of
  reinsurance recoverable..........................     793,172          694,630          733,723
Reinsurance recoverable............................     425,785          457,005          463,275
                                                     ----------       ----------       ----------
Balance at December 31, gross of reinsurance.......  $1,218,957       $1,151,635       $1,196,998
                                                     ----------       ----------       ----------

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

The tables reflect the effect of all changes in amounts of prior periods. For example, if a loss determined in 1998 to be $100,000 was first reserved in 1993 at $150,000, the $50,000 redundancy (original estimate minus actual loss) would be included in the cumulative redundancy in each of the years 1993 through 1997 shown below. The tables present development data by calendar year and do not relate the data to the year in which the claim was reported or the incident actually occurred. Conditions and trends that have affected the development of these reserves in the past will not necessarily recur in the future.

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TABLE I.  LOSS AND LAE RESERVES DEVELOPMENT - GROSS


                              1993     1994      1995      1996      1997      1998       1999       2000        2001       2002
                              ----     ----      ----      ----      ----      ----       ----       ----        ----       ----
                                                                         (In thousands)
LOSS AND LAE RESERVES      $667,200  $688,455  $748,660  $795,449  $876,721 $  951,659 $1,053,597 $1,142,530  $1,196,998 $1,151,635

LIABILITY REESTIMATED AS
OF:
   One year later           623,988   688,455   748,660   795,654   880,543    968,173  1,100,809  1,260,411   1,358,205  1,504,617
   Two years later          623,986   688,450   744,130   793,170   878,233    962,709  1,202,392  1,397,944   1,660,471
   Three years later        623,989   689,122   739,106   772,567   863,657  1,039,486  1,311,410  1,623,669
   Four years later         624,567   674,224   715,136   766,597   903,962  1,121,831  1,484,030
   Five years later         606,219   647,203   707,312   785,261   962,015  1,238,380
   Six years later          588,748   653,275   719,368   834,139 1,042,407
   Seven years later        595,682   663,794   737,630   894,795
   Eight years later        597,065   674,743   777,393
   Nine years later         601,631   707,969
   Ten years later          625,346
CUMULATIVE REDUNDANCY
(DEFICIENCY)                 41,854   (19,514)  (28,733)  (99,346) (165,686)  (286,721)  (430,433)  (481,139)   (463,473)  (352,983)

                              1993     1994      1995      1996      1997      1998       1999       2000        2001       2002
                              ----     ----      ----      ----      ----      ----       ----       ----        ----       ----
                                                                         (In thousands)

CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
   One year later          $ 83,522  $ 98,053  $116,532  $101,217  $141,954 $  164,524 $  230,005 $  291,242  $  354,535  $ 318,893
   Two years later          179,714   212,284   214,484   231,755   298,785    370,911    497,982    620,952     661,087
   Three years later        284,828   293,323   332,920   373,232   470,693    588,348    755,339    888,421
   Four years later         343,563   407,357   452,055   514,813   634,094    771,226    968,729
   Five years later         436,921   492,388   553,205   629,774   757,853    896,538
   Six years later          486,861   552,039   621,022   707,116   828,050
   Seven years later        524,025   594,337   655,511   745,480
   Eight years later        548,388   618,134   676,667
   Nine years later         562,629   631,646
   Ten years later          571,715


TABLE II.  LOSS AND LAE RESERVES DEVELOPMENT - NET

                              1993     1994      1995      1996      1997      1998       1999       2000        2001       2002
                              ----     ----      ----      ----      ----      ----       ----       ----        ----       ----
                                                                       (In thousands)

LOSS AND LAE
RESERVES-GROSS             $667,200  $688,455  $748,660  $795,449  $876,721   $951,659 $1,053,597 $1,142,530 $1,196,998   $1,151,635
REINSURANCE RECOVERABLE
ON UNPAID LOSSES             62,682   112,917   165,729   221,749   270,731    325,795    406,409    432,046    463,275      457,005
                           --------  --------  --------  --------  --------   --------   -------- ---------- ----------   ----------
                            604,518   575,538   582,931   573,700   605,990    625,864    647,188    710,484    733,723      694,630
LIABILITY REESTIMATED AS
OF:
   One year later           559,518   575,538   582,931   573,700   603,906    611,850    698,491    757,277    783,590      931,987
   Two year later           559,518   575,538   582,931   573,321   603,809    649,454    738,008    765,508    988,667
   Three years later        559,518   575,538   580,883   588,477   627,292    678,666    674,266    888,819
   Four years later         559,518   575,124   579,766   595,479   611,087    622,337    756,560
   Five years later         559,133   566,608   587,836   587,991   596,751    699,426
   Six years later          548,242   576,831   586,777   583,738   634,088
   Seven year later         561,953   580,940   587,266   619,876
   Eight years later        564,486   582,625   621,539
   Nine years later         568,076   615,361
   Ten years later          591,551
CUMULATIVE REDUNDANCY
(DEFICIENCY)                 12,967   (39,823)  (38,608)  (46,176)  (28,098)   (73,562)  (109,372)  (178,335)  (254,944)   (237,357)


