AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 2005


                                                     REGISTRATION NO. 333-124156

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 PRE-EFFECTIVE


                                AMENDMENT NO. 1


                                     TO THE

 
                                    FORM S-4
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
                            PROASSURANCE CORPORATION
             (Exact name of registrant as specified in its charter)
 

                                                                        
               DELAWARE                                 6631                                63-1261433
   (State or other jurisdiction of          (Primary Standard Industrial                 (I.R.S. Employer
    incorporation or organization)          Classification Code Number)                Identification No.)

 
                              100 BROOKWOOD PLACE
                           BIRMINGHAM, ALABAMA 35209
                                 (205) 877-4400
              (Address, including zip code, and telephone number,
       including area code, of registrant's principal executive offices)
 
                                A. DERRILL CROWE
                              100 BROOKWOOD PLACE
                           BIRMINGHAM, ALABAMA 35209
                                 (205) 877-4400
           (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)
                             ---------------------
                                   COPIES TO:
 

                                                      
             JACK P. STEPHENSON, JR., ESQ.                                 JOHN J. GORMAN, ESQ.
                   BURR & FORMAN LLP                               LUSE GORMAN POMERENK & SCHICK, P.C.
           420 NORTH 20TH STREET, SUITE 3100                      5335 WISCONSIN AVENUE, N.W., SUITE 400
               BIRMINGHAM, ALABAMA 35203                                  WASHINGTON, D.C. 20015
                     (205) 458-5201                                           (202) 274-2000

 
    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:  As soon as practicable after this Registration Statement becomes
effective.
 
    If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box:  [ ]
 
    If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering:  [ ]
 
    If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering:  [ ]
                             ---------------------
                        CALCULATION OF REGISTRATION FEE
 



-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
                                                                   PROPOSED MAXIMUM     PROPOSED MAXIMUM        AMOUNT OF
          TITLE OF EACH CLASS OF                AMOUNT TO BE        OFFERING PRICE         AGGREGATE           REGISTRATION
        SECURITIES TO BE REGISTERED            REGISTERED(1)          PER SHARE        OFFERING PRICE(2)          FEE(3)
-------------------------------------------------------------------------------------------------------------------------------
                                                                                               
Common stock, $0.01 par value (and
  associated stock purchase rights)........    2,000,000 shs.            N/A              $69,400,986             $8,169
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------


 
(1) Represents the estimated maximum number of shares of common stock, $0.01 par
    value per share, of ProAssurance Corporation issuable upon consummation of
    the merger of NCRIC Group, Inc. into ProAssurance based on (i) the number of
    shares of NCRIC common stock outstanding and reserved for issuance and (ii)
    the exchange ratio of 0.25 of a share of ProAssurance common stock
    (including the associated stock purchase rights) for each share of NCRIC
    common stock.
 
(2) Calculated in accordance with Rule 457(f)(1) and 457(c) under the Securities
    Act, based on the average of the high and low sales prices for NCRIC common
    stock, as reported on The Nasdaq National Market on April 14, 2005 ($9.53)
    multiplied by the estimated maximum number of shares of NCRIC common stock
    that may be cancelled in the merger.
 

(3) Previously paid.

 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

 
THE INFORMATION IN THIS PROXY STATEMENT-PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY
STATEMENT-PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
 

                   SUBJECT TO COMPLETION, DATED JUNE 20, 2005

 
(PROASSURANCE LOGO)                                     (NCRIC GROUP, INC. LOGO)
 
                   PROXY STATEMENT FOR THE SPECIAL MEETING OF
                       STOCKHOLDERS OF NCRIC GROUP, INC.
                                      AND
                     PROSPECTUS OF PROASSURANCE CORPORATION
 
                   MERGER PROPOSED -- YOUR VOTE IS IMPORTANT
 
     The boards of directors of NCRIC Group, Inc. ("NCRIC") and ProAssurance
Corporation ("ProAssurance") have unanimously approved an agreement to merge the
two companies. Under the merger agreement, NCRIC will merge into a newly formed
subsidiary of ProAssurance that will survive the merger as a wholly owned
subsidiary of ProAssurance under the name "NCRIC Corporation". The board of
directors of NCRIC believes that the merger presents an attractive opportunity
to merge with a leading medical malpractice insurance group that will have
significantly greater financial strength and earning power than NCRIC would have
on its own.
 
     If the merger is completed, each NCRIC stockholder will be entitled to
receive 0.25 of a share of common stock of ProAssurance for each share of NCRIC
common stock, subject to adjustment as described below. The last reported price
of a share of ProAssurance common stock on February 25, 2005 (the last trading
day prior to the announcement of the merger) was $40.41, and the last reported
sale price of a share of NCRIC common stock on February 25, 2005 was $10.94.
 

     If the average price of ProAssurance common stock as measured during the
ten trading days ending on the date preceding the effective date of the merger
is greater than $44.00 per share or less than $36.00 per share, the exchange
ratio will be adjusted so that you will not receive for a share of NCRIC common
stock any more than $11.00 or less than $9.00 in ProAssurance stock. Therefore,
you will not know the precise exchange ratio in the merger at the time you vote.
Please see the table on page 29 of this proxy statement-prospectus to determine
the value of the merger consideration based on the different values of the
common stock of ProAssurance.

 
     You should obtain a current market quotation for both ProAssurance common
stock and NCRIC common stock. ProAssurance common stock is listed on the New
York Stock Exchange under the symbol "PRA" and NCRIC common stock is listed on
the Nasdaq National Market under the symbol "NCRI."
 
     The merger will generally be tax free to the stockholders of NCRIC except
for taxes on cash received instead of fractional shares of ProAssurance common
stock. The merger will also be tax free to NCRIC and ProAssurance and their
respective subsidiaries.
 

     We cannot complete the merger unless the stockholders of NCRIC approve it.
NCRIC will hold a special meeting of its stockholders on August 2, 2005 to vote
on the merger agreement. Your vote is important. Whether or not you plan to
attend the meeting, please take the time to submit your proxy in accordance with
the voting instructions contained in this proxy statement-prospectus. If you do
not vote, it will have the same effect as voting against the merger. Please read
this proxy statement-prospectus carefully because it contains important
information about the merger. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE
DISCUSSION IN THE SECTION TITLED "RISK FACTORS" BEGINNING ON PAGE 17.

 
     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED IN THE MERGER
OR DETERMINED IF THIS PROXY STATEMENT-PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 

     THIS DOCUMENT IS A PROXY STATEMENT THAT NCRIC IS USING TO SOLICIT PROXIES
FOR USE AT ITS SPECIAL MEETING OF STOCKHOLDERS. IT IS ALSO A PROSPECTUS RELATING
TO THE SHARES OF THE PROASSURANCE COMMON STOCK PROPOSED TO BE ISSUED IN
CONNECTION WITH THE MERGER. THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS JUNE
23, 2005, AND IT IS FIRST BEING MAILED TO THE STOCKHOLDERS OF NCRIC ON OR ABOUT
JUNE 27, 2005.


