Jury awards in medical malpractice actions reached an all-time high, and, after several years of an overall downward trend, claim frequency began to rise, especially for our insured hospitals. Other problems included a significant hardening of the reinsurance market following the tragic events of September 11, as well as a significant decrease in interest rate return on investment.

So bad was the situation for some companies, that a few, such as St. Paul, decided to exit the medical liability market entirely. They announced this decision in December 2001. In August 2001, Pennsylvania-based PHICO Insurance Company was placed in rehabilitation. MIIX has also experienced severe operating losses and began a voluntary runoff of their current business.

Although Princeton Insurance was decidedly focused on our efforts to weather the difficult times, we, like most of our competitors, posted a loss. For Princeton, that loss was $24 million. This operating deficit brought about a restructuring of our rates to truly reflect the risks we insure, which is resulting in higher premiums to our policyholders. We have also made other strategic changes in our operations, including discontinuing the writing of unprofitable business.

Our affiliation with Medical Liability Mutual Insurance Company (MLMIC) provided comfort during these times of great turmoil in our industry. MLMIC's strong financial history and "Excellent" A.M. Best rating translates into peace of mind for our policyholders.

Princeton Insurance enters 2002 with a renewed focus on our core strength — professional liability insurance for New Jersey's medical and health care communities and other selected niches — and the determination to remain a viable source of coverage for years to come.

TABLE OF CONTENTS

Cover Page

Letter to Policyholders

A Year of Market Turmoil

Princeton's Legacy Continues

2001 Financial Statements

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