                              1993     1994      1995      1996      1997      1998       1999       2000        2001       2002
                              ----     ----      ----      ----      ----      ----       ----       ----        ----       ----
                                                                       (In thousands)

CUMULATIVE AMOUNT OF
LIABILITY PAID THROUGH:
   One year later          $ 82,572  $ 97,496  $116,194  $ 84,276  $134,666   $157,359  $ 211,393  $ 224,958   $232,932    $172,048
   Two years later          178,357   211,426   197,370   214,404   284,887    345,305    413,084    433,064    392,640
   Three years later        283,370   278,571   315,743   365,517   439,372    496,456    548,839    553,688
   Four years later         328,836   392,522   437,779   492,617   536,488    557,648    615,383
   Five years later         422,194   478,731   524,447   550,600   542,294    582,701
   Six years later          473,702   523,901   549,919   531,001   560,675
   Seven years later        508,269   544,626   533,102   548,031
   Eight years later        528,303   528,347   548,006
   Nine years later         530,409   541,619
   Ten years later          539,255

The aggregate excess reinsurance contracts, in place from 1995 through 1999, provide coverage above aggregate retentions for losses and ALAE other than certain losses and ALAE retained by MIIX or reinsured under other insignificant reinsurance contracts. The aggregate reinsurance contracts, therefore, have the effect of holding underwriting year net incurred losses and ALAE for years 1995 through 1999 at a constant level provided such losses and ALAE ceded under the aggregate excess reinsurance contracts remain within the coverage limits available in each underwriting year. Ceded losses and ALAE have remained within coverage limits in each year since 1995 with the exception of 1998 and 1999. Loss and LAE reserves have exceeded contract limits in 1998 and 1999 by $6.3 million and $4.5 million, respectively. The aggregate excess reinsurance contracts for 2000 and 2001 cover New Jersey and Pennsylvania physician business

12

only. The aggregate excess reinsurance contract for 2002 covers New Jersey physician business only. The aggregate contracts operate on a funds held basis and provide for premium adjustments based on loss experience. See "Business - Reinsurance" and "Management's Discussion and Analysis of Financial Condition and Results of Operation - Risks and Uncertainties."

REINSURANCE

The Company follows customary industry practice by reinsuring some of its business. The Company typically cedes to reinsurers a portion of its risks and pays a fee based upon premiums received on all policies subject to such reinsurance. Insurance is ceded principally to reduce net liability on individual risks and to provide aggregate loss and LAE protection. Although reinsurance does not legally discharge the ceding insurer from its primary liability for the full extent of the policies reinsured, it does make the reinsurer liable to the insurer to the extent of the reinsurance ceded. The Company reviews its reinsurance needs annually and makes changes in its reinsurance arrangements as necessary. The Company did not purchase reinsurance in 2003 because it was no longer writing insurance policies.

In prior years, the Company reinsured its risks primarily under two reinsurance contracts, the Specific Contract and the Aggregate Contract. See "Business -- Loss and LAE Reserves -- Table II -- Loss and LAE Reserves Development -- Net."

Each of the aggregate excess reinsurance contracts contains an adjustable premium provision that may result in changes to ceded premium and related funds held charges, based on loss experience under the contract. The table below presents a summary of activity for the aggregate excess reinsurance contracts for each of the last three years.

                             Aggregate Excess Reinsurance Contracts Activity
                                               (In millions)
                                 2003               2002            2001
                                 ----               ----            ----
Ceded losses incurred            $98.8              $97.7           $85.9
Ceded premium                    $50.1              $54.4           $54.7
Funds held charges               $43.0              $54.2           $42.5

Each of the aggregate excess reinsurance contracts also contains a profit sharing provision whereby a significant portion of any favorable gross loss and ALAE reserve development may ultimately be returned to the Company once all subject losses and ALAE have been paid or the contract has been commuted. Profit sharing is recorded by the Company after the funds withheld balance related to an aggregate excess reinsurance contract exceeds the related ceded reserves, after any adjustments under the adjustable premium provisions. Profit sharing is recorded as an offset to funds held charges and to the funds withheld liability.