 
                      REFERENCES TO ADDITIONAL INFORMATION
 
     This proxy statement-prospectus incorporates important business and
financial information about ProAssurance and NCRIC from other documents that are
not included in or delivered with this proxy statement-prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain documents related to ProAssurance and NCRIC that are
incorporated by reference in this proxy statement-prospectus through the
Securities and Exchange Commission web site at http://www.sec.gov or by
requesting them in writing or by telephone from the appropriate company:
 


 
                                        
For ProAssurance:                          For NCRIC:
Frank B. O'Neil                            Eric R. Anderson
100 Brookwood Place                        1115 30th St., N.W.
Birmingham, Alabama 35209                  Washington, D.C. 20007
(205) 877-4400                             (202)969-1866

 

     IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JULY 25, 2005 TO
RECEIVE THEM BEFORE NCRIC'S SPECIAL MEETING.

 

     THIS PROXY STATEMENT-PROSPECTUS INCLUDES NCRIC'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2004, AS AMENDED ON APRIL 19, 2005, AS APPENDIX
C AND NCRIC'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 2005, AS APPENDIX D.

 

     See "WHERE YOU CAN FIND MORE INFORMATION" on page 79.


 
                               NCRIC GROUP, INC.
                            1115 30(TH) STREET, N.W.
                             WASHINGTON, D.C. 20007
 
                   NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

                          TO BE HELD ON AUGUST 2, 2005

 
To the Stockholders of NCRIC Group, Inc.:
 

     Notice is hereby given that a special meeting of the stockholders of NCRIC
Group, Inc. ("NCRIC") will be held on August 2, 2005, at 4:00 p.m., local time,
at 1055 Thomas Jefferson Street, N.W., Washington, D.C., to consider and vote
upon:

 
          1. Merger Proposal.  To approve and adopt the Agreement and Plan of
     Merger dated February 28, 2005 (the "Merger Agreement"), by and among
     NCRIC, ProAssurance Corporation ("ProAssurance") and NCP Merger
     Corporation, a wholly owned subsidiary of ProAssurance ("NCP"), and the
     related merger of NCRIC with and into NCP. Under the Merger Agreement, upon
     the completion of the transaction, NCP will remain a wholly owned
     subsidiary of ProAssurance and will be renamed NCRIC Corporation.
     Stockholders of NCRIC will have the right to receive 0.25 of a share of
     ProAssurance common stock (subject to adjustment) for each share of NCRIC
     common stock owned by them.
 

          2. Adjournment.  To approve a proposal to adjourn the meeting to
     permit the further solicitation of proxies in the event that there is an
     insufficient number of shares voting in favor of the approval of the Merger
     Agreement.

 
          3. Other Matters.  To vote upon such other matters as may properly
     come before the special meeting or any adjournment thereof. The board of
     directors is not aware of any such other matters.
 

     The boards of directors of NCRIC and ProAssurance have unanimously approved
the Merger Agreement. Among other conditions, the Merger Agreement must also be
approved and adopted at the special meeting of NCRIC's stockholders by the
affirmative vote of at least a majority of the outstanding shares of NCRIC
common stock. Only stockholders of NCRIC as of the close of business on June 17,
2005, are entitled to vote at the special meeting. The attached proxy
statement-prospectus gives you detailed information about the merger and the
other proposals and includes a copy of the Merger Agreement as Appendix A. You
should read these documents carefully.

 
     Whether or not you plan to attend the special meeting in person, we urge
you to date, sign and return promptly the enclosed proxy card in the
accompanying envelope. YOUR VOTE IS VERY IMPORTANT.
 
                                          By Order of the Board of Directors
 
                                          /s/ R. RAY PATE, JR.
                                          R. Ray Pate, Jr.
                                          President and Chief Executive Officer
 
Washington, D.C.

June 23, 2005


 
                               TABLE OF CONTENTS
 



                                                              PAGE
                                                              ----
                                                           
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL
  MEETING...................................................    1
SUMMARY.....................................................    4
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL AND
  OPERATING DATA OF PROASSURANCE CORPORATION................   11
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL AND
  OPERATING DATA OF NCRIC GROUP, INC. ......................   13
UNAUDITED COMPARATIVE PER SHARE DATA OF PROASSURANCE
  CORPORATION AND NCRIC GROUP, INC. ........................   15
RISK FACTORS................................................   17
  Risks Relating To The Merger..............................   17
  Risks Relating To ProAssurance's Business.................   19
NCRIC SPECIAL MEETING.......................................   25
  Matters to be considered at the special meeting...........   25
  Vote required.............................................   25
  Proxies...................................................   26
  Solicitation of proxies...................................   26
  Record date and voting rights.............................   27
  Recommendation of NCRIC's board of directors..............   27
  Proposal to Adjourn the Special Meeting...................   27
  Delivery of proxy materials...............................   28
PROPOSAL 1: THE MERGER......................................   28
  General...................................................   28
  Merger Consideration......................................   29
  NCRIC's reasons for the merger and recommendation of
     NCRIC's Board of Directors.............................   29
  Opinion of NCRIC's Financial Advisor......................   36
  ProAssurance board of directors' reasons for the merger...   46
  Interests of certain persons in the merger................   47
  Restrictions on resales by affiliates.....................   49
  No dissenters' rights.....................................   49
  Regulatory approvals required for the merger..............   49
  Accounting treatment......................................   50
  Stock exchange listing....................................   50
THE MERGER AGREEMENT........................................   51
  Structure.................................................   51
  Treatment of options and stock awards.....................   51
  Exchange of certificates; fractional shares...............   52
  Effective time............................................   53
  Representations and warranties............................   53
  Conduct of business pending the merger....................   54
  Employee benefit plans....................................   56
  Tax opinion and accountant's comfort letter...............   57
  Acquisition proposals by third parties....................   57
  Other agreements..........................................   58


 
                                        i

 



