A Necessary Decision

The overall effect of higher claim costs is higher premiums based on loss experience and greater analysis of the risk presented to be sure rates are adequate.

Our decision to raise rates for many classes was in line with competitors' actions. In late 2001, newspapers, television and trade journals began publicizing the financial strain higher rates were placing on the medical and health care communities.

Despite competitive pressure, Princeton Insurance remained focused on bottom line growth or preservation as opposed to marketing top line growth. Diversification into the small business workers compensation market helped reduce our dependence on medical malpractice as a business focus and added welcome relief in terms of lower-risk business. While we did see losses grow in this program, the overall loss ratio for this business segment is considerably lower than that of our professional liability segment.

TABLE OF CONTENTS

Cover Page

Letter to Policyholders

A Year of Market Turmoil

Princeton's Legacy Continues

2001 Financial Statements

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