Each of the aggregate excess reinsurance contracts also contains a provision requiring that the funds withheld be placed in trust should the A.M. Best rating assigned to MIIX fall below B+. Under the contracts, and as a result of the downgrade of MIIX's A.M. Best rating to below B+ during the first quarter of 2002, reinsurers requested that assets supporting the funds withheld account be placed in trust. MIIX established the required trust accounts in accordance with contract provisions. Each of the aggregate excess reinsurance contracts also contains a provision allowing reinsurers to offer additional reinsurance coverage that MIIX is obligated to accept. In September and October 2004, the reinsurers initiated requests for additional premiums from MIIX in accordance with provisions of the contracts. Reinsurers are prohibited from canceling current reinsurance agreements or making additional premium charges to MIIX under the September 28, 2004 Order of Rehabilitation.

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

                                             For the Years Ended December 31,
                                           ------------------------------------
                                             2003          2002          2001
                                           --------      --------      --------
                                                      (In thousands)

Ceded premiums earned....................  $ 50,707      $ 59,325      $67,529
Ceded losses and LAE.....................   115,626       115,332       97,509
Funds held charges.......................    42,996        54,209       42,476

13

MIIX seeks to control credit risk from reinsurance by placing the reinsurance with large, highly rated reinsurers and by collateralizing amounts recoverable from reinsurers. The following table identifies the Company's most significant reinsurers, the total amount recoverable from them for unpaid losses, prepaid reinsurance premiums and other amounts as of December 31, 2003, and collateral held by the Company in the form of funds withheld and letters of credit as of December 31, 2003. No other single reinsurer's percentage participation in 2003 exceeded 5% of the total reinsurance recoverable at December 31, 2003.

                                                      At December 31, 2003
                                              ---------------------------------
                                              Total Amounts     Total Amount of
Reinsurer                                      Recoverable      Collateral Held
--------------------------------------------  -------------     ---------------
                                                       (In thousands)

Hannover Reinsurance (Ireland) Ltd..........     $214,226          $207,754
Eisen und Stahl Reinsurance (Ireland) Ltd...       53,556            51,814
London Life and Casualty Reinsurance
   Corporation..............................       37,970            41,559
Underwriters Reinsurance Company (Barbados).       74,565            79,326
Swiss Reinsurance/European Reinsurance......       68,351            59,410

The Company analyzes the credit quality of its reinsurers and relies on its brokers and intermediaries to assist in such analysis. To date, the Company has not experienced any material difficulties in collecting reinsurance recoverables.

REINSURANCE ASSUMED. The Company did not assume reinsurance in 2003 or 2002, consistent with its decision to discontinue writing insurance. On July 1, 2002, an excess of loss contract providing medical professional liability coverage on an institutional account was commuted. The commutation of this treaty had no impact on the Company's financial condition or results of operations.

REINSURANCE COMMUTED. In June 2004, MIIX commuted its 1995 aggregate excess reinsurance treaty. The commutation agreement provided for the release of applicable funds held balances and trust fund assets. The reduction to earnings as a result of the commutation was $3.3 million in 2004.

INVESTMENT PORTFOLIO

When MIIX was placed by court order into rehabilitation on September 28, 2004, the New Jersey Department assumed full control of MIIX's investment portfolio. The Company's investment policy, prior to that time, placed primary emphasis on holding investment grade, fixed maturity securities, maximizing after-tax yields while minimizing credit risks and preserving liquidity. In doing so, the Company used independent fixed income portfolio managers and an investment consultant operating under the guidance of investment policies established at the direction of the Company's Board of Directors (the "Board").

Under the Order of Rehabilitation, which was entered on September 28, 2004, the New Jersey Department has assumed control of the investment portfolio. As a result, the Company presently exercises no control over its investments, the liquidation of those investments, or investment policy. The discussion set forth below and elsewhere in this 10-K is as of December 31, 2003, and does not describe the management of MIIX's investment portfolio as at present, as the New Jersey Department's approach to the management of that portfolio is not known to the Company.

14

The following table sets forth the composition of the investment portfolio of the Company at the dates indicated. All of the fixed maturity investments were held as available-for-sale.