                                                              PAGE
                                                              ----
                                                           
  Conditions to completion of the merger....................   59
  Termination of the Merger Agreement.......................   60
  Waiver and amendment of the Merger Agreement..............   61
  Expenses..................................................   61
MATERIAL FEDERAL INCOME TAX CONSEQUENCES....................   61
PRICE RANGE OF COMMON STOCK AND DIVIDENDS...................   63
  ProAssurance..............................................   63
  NCRIC.....................................................   64
  Dividends.................................................   64
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS................................................   65
DESCRIPTION OF PROASSURANCE CAPITAL STOCK...................   73
  Common Stock..............................................   73
  Preferred Stock...........................................   73
  Delaware Anti-Takeover Statute and Charter Provisions.....   73
  Authorized But Unissued Shares............................   74
  Transfer Agent and Registrar..............................   74
COMPARISON OF STOCKHOLDER RIGHTS............................   75
  Stockholder Voting Limits and Requirements................   75
  Removal of Directors......................................   75
  Anti-Takeover Provisions..................................   76
PROPOSAL 2: ADJOURNMENT OF THE SPECIAL MEETING..............   76
OPINIONS....................................................   77
EXPERTS.....................................................   77
STOCKHOLDER PROPOSALS.......................................   77
  NCRIC.....................................................   77
  ProAssurance..............................................   78
OTHER MATTERS...............................................   78
WHERE YOU CAN FIND MORE INFORMATION.........................   79
FORWARD-LOOKING STATEMENTS..................................   80


 



 
         
Appendix A  Agreement and Plan of Merger (excluding Exhibit A and
            Schedules)
Appendix B  Opinion of Sandler O'Neill & Partners, L.P.
Appendix C  Annual Report of NCRIC Group, Inc. on Form 10-K for the year
            ended December 31, 2004, as amended on April 19, 2005.
Appendix D  Quarterly Report of NCRIC Group, Inc. on Form 10-Q for the
            three month period ended March 31, 2005.


 
                                        ii

 
         QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
 
Q:  WHY DO PROASSURANCE AND NCRIC WANT TO MERGE?
 

A:  We want to merge because we believe the merger will benefit our respective
    stockholders, policyholders, and employees. For NCRIC stockholders, the
    merger will afford them increased liquidity and an opportunity to
    participate as stockholders in a larger insurance group that is the fourth
    largest writer of medical professional liability insurance in the United
    States. The merger will benefit NCRIC policyholders by adding financial
    strength to better withstand the volatility inherent in medical professional
    liability insurance.

 
    For ProAssurance, the merger will provide additional marketing opportunities
    for its professional liability insurance. ProAssurance will inherit NCRIC's
    dominant market position and operations in Washington, D.C. ProAssurance
    will also inherit NCRIC's strong market presence in the mid-Atlantic states,
    particularly in Delaware and Virginia.
 
Q:  WHAT WILL I RECEIVE IN THE MERGER?
 
A:  For each share of NCRIC common stock you own at the time of the merger, you
    will have the right to receive 0.25 of a share of ProAssurance common stock.
    This exchange ratio is subject to adjustment so that for purposes of
    determining the exchange ratio:
 

     - In no event will the implied value of the NCRIC common stock be less than
       $9.00 per share. If the average price of a share of ProAssurance common
       stock on the New York Stock Exchange, or NYSE, is less than $36.00 during
       the measurement period, the exchange ratio will be adjusted and
       determined by dividing $9.00 by the average price of ProAssurance common
       stock.

 

     - In no event will the implied value of the NCRIC common stock be greater
       than $11.00 per share. If the average price of a share of ProAssurance
       common stock on the NYSE is more than $44.00 during the measurement
       period, the exchange ratio will be adjusted and determined by dividing
       $11.00 by the average price of the ProAssurance common stock.

 

    The following table illustrates the approximate implied value of what a
    holder of one share of NCRIC common stock will receive in the merger,
    assuming varying average closing prices for ProAssurance common stock during
    the measurement period and that ProAssurance common stock has a value equal
    to the stated average closing prices. You should bear in mind that the value
    of ProAssurance common stock is subject to market fluctuations and,
    therefore, the value of a share of ProAssurance common stock as of the
    effective date of the merger and after the merger may differ from the value
    of such stock as set forth below. This table uses hypothetical ProAssurance
    common stock prices for illustration purposes only.

 



                                    IF YOU HOLD ONE SHARE OF NCRIC COMMON STOCK AND THE AVERAGE
                                     PROASSURANCE STOCK PRICE DURING THE MEASUREMENT PERIOD IS:
                        ------------------------------------------------------------------------------------
                         $36.00     $37.00   $38.00   $39.00   $40.00   $41.00   $42.00   $43.00    $44.00
                        ---------   ------   ------   ------   ------   ------   ------   ------   ---------
                                                                        
The implied value of
  your share of NCRIC
  common stock
  is(1):..............    $9.00     $9.25    $9.50    $9.75    $10.00   $10.25   $10.50   $10.75    $11.00


 
---------------
 
(1) No fractional shares will be issued. Cash will be paid in lieu of fractional
    shares of ProAssurance common stock at a price of $40.00 per share, except
    that if the exchange ratio is adjusted, the per share price will be the
    average price of the ProAssurance common stock during the measurement
    period.
 
     As of the last trading day preceding the announcement of the merger
(February 25, 2005), the closing price for a share of ProAssurance common stock
was $40.41 and the closing price for a share of NCRIC common stock was $10.94.
You should obtain current market prices for shares of ProAssurance common stock
and NCRIC common stock. ProAssurance common stock is listed on the NYSE under
the symbol "PRA." NCRIC common stock is listed on the Nasdaq National Market
under the symbol "NCRI."
 
                                        1

 
Q:  WHAT RISKS SHOULD I CONSIDER BEFORE I VOTE ON THE MERGER?
 

A:  You should review "RISK FACTORS" beginning on page 17.

 
Q:  WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
 

A:  We have structured the merger so that you, as a holder of NCRIC common
    stock, will not recognize any gain or loss for federal income tax purposes
    on the exchange of NCRIC shares for ProAssurance shares in the merger except
    to the extent that a NCRIC stockholder receives cash in lieu of fractional
    shares of ProAssurance common stock and the cash received by such
    stockholder exceeds such stockholder's adjusted basis in the NCRIC shares
    exchanged for such fractional share. At the closing, NCRIC and ProAssurance
    are to receive separate opinions confirming, subject to certain assumptions,
    these tax consequences. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES"
    beginning on page 61. Your tax consequences will depend on your personal
    situation. You should consult your tax advisor for a full understanding of
    the consequences of the merger to you.

 
Q:  HOW DOES THE NCRIC BOARD OF DIRECTORS RECOMMEND THAT I VOTE ON THE MERGER?
 
A:  The board of directors of NCRIC unanimously recommends that you vote FOR the
    adoption of the Merger Agreement.
 
Q:  WHAT DO I NEED TO DO NOW?
 
A:  After you have carefully read this proxy statement-prospectus, indicate on
    your proxy card how you want your shares to be voted. Then complete, sign,
    date and mail your proxy card in the enclosed postage paid return envelope
    as soon as possible. This will enable your shares to be represented and
    voted at the NCRIC special meeting.
 
