FEDERAL INCOME TAX

The income tax provision reflected in the accompanying statement of operations gives effect to differences between financial and taxable income, which are principally attributable to unearned premiums, discounting of loss and loss expense reserves and deductions allowed for dividends received.

The components of the net deferred income tax asset or deferred tax liability recognized in the Company’s statement of admitted assets, liabilities and surplus are as follows:

Current Tax and Change in Deferred Tax:

Current income taxes incurred consist of the following major components:

The components of deferred tax assets and deferred tax liabilities at December 31, 2001 and January 1, 2001, are as follows:

The change in net deferred income taxes is comprised of the following:

Reconciliation of Federal Income Tax Rate to Actual Effective Rate:

The provision for federal income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The significant items causing this difference are as follows:

At December 31, 2001, Princeton did not have any unused operating loss carryforwards available to offset against future taxable income.

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