                                                     December 31, 2003               December 31, 2002
                                                --------------------------      --------------------------
                                                  Cost or                         Cost or
                                                 Amortized         Fair          Amortized         Fair
                                                    Cost           Value            Cost           Value
                                                ----------      ----------      ----------      ----------

                                                                      (In thousands)
U.S. Treasury securities and obligations
  of U.S. government corporations and
  agencies..................................    $   99,778      $  100,011      $  108,725      $  112,499
Obligations of states and political
  subdivisions..............................         7,795           7,695               0               0
Foreign securities - U.S. dollar
  denominated...............................             0               0           6,946           7,351
Corporate securities........................       218,666         229,268         280,152         285,183
Mortgage-backed and other asset-backed
  securities................................       354,558         358,761         375,591         383,547
                                                ----------      ----------      ----------      ----------
Total fixed maturity investments............       680,797         695,735         771,414         788,580
Equity investments..........................         2,781           3,226           4,804           5,187
Short-term..................................        56,470          56,468         262,537         262,537
                                                ----------      ----------      ----------      ----------
   Total investments........................    $  740,048      $  755,429      $1,038,755      $1,056,304
                                                ==========      ==========      ==========      ==========

The investment portfolio of fixed maturity investments consisted primarily of intermediate-term, investment-grade securities with an allocation to below investment-grade (i.e. high yield) fixed maturity investments not to exceed 7.5% of invested assets as per the Company's investment policy prior to 2003. In 2003, as a result of the runoff of MIIX, the Company elected to opportunistically eliminate its exposure to below investment-grade securities as market conditions permit.

At December 31, 2003, the average credit quality of the fixed income portfolio was AA. The table below contains additional information concerning the investment ratings of the longer term fixed maturity investments at December 31, 2003:

                                                        Amortized        Fair      Percentage of
S&P Rating of Investment (1)                               Cost         Value       Fair Value
---------------------------------------------------    -----------     -------     -------------
                                                                    (In thousands)
AAA (including U.S. Government and Agencies).......       $441,001    $445,533         64.0%
AA.................................................         82,110      84,355         12.1%
A..................................................        124,476     129,234         18.6%
BBB................................................          3,513       3,665          0.5%
Other Ratings (below investment grade).............         29,697      32,948          4.8%
                                                          --------    --------        ------
   Total...........................................       $680,797    $695,735        100.0%
                                                          ========    ========        ======

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

The following table sets forth certain information concerning the maturities of fixed maturity investments, excluding equity and short-term fixed maturity securities, in the investment portfolio as of December 31, 2003, by contractual maturity:

                                                         Amortized      Fair     Percentage of
Maturity of Investment                                      Cost        Value      Fair Value
---------------------------------------------------     ----------   ----------  -------------
                                                              (In thousands)
Due one year or less...............................       $ 15,071     $ 15,400        2.2%
Due after one year through five years..............        183,973      187,039       26.9%
Due after five years through ten years.............        102,697      109,292       15.7%
Due after ten years................................         24,498       25,243        3.6%
Mortgage-backed and other asset-backed securities..        354,558      358,761       51.6%
                                                          --------     --------      ------
   Totals..........................................       $680,797     $695,735      100.0%
                                                          ========     ========      ======

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The effective duration of the securities in the longer term fixed maturity portfolio (excluding short-term investments) as of December 31, 2003, was 3.2 years.

Mortgage-backed securities represent approximately 24.2% of the total fixed income portfolio and are allocated equally across "standard" and "more complex" securities, while the asset-backed portfolio represents approximately 27.4% of the total fixed income portfolio. Asset-backed securities may involve certain risks not presented by other securities. These risks may be enhanced during periods of economic downturn such as what was experienced in the past year. Risks include default, lack of liquidity, price volatility and sensitivity to interest rates.

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

CUSTOMERS

The Company's only significant customer activity is providing third party management services to MDAdvantage.

REGULATION

The Company's insurance subsidiaries are subject to supervisory regulation by their respective states of incorporation, commonly called the state of domicile. MIIX is domiciled in New Jersey, MIIX Insurance Company of New York ("MIIX New York") is domiciled in New York and Lawrenceville Re is domiciled in Bermuda. Therefore, the laws and regulations of these states, and those of Bermuda, including the tort liability laws and the laws relating to professional liability exposures and reports, had the most significant impact on the operations of the combined company.

HOLDING COMPANY REGULATION. As part of a holding company system, MIIX and MIIX New York are subject to the Insurance Holding Company Systems Acts (the "Holding Company Act") of their domiciliary states. In general, a state's Holding Company Act requires the domestic company to file information periodically with the state insurance department and other state regulatory authorities, including information relating to its capital structure, ownership, financial condition and general business operations. The Holding Company Act also provides that the acquisition or change of "control" of a domestic insurance company or of any person or entity that controls such an insurance company cannot be consummated without prior regulatory approval.