Q:  WHY IS MY VOTE IMPORTANT?
 

A:  The failure of a NCRIC stockholder to vote by proxy or in person will have
    the same effect as a vote against the Merger Agreement. The merger must be
    approved by the holders of a majority of the outstanding shares of NCRIC
    common stock entitled to vote at the special meeting. In addition, if you do
    not return your proxy card or vote in person at the meeting, then it will be
    more difficult for NCRIC to obtain the necessary quorum to hold its meeting.

 
Q:  IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
    AUTOMATICALLY VOTE MY SHARES FOR ME?
 
A:  No. Your broker will vote your shares on the merger, but only if you provide
    instructions on how to vote. You should contact your broker and ask what
    directions your broker will need from you.
 
Q:  WHAT IF I FAIL TO INSTRUCT MY BROKER TO VOTE MY SHARES?
 
A:  If you fail to instruct your broker to vote your shares, the broker will
    submit an unvoted proxy (a broker non-vote) as to your shares. Broker
    non-votes will count toward a quorum at the special meeting. However, broker
    non-votes will have the same effect as a vote against the Merger Agreement.
 
Q:  CAN I CHANGE MY VOTE?
 
A:  Yes. You can change your vote at any time before your proxy is voted at the
    special meeting. You can do this in one of three ways. First, you can send a
    written notice to the Secretary of NCRIC stating that you revoke your proxy.
    Second, you can complete and submit a new proxy card, dated a later date
    than the first proxy card. Third, you can attend the special meeting and
    vote in person.
 
                                        2

 
    However, your attendance at the special meeting will not, by itself, revoke
    your proxy. If you hold your shares in street name, then you are not the
    holder of record and you must follow your broker's directions to change your
    vote.
 
Q:  SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
 

A:  No. After the merger is completed you will be sent a letter of transmittal
    and instructions for exchanging your shares of NCRIC common stock for shares
    of ProAssurance common stock. At that time, you should follow the
    instructions in the letter of transmittal, complete and sign it, and send
    your stock certificates and the letter of transmittal to the address
    specified in the letter of transmittal.

 
Q:  WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
 

A:  We are working to complete the merger as quickly as possible. We must first
    obtain the necessary regulatory approvals and approval of NCRIC
    stockholders. We currently expect to complete the merger in the third
    quarter of 2005.

 
Q:  WHOM SHOULD I CALL IF I HAVE OTHER QUESTIONS ABOUT THE SPECIAL MEETING
 
A:  If you have more questions about the merger, you should contact:
 
     NCRIC Group, Inc.
     Attention: Eric Anderson

     1115 30th Street, N.W.

     Washington, D.C. 20007
     Telephone: (202) 969-1866
 
     You may also contact NCRIC's proxy solicitor at:
 

     Georgeson Shareholder Services

     17 State Street, 10th Floor
     New York, N.Y. 10004
     Telephone: (800) 279-7134
 
     Banks and brokers should call:
 
     (212) 440-9800
 
                                        3

 
                                    SUMMARY
 

     THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT-PROSPECTUS. IT DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT
TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THE MERGER AND A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ THIS ENTIRE PROXY
STATEMENT-PROSPECTUS CAREFULLY, AS WELL AS THE ADDITIONAL DOCUMENTS WE REFER YOU
TO, INCLUDING THE MERGER AGREEMENT WHICH WE HAVE ATTACHED AS APPENDIX A. YOU MAY
OBTAIN THE INFORMATION INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT-PROSPECTUS BY FOLLOWING THE INSTRUCTIONS IN THE SECTION ENTITLED
"WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 79.

 

INFORMATION ABOUT PROASSURANCE AND NCRIC.

 
     ProAssurance Corporation
     100 Brookwood Place
     Birmingham, Alabama 35209
     (205) 877-4400
 

     ProAssurance is an insurance holding company for property and casualty
insurance companies. ProAssurance's insurance subsidiaries sell professional
liability insurance to physicians, dentists and other health care providers and
facilities, as well as lawyers and law firms, principally in the southeast and
midwest, and automobile, homeowners and associated coverages principally to
educators and their families in Michigan. At March 31, 2005, ProAssurance had
consolidated total assets of approximately $3.3 billion and consolidated
stockholders' equity of approximately $611.7 million.

 
     NCRIC Group, Inc.
     1115 30th St., N.W.
     Washington, D.C. 20007
     (202) 969-1866
 

     NCRIC is also an insurance holding company for an insurance subsidiary that
sells professional liability insurance to physicians and groups of physicians
principally in the District of Columbia and in surrounding mid-Atlantic states.
At March 31, 2005, NCRIC had consolidated total assets of approximately $302.0
million and consolidated stockholders' equity of $70.6 million.

 

     A more complete description of NCRIC's business and the audited
consolidated financial statements of NCRIC for the year ended December 31, 2004
are included in NCRIC's annual report on Form 10-K, as amended on April 19,
2005, which is attached as Appendix C to this proxy statement-prospectus. In
addition, unaudited consolidated financial statements of NCRIC for the three
month period ended March 31, 2005, are included in NCRIC's quarterly report on
Form 10-Q, which is attached as Appendix D to this proxy statement-prospectus.

 

SPECIAL MEETING OF THE STOCKHOLDERS OF NCRIC (PAGE 25).

 

     Date, Time, Place and Purpose of the Meeting.  NCRIC will hold its special
meeting of stockholders on August 2, 2005, at 4:00 p.m., local time, at 1055
Thomas Jefferson Street, N.W., Washington, D.C., to consider and vote on the
approval and adoption of the Merger Agreement among NCRIC, ProAssurance and
ProAssurance's wholly owned subsidiary, NCP Merger Corporation, and the
transactions contemplated thereby.

 

     Record Date; Shares Entitled to Vote.  NCRIC's board of directors has
established June 17, 2005, as the record date for the meeting of the
stockholders. As of the record date, there were 6,909,782 shares of NCRIC common
stock outstanding and entitled to vote at the special meeting.

 
     Vote Required; Recommendation of the Board of Directors.  A majority of the
outstanding shares of NCRIC common stock entitled to vote must be cast in favor
of the Merger Agreement for it to be approved. NCRIC's board of directors has
unanimously approved the Merger Agreement and unanimously recommends that the
stockholders of NCRIC vote "FOR" the Merger Agreement and "FOR" the
 
                                        4

 

proposal to adjourn the meeting to permit further solicitation of proxies in the
event that an insufficient number of shares is present in person or by proxy to
approve the Merger Agreement. As of the record date, the directors and executive
officers of NCRIC and their affiliates beneficially owned 488,428 shares or
approximately 7.1% of the outstanding shares of NCRIC common stock (excluding
stock options), and all such persons have indicated their intention to vote
their shares in favor of the Merger Agreement.

