As a result of changes in estimates of insured events in prior years, the provision for losses and loss adjustment expenses increased by $33,194,000 (increased by $27,914,000 in 2000) due to changes in anticipated losses. Losses paid for 2001 have been reduced by $115,408,000 resulting from a reinsurance commutation ($21,804,000 related to current year and $93,604,000 related to prior year). Losses paid for 2000 have been reduced by $38,238,000 resulting from a reinsurance commutation ($16,530,000 related to current year and $21,708,000 related to prior year) (see Note 6).

The loss reserves include estimates for medical malpractice coverages. There is a high degree of uncertainty from those types of claims due to, among other things, extended payment patterns of medical malpractice claims, changes in the economic environment, and uncertainty regarding future trends in inflation. Princeton believes the reserves are adequate to cover expected future payments.

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