EXAMINATION OF INSURANCE COMPANIES. Every insurance company is subject to a periodic financial examination under the authority of the insurance commissioner of its state of domicile. The last completed periodic financial examination of MIIX as of December 31, 2000, was completed on October 30, 2003, and a report was issued on December 23, 2003. The New York Insurance Department ("New York Department") conducted an examination of MIIX New York as of December 31, 2001. The examination report was filed by the New York Department on January 7, 2004. Currently, the Company has no financial examination in progress. The Company has not undergone a market conduct examination.

RISK-BASED CAPITAL. In addition to state-imposed insurance laws and regulations, insurers are subject to the general statutory accounting practices and procedures and the reporting format of the National Association of Insurance Commissioners ("NAIC"). The NAIC's methodology for assessing the adequacy of statutory surplus of property and casualty insurers includes an RBC formula that attempts to measure statutory capital and surplus needs based on the risks in a company's mix of products and investment portfolio. The formula is designed to allow state insurance regulators to identify potentially under-capitalized companies. Under the formula, a company determines its RBC by taking into account certain risks related to the insurer's assets (including risks related to its investment portfolio and ceded reinsurance) and the insurer's liabilities (including underwriting risks related to the nature and experience of its insurance business). The RBC rules provide for different levels of regulatory attention depending on an insurance company's RBC.

16

At December 31, 2003, MIIX's RBC was below the Mandatory Control Level and continues at this level.

During 2003, MIIX entered into an Order with the New Jersey Department that set forth the framework for the regulatory monitoring of MIIX and established certain operating limitations on MIIX. The limitations, among other things, required the approval of the New Jersey Department prior to payment of dividends by the Company's insurance subsidiary, and for lending arrangements, investments and inter-company arrangements outside of the normal course of business, and required MIIX to periodically provide information relating to its operations and finances to the New Jersey Department. In April 2004, the New Jersey Department appointed an Administrative Supervisor as part of its ongoing efforts to monitor MIIX's runoff operations.

ORDER OF REHABILITATION. On September 28, 2004, the Superior Court of New Jersey entered an Order placing MIIX and its wholly owned subsidiaries, MIIX New York and Lawrenceville Holdings, Inc., into rehabilitation and naming the Commissioner of the New Jersey Department as Rehabilitator with immediate and exclusive control over the business and property of MIIX. The Order provides that The MIIX Group and the Underwriter will continue to provide administrative services to MIIX pursuant to the current Management Services Agreement until terminated by the New Jersey Department after appropriate notice. The Order does not stay payment of claims for any litigation currently pending against MIIX or its insureds and does not bar claimants from filing new actions against MIIX insureds. The Order, however, prohibits persons from filing any new action or new claim directly against MIIX without permission of the Court. The Order also requires notice to and consent of the Rehabilitator for the assignment of any contract to which MIIX is a party. Reinsurers are prohibited from canceling current reinsurance agreements or making additional premium charges to MIIX under the September 28, 2004 Order of Rehabilitation.

EMPLOYEES

When the Company initially entered runoff in 2002, it employed 237 persons. At December 31, 2003, the Company employed 94 persons. During 2003, as a result of its reduced insurance operations, the Company reduced the number of employees by 24 persons. None of the Company's employees are covered by a collective bargaining agreement. The Company believes that its relations with its employees are good.

AVAILABLE INFORMATION

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

The Company also makes available free of charge through its Internet website (http://www.MIIX.com) its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13, or 15(d) or 16(a) of the Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information concerning the individuals who serve as executive officers of The MIIX Group. At December 31, 2003, The MIIX Group had seven executive officers, Ms. Costante, Mr. Davis, Mr. Grab, Ms. Mason, Mr. Roynan, Mr. Sugerman and Ms. Williams.

17

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

Patricia A. Costante           Chairman and Chief Executive Officer

William Davis                  Senior Vice President, Claims

Edward M. Grab                 Senior Vice President, Chief Actuary

Verice M. Mason                Senior Vice President and General Counsel

James Roynan                   Senior Vice President, Information Systems

Allen G. Sugerman              Chief Financial Officer and Treasurer

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

PATRICIA A. COSTANTE (47), Chairman and Chief Executive Officer. Patricia A. Costante has been Chairman since 2002 and Chief Executive Officer of the Company since 2001. Before being named Chief Executive Officer, Ms. Costante was the Company's Chief Operating Officer from September 2001 to November 2001. Prior to serving as Chief Operating Officer, she was Senior Vice President responsible for the sale and delivery of all products and services to the New Jersey physician market from March 2000 to September 2001. Prior to being named Senior Vice President, Ms. Costante was Executive Vice President and Chief Operating Officer of MIIX Healthcare Group, Inc., a subsidiary of the Underwriter from April 1998 to March 2000 and from July 1996 to April 1998 served as Assistant Vice President. Ms. Costante is Vice Chairman of the Board of Trustees, Catholic Charities, Diocese of Trenton.