 

THE PROPOSED MERGER (PAGE 28).

 
     Pursuant to the Merger Agreement, NCRIC will merge with and into a newly
formed subsidiary of ProAssurance, which will survive the merger as a wholly
owned subsidiary of ProAssurance. The surviving corporation will change its name
to NCRIC Corporation at the effective time of the merger. A copy of the Merger
Agreement is attached as Appendix A to this proxy statement-prospectus and is
incorporated by reference.
 

THE MERGER CONSIDERATION (PAGE 29).

 
     When the merger is completed, you will receive 0.25 of a share of
ProAssurance common stock for each share of NCRIC common stock that you own at
the effective date of the merger. This exchange ratio is subject to adjustment
if the average of the per share closing prices of ProAssurance common stock as
reported on the NYSE during the ten trading days ending on the date preceding
the effective date of the merger is greater than $44.00 or less than $36.00 as
follows:
 

     - If the average price of a share of ProAssurance common stock is less than
       $36.00 during the measurement period, the exchange ratio will be adjusted
       and determined by dividing $9.00 by the average price of ProAssurance
       common stock so that the implied value of the NCRIC common stock will be
       $9.00 per share for purposes of determining the exchange ratio.

 

     - If the average price of a share of ProAssurance common stock is more than
       $44.00 during the measurement period, the exchange ratio will be adjusted
       and determined by dividing $11.00 by the average price of the
       ProAssurance common stock so that the implied value of the NCRIC common
       stock will be $11.00 per share for purposes of determining the exchange
       ratio.

 
     You should obtain current stock price quotations for ProAssurance common
stock and NCRIC common stock. ProAssurance common stock is listed on the NYSE
under the symbol "PRA," and NCRIC common stock is traded on the Nasdaq National
Market under the symbol "NCRI." The following table shows the closing prices for
ProAssurance and NCRIC common stock and the implied per share value in the
merger to NCRIC stockholders for the following dates:
 
     - February 25, 2005, the last trading date before we announced the merger;
 
     - February 28, 2005, the date we announced the merger;
 

     - June 17, 2005, shortly before we mailed this proxy statement-prospectus;
       and

 

     - The high, low and average values for the period from February 25, 2005
       through June 17, 2005.

 



                                                  CLOSING        CLOSING
                                                PROASSURANCE      NCRIC      IMPLIED VALUE PER
                                                SHARE PRICE    SHARE PRICE      NCRIC SHARE
                                                ------------   -----------   -----------------
                                                                    
February 25, 2005.............................     $40.41        $10.94           $10.10
February 28, 2005.............................     $40.50        $10.00           $10.13
June 17, 2005.................................     $40.81        $ 9.90           $10.20
High (for period).............................     $41.90        $10.94           $10.48
Low (for period)..............................     $36.60        $ 9.07           $ 9.15
Average (for period)..........................     $39.49        $ 9.53           $ 9.87


 
     You will not receive fractional shares of ProAssurance common stock in the
merger. Instead you will receive, without interest, a cash payment equal to the
fractional share interest you otherwise would have
 
                                        5

 
received, multiplied by the value of the ProAssurance common stock. For this
purpose, ProAssurance common stock will be valued at $40.00, or if there is an
adjustment to the exchange ratio, at the average of its daily closing prices
during the ten trading days ending on the date preceding the effective date of
the merger.
 

STOCKHOLDERS WILL NOT HAVE DISSENTERS' RIGHTS (PAGE 49).

 
     NCRIC stockholders will not have dissenters' rights under the Delaware
General Corporation Law.
 

THE MERGER WILL BE ACCOUNTED FOR AS A PURCHASE (PAGE 50).

 
     The merger will be treated as a purchase by ProAssurance of NCRIC under
generally accepted accounting principles, or GAAP.
 

THE MERGER WILL GENERALLY BE TAX-FREE TO STOCKHOLDERS OF NCRIC (PAGE 61).

 
     For United States federal income tax purposes, the merger has been
structured as a "plan of reorganization". As a NCRIC stockholder, you generally
will not recognize any gain or loss upon the exchange of shares of NCRIC common
stock solely for ProAssurance common stock for federal income tax purposes.
However, you may recognize gain or loss with respect to the payment of cash in
lieu of fractional shares of ProAssurance common stock to the extent the amount
of cash exceeds your basis in the NCRIC common stock exchanged for such
fractional shares.
 

     Neither ProAssurance nor NCRIC (nor their respective subsidiaries) will
recognize any gain or loss for United States federal income tax purposes in the
merger. For a complete description of the material United States federal income
tax consequences of the transaction, see "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" on page 61.

 

     The United States federal income tax consequences described above may not
apply to some holders of NCRIC common stock, including certain holders
specifically referred to on page 61. Your tax consequences will depend on your
individual situation. Accordingly, we strongly urge you to consult your tax
advisor for a full understanding of the particular tax consequences of the
merger to you.

 

     ProAssurance and NCRIC will receive opinions from Burr & Forman LLP and
Luse Gorman Pomerenk & Schick, P.C., respectively, regarding the tax
consequences of the merger summarized above. These opinions will be based in
part on customary assumptions and on representations that ProAssurance NCRIC
will make to Burr & Forman LLP and Luse Gorman Pomerenk & Schick, P.C. These
opinions are exhibits to the registration statement filed with the SEC in
connection with this proxy statement-prospectus.

 
     ProAssurance and NCRIC will not be obligated to complete the merger unless
Burr & Forman LLP and Luse Gorman Pomerenk & Schick, P.C. confirm these tax
consequences on the closing date.
 

NCRIC'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE MERGER
AGREEMENT (PAGE 29).

 
     NCRIC's board of directors believes that the merger and the Merger
Agreement are fair to and are in the best interests of NCRIC and its
stockholders. The board of directors unanimously recommends that NCRIC
stockholders vote "FOR" approval and adoption of the Merger Agreement.
 

OUR REASONS FOR THE MERGER (PAGES 29 AND 46).

 
     NCRIC's Board of Directors.  NCRIC's board of directors is proposing the
merger because it presents an attractive opportunity to merge with a leading
medical malpractice insurance group that will have significantly greater
financial strength and earning power than NCRIC would have on its own.
 
     ProAssurance's Board of Directors.  ProAssurance's board of directors has
approved the merger because the merger is consistent with ProAssurance's history
of expansion through combinations with other
                                        6

 
medical professional liability insurers that are closely related to the local
physician community and is also consistent with ProAssurance's current plan for
geographic expansion into the mid-Atlantic states.
 

