Preferred Small Risk Program:
A Worthwhile Diversification Effort

The Preferred Small Risk Program, opened in 1994 by another Princeton Insurance Company subsidiary, The Princeton Agency, Inc., recorded approximately $100 million in premiums through year-end 2001, an increase of $34 million over the level in 2000.

Response to the Preferred Small Risk Program since its inception in 1994 has been overwhelming and at year-end, more than 83,000 small businesses in 16 states participated.

Consistent with our underwriting commitment, we took steps to slow growth while enhancing greater profit potential. In late 2001, we decided to no longer extend coverage to contractor classes and limit writings in certain states during 2002 in order to balance exposures geographically and allow more appropriate surplus allocation on a corporate level. This action was slated to begin first quarter 2002.

TABLE OF CONTENTS

Cover Page

Letter to Policyholders

A Year of Market Turmoil

Princeton's Legacy Continues

2001 Financial Statements

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