WILLIAM G. DAVIS, JR. (56), Senior Vice President, Claims Operations. Mr. Davis has been Senior Vice President, Claims since March 2002. He is responsible for Claims Operations. Prior to serving as Senior Vice President, Mr. Davis served as Vice President, Claims Operations from September 1995 to February 2000 and Assistant Vice President, Claims from June 1992 to September 1995. Mr. Davis was terminated from the Company effective January 26, 2004.

EDWARD M. GRAB (48), Senior Vice President, Chief Actuary. Mr. Grab has served as Senior Vice President since March 2000. He is responsible for actuarial services and staff underwriting functions which includes underwriting policy and risk management services. Prior to serving as Senior Vice President, Mr. Grab served as Vice President, Chief Actuary from October 1999 to March 2000. Before joining the Company, he was Vice President and Actuary for Zurich Financial Services from March 1996 to June 1999 where he directed the actuarial department in support of four strategic business units with a combined book of $1 billion.

VERICE M. MASON (52), Senior Vice President and General Counsel. Ms. Mason has served as Senior Vice President and General Counsel since June 2002. She is responsible for all legal and regulatory matters involving the Company. Prior to serving as Senior Vice President and General Counsel, Ms. Mason served as Senior Vice President, Legal and Regulatory Affairs from February 2002 to June 2002. Prior to being named Senior Vice President, Legal and Regulatory Affairs, Ms. Mason served as Vice President, Legal and Regulatory Affairs from June 1999 to February 2002 and Assistant Vice President, Associate General Counsel from June 1995 to June 1999. Ms. Mason resigned from the Company effective October 29, 2004.

JAMES P. ROYNAN (43), Senior Vice President, Information Systems. Mr. Roynan has served as Senior Vice President since December 2002. He is responsible for strategy and implementation for all process improvement, information technology, systems and integration, network administration, software development and technical support activity. Prior to serving as Senior Vice President Mr. Roynan served as Vice President, Information Systems from December 2001 to December 2002. Prior to joining the Company Mr. Roynan served as Executive Vice President and CIO of Xyan, Inc. from September 2000 to May 2001. From February 2000 to August 2000 Mr. Roynan served as Executive Vice President and COO of WePlayIt, Inc. From January 1992 to January 2000 Mr. Roynan served as Vice President, Technology Solutions of Reed Technologies and Information Services. Mr. Roynan was terminated from the Company effective January 26, 2004.

18

ALLEN G. SUGERMAN (53), Chief Financial Officer and Treasurer. Mr. Sugerman has served as Chief Financial Officer since July 2002. Mr. Sugerman has been a principal of Altila Corporation, a health care management consulting firm, since 1990. He has more than 25 years of diversified financial and operational experience.

CATHERINE E. WILLIAMS (43), Senior Vice President, Business Development and Corporate Secretary. Ms. Williams has served as Senior Vice President since December 2001. She is responsible for business development, corporate governance, shareholder relations, human resources and facilities management. Prior to serving as Senior Vice President, Ms. Williams served as Vice President, Corporate Secretary from August 1999 to December 2001 and as Assistant Corporate Secretary from May 1997 to August 1999.

The following sets forth information regarding Directors of the Company as of December 31, 2003.

PATRICIA A. COSTANTE (47), Director since 2001. Patricia A. Costante has been Chairman since 2002 and Chief Executive Officer of the Company since 2001. Before being named Chief Executive Officer, Ms. Costante was the Company's Chief Operating Officer from September 2001 to November 2001. Prior to serving as Chief Operating Officer, she was Senior Vice President responsible for the sale and delivery of all products and services to the New Jersey physician market from March 2000 to September 2001. Prior to being named Senior Vice President, Ms. Costante was Executive Vice President and Chief Operating Officer of MIIX Healthcare Group, Inc., a subsidiary of the Underwriter, now a subsidiary of the Company, from April 1998 to March 2000 and from July 1996 to April 1998, served as Assistant Vice President. Ms. Costante is Vice-Chairman, Board of Trustees, Catholic Charities, Diocese of Trenton.