NCRIC'S FINANCIAL ADVISOR HAS PROVIDED AN OPINION AS TO THE FAIRNESS OF THE
EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO NCRIC'S STOCKHOLDERS (PAGE 36).

 

     On February 27, 2005, the date the NCRIC board approved the merger, Sandler
O'Neill & Partners, L.P. rendered an oral opinion to NCRIC's board that, as of
that date, the ratio for the exchange of shares of ProAssurance common stock for
shares of NCRIC common stock set forth in the Merger Agreement was fair from a
financial point of view to the holders of NCRIC common stock. Sandler O'Neill
confirmed its opinion by delivery of a written opinion dated February 28, 2005.
The full text of Sandler O'Neill's written opinion, as updated as of June 20,
2005, is attached hereto as Appendix B. You should read this opinion completely
to understand the procedures followed, assumptions made, matters considered and
limitations of the review undertaken by Sandler O'Neill. Sandler O'Neill's
opinion is directed to the NCRIC board of directors and does not constitute a
recommendation to any stockholder as to any matters relating to the merger. The
opinion of Sandler O'Neill will not reflect any developments that may occur or
may have occurred after the date of the opinion and prior to the completion of
the merger. Sandler O'Neill will receive a fee for its services in connection
with the merger, a portion of which has been paid and a significant portion of
which is payable and contingent upon consummation of the merger. Sandler O'Neill
has also received a fee for rendering its opinion, which will be credited
against the portion of the fee payable upon consummation of the merger.

 

NCRIC'S DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE INTERESTS IN THE MERGER THAT
DIFFER FROM YOUR INTERESTS (PAGE 47).

 
     Some of NCRIC's directors and executive officers have interests in the
merger other than their interests as stockholders. NCRIC's board of directors
knew about these additional interests and considered them when they adopted the
Merger Agreement.
 
     NCRIC or its subsidiaries are parties to agreements with certain officers
that provide severance payments and other benefits upon termination (whether
voluntary or involuntary) of employment after the merger.
 
     Other interests of directors and officers of NCRIC may include rights under
deferred compensation plans, stock based benefit programs and awards,
compensation for services on an advisory committee of ProAssurance after the
merger, and rights to continued indemnification and insurance coverage for acts
or omissions occurring prior to the merger.
 

PROASSURANCE WILL ASSUME NCRIC'S STOCK OPTIONS AND STOCK AWARDS (PAGE 51).

 
     ProAssurance will assume all outstanding NCRIC stock options and stock
awards in accordance with their terms. Each outstanding stock award will be
converted into shares of ProAssurance common stock using the exchange ratio, and
all fractional shares will be eliminated.
 
     Each holder of an option to acquire NCRIC common stock outstanding and
unexercised immediately prior to completion of the merger will have the election
to either:
 
     - exchange his or her NCRIC stock options for the right to acquire shares
       of ProAssurance common stock, in which event the number of shares
       issuable under those options will be adjusted by multiplying the exchange
       ratio by the number of shares of NCRIC common stock subject to the
       option, and the exercise price for the shares of ProAssurance common
       stock subject to the assumed options will be determined by dividing the
       exchange ratio into the exercise price of the shares of NCRIC common
       stock subject to the option; or
 
                                        7

 
     - surrender his or her NCRIC stock options for a cash payment equal to the
       greater of either:
 

      - the spread between the exercise price for each share of NCRIC common
        stock subject to the option and the implied value of such share as
        adjusted to reflect its conversion in the merger; or

 
      - $1.00 for each share of NCRIC common stock subject to the stock option
        so surrendered.
 

WE MUST MEET SEVERAL CONDITIONS TO COMPLETE THE MERGER (PAGE 59).

 
     Our obligations to complete the merger depend on a number of conditions
being met. These include:
 
     - the approval of the Merger Agreement by NCRIC's stockholders;
 
     - the listing of the shares of ProAssurance common stock to be issued in
       the merger on the NYSE (including shares to be issued following exercise
       of the NCRIC stock options assumed by ProAssurance);
 
     - the filing of a certificate of merger with the appropriate governmental
       authorities;
 
     - receiving the approval of the Mayor of the District of Columbia as
       required by the District's insurance holding company laws and
       regulations;
 
     - receiving the required approvals of other federal and state regulatory
       authorities;
 
     - the absence of any government action or other legal restraint or
       prohibition that would prohibit the merger or make it illegal;
 
     - the absence of a material adverse effect suffered by either ProAssurance
       or NCRIC on a consolidated basis;
 
     - the absence of any inquiries, proceedings, claims or actions by any
       government or regulatory authority alleging violations of federal
       securities laws by NCRIC, its subsidiaries or any of their respective
       directors or officers;
 
     - receiving legal opinions that, for United States federal income tax
       purposes, the merger will be treated as a plan of reorganization and no
       gain or loss will be recognized by NCRIC stockholders who receive
       ProAssurance common stock in exchange for all of their NCRIC common stock
       (except with respect to any cash received for fractional interests) and
       no gain or loss will be recognized by PRA, NCRIC and their respective
       subsidiaries; and
 
     - the representations and warranties of each party to the Merger Agreement
       being true and correct, except as would not have or would not reasonably
       be expected to have a material adverse effect, and each party to the
       Merger Agreement must have performed in all material respects all its
       obligations under the Merger Agreement.
 
     Where the law permits, either of us could choose to waive a condition to
our obligation to complete the merger even when that condition has not been
satisfied. We cannot be certain when, or if, the conditions to the merger will
be satisfied or waived, or that the merger will be completed. Although the
Merger Agreement allows us to waive the tax opinion condition, we do not
currently anticipate doing so. If we waive the condition, we will inform you of
this fact and ask you to vote on the merger taking this into consideration.
 

WE MUST OBTAIN REGULATORY APPROVALS TO COMPLETE THE MERGER (PAGE 49).

 

     We cannot complete the merger unless it is approved by the Mayor of the
District of Columbia in accordance with the requirements of the insurance
holding company laws and regulations of the District of Columbia. The Mayor is
required to make a determination on the merger within 120 days after the public
hearing held on June 6, 2005.

 

     In addition, the merger is subject to review by antitrust authorities under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or HSR Act. We have
filed notices with the Federal Trade

 
                                        8

 

Commission and the Antitrust Division of the United States Department of
Justice, or DOJ, and they have granted early termination of the required waiting
periods.

 
     Although we do not know of any reason why we would not be able to obtain
the necessary regulatory approvals in a timely manner, we cannot be certain when
or if we will obtain them.
 

WE HAVE AGREED WHEN AND HOW NCRIC CAN CONSIDER THIRD PARTY ACQUISITION PROPOSALS
(PAGE 57).

 
     We have agreed that NCRIC will not, directly or indirectly, initiate,
entertain, solicit, encourage, engage in or participate in proposals from third
parties regarding acquiring NCRIC or its businesses. However, if NCRIC receives
an acquisition proposal from a third party, NCRIC can participate in
negotiations with and provide confidential information to the third party and
recommend the proposal to its stockholders if NCRIC's board of directors
concludes in good faith that the proposal is in furtherance of the best
interests of its stockholders. If NCRIC's board of directors has authorized,
recommended, approved or entered into an agreement with any third party to
effect an acquisition proposal, then NCRIC must pay to ProAssurance $1,725,000
in damages and NCRIC can terminate the Merger Agreement.
 

WE MAY TERMINATE THE MERGER AGREEMENT (PAGE 60).

 
     We may mutually agree at any time to terminate the Merger Agreement without
completing the merger, even if NCRIC's stockholders have approved the Merger
Agreement. Also, either of us may decide, without the consent of the other, to
terminate the Merger Agreement:
 
     - if there is a final denial of a required regulatory approval;
 
     - if the merger is not completed on or before December 31, 2005;
 
     - if there is a breach of any covenant or agreement in the Merger Agreement
       by the other party and such breach continues after 45 days' written
       notice to the breaching party, as long as the terminating party is not in
       material breach of any representation, warranty, covenant or other
       agreement in the Merger Agreement;
 
     - if there is a continuing breach of any representation or warranty in the
       Merger Agreement by the other party that has had or is reasonably
       expected to have a material adverse effect and such breach continues
       after 45 days' written notice to the breaching party, as long as the
       terminating party is not in material breach of any representation,
       warranty, covenant or other agreement in the Merger Agreement;
 
     - if NCRIC fails to obtain the stockholder vote required for the merger;
 
     - if the other party discloses a material adverse effect or change to its
       disclosure schedule that has or would be likely to have a material
       adverse effect; or
 
     - if the Form S-4 registration statement has not been filed with the
       Securities and Exchange Commission on or before June 30, 2005, unless the
       failure to do so is due to the failure of the party seeking to terminate
       the Merger Agreement.
 
     Also, ProAssurance may terminate the Merger Agreement if NCRIC's board of
directors:
 
     - fails to recommend approval of the Merger Agreement to its stockholders
       or withdraws or materially and adversely modifies its recommendation;
 
     - authorizes, recommends, approves or proposes an acquisition proposal
       other than the merger; or
 
     - enters into an agreement with a third party regarding an acquisition
       proposal other than the merger.
 
     If ProAssurance terminates the Merger Agreement as a result of NCRIC's
board of directors failing to recommend approval of the Merger Agreement or
withdrawing or adversely modifying its recommendation of the merger, NCRIC shall
be obligated to pay damages in the amount of $1,725,000.
 
                                        9

 
     NCRIC may also terminate the Merger Agreement if its board of directors:
 
     - fails to recommend approval of the Merger Agreement to its stockholders
       or withdraws or materially and adversely modifies its recommendation;
 
     - authorizes, recommends, approves or proposes an acquisition proposal
       other than the merger; or
 
     - enters into an agreement with a third party regarding an acquisition
       proposal other than the merger.
 
     However, any decision by NCRIC's board of directors to authorize,
recommend, approve or propose an acquisition proposal other than the merger, or
enter into an agreement with a third party regarding an acquisition proposal
other than the merger will result in NCRIC's obligation to pay to ProAssurance
damages in the amount of $1,725,000.
 

     As long as no other termination event has occurred, both companies would
remain obligated to continue to use their reasonable best efforts to complete
the merger until December 31, 2005.

 
     Whether or not the merger is completed, we will each pay our own fees and
expenses, except that (i) we will evenly divide the costs and expenses that we
incur in preparing, printing and mailing this proxy statement-prospectus and
filing fees paid to the SEC in connection with the registration statement and
(ii) we will share the cost of the HSR Act filing fees in proportion to our
relative assets as of December 31, 2004.
 

WE MAY AMEND OR WAIVE MERGER AGREEMENT PROVISIONS (PAGE 61).

 
     We may jointly amend the Merger Agreement, and each of us may waive our
right to require the other party to follow particular provisions of the Merger
Agreement. However, we may not amend the Merger Agreement after NCRIC's
stockholders approve the Merger Agreement if the amendment would change the
amount or the form of the consideration to be delivered to NCRIC stockholders.
If any amendment or waiver changes the amount or form of the consideration to be
delivered to NCRIC stockholders after approval for the merger has already been
obtained, then such amendment or waiver would require further approval by NCRIC
stockholders.
 
                                        10

 
            SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL AND
                   OPERATING DATA OF PROASSURANCE CORPORATION
 

     ProAssurance is providing the following financial information to aid you in
your analysis of the financial aspects of the merger. ProAssurance derived this
information from its audited financial statements for 2000 through 2004 and from
its unaudited financial statements for the three month periods ended March 31,
2005 and 2004. All information is presented in accordance with GAAP. The
information is only a summary and you should read it in conjunction with
ProAssurance's historical financial statements and related notes contained in
the reports and other information that ProAssurance has filed with the SEC. This
historical financial information has also been incorporated into this proxy
statement-prospectus by reference. See "WHERE YOU CAN FIND MORE INFORMATION" on
page 79.

 
                           [Table on following page.]
 
                                        11

 



                                   THREE MONTHS ENDED
                                        MARCH 31                               YEAR ENDED DECEMBER 31
                                 -----------------------   --------------------------------------------------------------
SELECTED FINANCIAL DATA(1)          2005         2004         2004         2003         2002         2001         2000
--------------------------       ----------   ----------   ----------   ----------   ----------   ----------   ----------
                                                           (IN THOUSANDS EXCEPT PER SHARE DATA)
                                       (UNAUDITED)
                                                                                          