ANGELO S. AGRO, M.D. (55), Director since 1997. Dr. Agro has been a member of the Board of Directors of the Underwriter since 1990. He is a physician certified by the American Board of Otolaryngology and practices in Andalusia, Alabama with Andalusia Greater Regional Otolaryngology. He is a member of the American Academy of Otolaryngology, the American Medical Association and the American College of Surgeons.

SCOTT L. BARBEE (31), Director since 2003. Mr. Barbee has been Managing Director of Berno, Gambal & Barbee, Inc. since 1997. He is also lead manager of the Aegis Value Fund. Prior to his appointment as a Managing Director, Mr. Barbee was a broker with Berno & Gambal Capital Management from December 1996 until June 1997. Mr. Barbee is a Chartered Financial Analyst. Mr. Barbee resigned from the Board on October 13, 2004.

HARRY M. CARNES, M.D. (72), Director since 1997. Dr. Carnes has served as a member of the Board of Directors of the Underwriter since 1989. He is a board certified physician practicing in Audubon, New Jersey. Dr. Carnes is a member of the American Academy of Family Practice, the American Medical Association, the Camden County Medical Society, the Medical Society of New Jersey and the New Jersey Medical Political Action Committee.

DOMINICK D'AGOSTA (63), Director since 2003. Mr. D'Agosta has served in the Office of the Chairman of Fleet Bank of New Jersey since 2001. Prior to this position, he served in the Office of the President of Summit Bank from 1996 to 2001. Mr. D'Agosta has 44 years of experience in the banking industry and has worked in various senior management positions, which included positions in marketing, operations and branch administration. He serves as Vice Chair of the Hudson County Chamber of Commerce, Chairman of the Meadowlands Chamber of Commerce and the Urban League of Hudson County, Director of Commerce and Industry Association, National Conference for Community & Justice, Arthritis Foundation of New Jersey and Bon Secours of Canterbury Partnership for Care. Mr. D'Agosta is Chair of the New Jersey City University Foundation and Director of Yes Youth Consultation Service.

PAUL J. HIRSCH, M.D. (67), Vice Chairman of the Board of Directors since 1997. Dr. Hirsch has served as Vice Chairman of the Board of Directors of the Underwriter, now a subsidiary of the Company since 1990. He is a board certified physician practicing in Bridgewater, New Jersey, with BioSport Orthopedics and Sports Medicine. Dr. Hirsch is President and Medical Director of InterMedix, an orthopedic specialty care network. He is a member of the American Academy of Orthopedic Surgeons, the American Orthopedic Association, the American College

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of Surgeons, the American Medical Association, and the Medical Society of New Jersey. He currently serves on the Board of Trustees for Raritan Valley Community College. Dr. Hirsch is a clinical professor of orthopedic surgery at Seton Hall School of Graduate Medical Education and Editor in Chief of NEW
JERSEY MEDICINE.

A. RICHARD MISKOFF, D.O. (62), Director since 1997. Dr. Miskoff served as a member of the Board of Governors of Medical Inter-Insurance Exchange of New Jersey, the predecessor of MIIX Insurance Company, from 1994 to 1999. He is a board certified physician practicing in Edison, New Jersey. Dr. Miskoff is a member of the American Osteopathic Association, the American Society of Clinical Oncologists, the American Society of Hematology, and the New Jersey Association of Osteopathic Physicians. He is past president of the Middlesex County Medical Society of Osteopathic Physicians. Dr. Miskoff is Director of the Cancer Program at JFK Medical Center, Edison, New Jersey.

CARL RESTIVO, JR., M.D. (58), Director since 1997. Dr. Restivo has been a member of the Board of Directors of the Underwriter since 1997. He is a board certified physician practicing in Jersey City, New Jersey. Dr. Restivo is a member of the Arthritis Foundation and the New Jersey Chapter of the American Medical Association. Dr. Restivo resigned from the Board effective May 1, 2004.

MARTIN L. SORGER, M.D. (70), Director since 1997. Dr. Sorger served as a member of the Board of Governors of Medical Inter-Insurance Exchange of New Jersey from 1979 to 1999. He is a board certified orthopedic physician practicing in Glen Ridge, New Jersey, and a member of the Montclair Orthopedic Group. Dr. Sorger is a member of the American Academy of Orthopedic Surgeons, the American Medical Association, the American College of Surgeons and a former member of its Board of Councilors. He is a member of the executive committee and past president of the New Jersey Orthopedic Society. Dr. Sorger is Vice President of InterMedix, an orthopedic specialty care network.

BESSIE M. SULLIVAN, M.D. (63), Director since 1997. Dr. Sullivan was a member of the Board of Governors of Medical Inter-Insurance Exchange of New Jersey from 1992 to 1999. She is a board certified physician practicing in Edison, New Jersey with Arthritis, Allergy & Immunology Center. Dr. Sullivan is a member of the American Medical Association and the American Rheumatism Association, a trustee and Secretary of the Medical Society of New Jersey and a member of the Executive Committee of the Union County Medical Society.

Because the Company's securities are not traded on a national securities exchange or quoted on a national quotation system, the Company is not required to maintain an audit committee under the federal securities laws. Under state law, the Company must maintain an audit committee, although no audit committee financial expert is required. The Company has sought to engage an audit committee expert but has been unsuccessful in its efforts.

ITEM 2. PROPERTIES

The Underwriter leases approximately 25,000 square feet of space from Gordon Lawrenceville Realty Associates, LLC ("Gordon") in Lawrenceville, New Jersey, the location of its home office operations. The Underwriter entered into the lease agreement with Gordon as of November 25, 2003, with an effective date of April 27, 2004. The lease agreement was amended on June 22, 2004, and October 1, 2004. The term of the lease is for five years with an option to renew for an additional five years.

ITEM 3. LEGAL PROCEEDINGS

GLASSER V. THE MIIX GROUP, INC. ET AL. On February 5, 2003, a shareholder of the Company instituted a putative class action in the United States District Court for the District of New Jersey against the Company, present and former directors and officers of the Company, the Medical Society of New Jersey ("MSNJ") and Fox-Pitt Kelton, Inc. ("FPK"), which acted as financial advisor to the Company. The complaint alleges that the Company and its directors and officers engaged in securities fraud, breaches of fiduciary duty and violations of New Jersey antitrust laws in connection with the MIIX Advantage contracts and alleged misrepresentations and omissions of material fact in various SEC filings by the Company. On May 13, 2003, another shareholder of the Company instituted a separate putative class action in the United States District Court for the District of New Jersey

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(WASSERSTRUM V. THE MIIX GROUP, INC., ET AL.) against the Company and certain of its officers alleging securities fraud. The law firms representing plaintiffs in the two actions agreed to consolidate the plaintiffs' claim against the Company. On August 12, 2003, a Consolidated Amended Complaint (the "Complaint") was filed by the plaintiffs against the Company, present and former directors and officers of the Company and MSNJ alleging securities fraud based on alleged misrepresentations and omissions of material fact in various SEC filings by the Company concerning the Company's financial condition, its statement of reserves, the pricing of its policies, the MIIX Advantage contracts and other matters. The Complaint seeks certification of a plaintiff class of the Company's shareholders from July 30, 1999 to September 12, 2002 and unspecified damages, pre- and post-judgment interest, attorneys' fees and costs. On October 21, 2003, the Company filed a motion to dismiss the Complaint, which is currently pending. On December 11, 2003, the Court ordered that the case be submitted to mediation and stayed all proceedings pending mediation. The parties are engaging in mediation discussions.

FOX-PITT KELTON V. THE MIIX GROUP, INC. On February 10, 2003, FPK, which had been engaged as financial advisor to the Company, instituted suit against the Company in the Supreme Court of New York to recover fees allegedly due from the Company as a result of the investment banking services it rendered in connection with the Company's efforts to dispose of assets or obtain capital and the agreements entered into between the Company and MIIX Advantage. FPK filed a motion for summary judgment in its favor, which was denied by the Court. On April 28, 2004, the suit was dismissed with prejudice.

WEISFELD V. THE MIIX GROUP, INC., ET AL. On November 20, 2002, a former executive of MSNJ filed suit in the Superior Court of New Jersey against MSNJ and certain of its officers, including MSNJ officers who were also MIIX Group board members, alleging wrongful discharge and defamation. On March 19, 2003, plaintiff filed pleadings amending the Complaint to include The MIIX Group as a defendant, alleging that The MIIX Group tortiously interfered with his employment relationship and that its alleged influence over MSNJ was a causative factor in his discharge. Motions to dismiss plaintiff's Amended Complaint were filed by all defendants. By order dated August 19, 2003, the Court granted the defendants' motions to dismiss and the entire Complaint was dismissed with prejudice. On October 2, 2003, plaintiffs filed a notice of appeal of the dismissal of the Complaint with the Superior Court of New Jersey, Appellate Division. Oral argument in the Appellate Division was held on October 25, 2004. The parties are awaiting the Court's decision.

Given the Company's current financial condition, any negative outcome of the litigation requiring the payment of damages could have a material adverse effect on the Company. The Company may also be a party to litigation from time to time in the ordinary course of business.

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

Not Applicable.

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