Gross premiums written.........  $  215,658   $  218,726   $  789,660   $  740,110   $  636,156   $  388,983   $  223,871
Net premiums written...........     196,420      195,462      717,059      668,909      537,123      310,291      194,279
Premiums earned................     194,103      188,528      765,643      698,347      576,414      381,510      216,297
Premiums ceded.................     (19,923)     (20,686)     (69,623)     (74,833)     (99,006)     (68,165)     (38,701)
Net premiums earned............     174,180      167,842      696,020      623,514      477,408      313,345      177,596
Net investment income..........      25,422       19,851       87,225       73,619       76,918       59,782       41,450
Net realized investment
  gains(losses)................         942        3,657        7,609        5,992       (5,306)       5,441          913
Other income...................       1,646        1,010        3,699        6,515        6,747        3,987        2,630
  Total revenues...............     202,190      192,360      794,553      709,640      555,767      382,555      222,589
Net losses and loss adjustment
  expenses.....................     139,216      141,920      572,881      551,376      448,029      298,558      155,710
Income before cumulative effect
  of accounting change.........      21,937       15,981       72,811       38,703       10,513       12,450       24,300
Net income(2)..................      21,937       15,981       72,811       38,703       12,207       12,450       24,300
Income per share before
  cumulative effect of
  accounting change(3)
  Basic........................  $     0.75   $     0.55   $     2.50   $     1.34   $     0.40   $     0.51   $     1.04
  Diluted......................  $     0.71   $     0.52   $     2.37   $     1.32   $     0.39   $     0.51   $     1.04
Net income per share:(2)(3)
  Basic........................  $     0.75   $     0.55   $     2.50   $     1.34   $     0.47   $     0.51   $     1.04
  Diluted......................  $     0.71   $     0.52   $     2.37   $     1.32   $     0.46   $     0.51   $     1.04
Weighted average number of
  shares outstanding:(3)
  Basic........................      29,217       29,118       29,164       28,956       26,231       24,263       23,291
  Diluted......................      32,070       31,933       31,984       30,389       26,254       24,267       23,291
BALANCE SHEET DATA (as of end
  of period)
Total investments..............   2,519,785    2,181,689   $2,455,053   $2,055,672   $1,679,497   $1,521,279   $  796,526
Total assets...................   3,340,627    2,998,743    3,239,198    2,879,352    2,586,650    2,238,325    1,122,836
Reserve for losses and loss
  adjustment expenses..........   2,096,705    1,860,282    2,029,592    1,814,584    1,622,468    1,442,341      659,659
Long-term debt.................     151,554      104,863      151,480      104,789       72,500       82,500           --
Total liabilities..............   2,728,968    2,423,369    2,628,179    2,333,047    2,055,086    1,802,606      777,669
Total capital..................     611,659      575,374      611,019      546,305      505,194      413,231      345,167
Total capital per share of
  common stock outstanding.....  $    20.91   $    19.73   $    20.92   $    18.77   $    17.49   $    16.02   $    15.22
Common stock outstanding at end
  of year......................      29,252       29,156       29,204       29,105       28,877       25,789       22,682


 
---------------
 
(1) Includes Professionals Group since the date of consolidation, June 27, 2001.
 
(2) Net income for the year ended December 31, 2002 was increased by $1.7
    million due to the adoption of SFAS 141 and 142. See Note 13 to
    ProAssurance's consolidated financial statements for the year ended December
    31, 2004, which are incorporated herein by reference.
 
(3) Diluted net income per share for 2003 has been restated to reflect
    implementation of Emerging Issues Task Force 04-8, "The Effect of
    Contingently Convertible Debt on Diluted Earnings per Share". The
    restatement reduced previously reported diluted net income per share by
    $0.01.
 
                                        12

 
            SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL AND
                      OPERATING DATA OF NCRIC GROUP, INC.
 

     NCRIC is providing the following financial information to aid you in your
analysis of the financial aspects of the merger. NCRIC derived this information
from its audited financial statements for 2000 through 2004 and from its
unaudited financial statements for the three month periods ended March 31, 2005
and 2004. All information is presented in accordance with GAAP. The information
is only a summary and you should read it in conjunction with NCRIC's historical
financial statements and related notes contained in the reports and other
information that NCRIC has filed with the SEC. This historical financial
information has also been incorporated into this proxy statement-prospectus by
reference. See "WHERE YOU CAN FIND MORE INFORMATION" on page 79.

 
                           [Table on following page.]
 
                                        13

 



                             THREE MONTHS ENDED
                                  MARCH 31                         YEAR ENDED DECEMBER 31
                             -------------------   -------------------------------------------------------
SELECTED FINANCIAL DATA        2005       2004       2004        2003        2002        2001       2000
-----------------------      --------   --------   --------    --------    --------    --------   --------
                                                 (IN THOUSANDS EXCEPT PER SHARE DATA)
                                 (UNAUDITED)
                                                                             
Gross premiums written.....  $ 34,354   $ 34,253   $ 87,229    $ 71,365    $ 51,799    $ 34,459   $ 22,727
Net premiums written.......    30,345     30,086     72,536      59,277      33,804      23,624     15,610
Premiums earned............    21,481     19,847     80,992      61,023      44,121      27,899     18,721
Premiums ceded.............     3,638      3,420    (14,530)    (13,759)    (14,023)     (7,296)    (4,110)
Net premiums earned........    17,843     16,150     66,462      47,264      30,098      20,603     14,611
Net investment income......     1,915      1,670      7,256       6,008       5,915       6,136      6,407
Net realized investment
  gains (losses)...........       302        333        475       1,930        (131)       (278)        (5)
Practice management and
  related income...........     1,176      1,224      4,395       4,906       5,800       6,156      5,317
Other income...............       178        237        820       1,155       1,013         602        470
  Total revenues...........    21,414     19,614     79,408      61,263      42,695      33,219     26,800
Net losses and loss
  adjustment expenses......    14,446     13,075     70,310      50,473      26,829      18,858     11,946
Net income (loss)..........       636        522     (7,120)     (4,218)        742       1,579      3,495
Net income (loss) per
  share:
  Basic....................  $   0.10   $   0.08   $  (1.12)   $  (0.65)   $   0.11    $   0.24   $   0.53
  Diluted..................  $   0.10   $   0.08   $  (1.12)   $  (0.65)   $   0.11    $   0.23   $   0.53
Weighted average number of
  shares outstanding:
  Basic....................     6,401      6,337      6,357       6,486       6,639       6,587      6,581
  Diluted..................     6,616      6,614      6,357       6,486       6,779       6,747      6,643
BALANCE SHEET DATA (as of
  end of period)
Total investments..........  $214,760   $193,314   $202,307    $174,357    $120,120    $103,125   $ 98,045
Total assets...............   301,965    281,002    292,899     262,546     202,687     161,002    145,864
Reserve for losses and loss
  adjustment expenses......   155,947    130,234    153,242     125,991     104,022      84,560     81,134
Long-term debt.............    15,000(1)   15,000(1)   15,000(1)   15,000(1)   15,000(1)       --       --
Total liabilities..........   231,363    200,700    220,884     184,567     154,870     116,548    104,415
Total stockholders'
  equity...................    70,602     80,302     72,015      77,979      47,817      44,454     41,449
Total capital per share of
  common stock
  outstanding..............  $  10.22   $  11.64   $  10.45    $  11.30    $   6.91    $   6.42   $   5.96
Common stock outstanding at
  end of year..............     6,910      6,899      6,893       6,899       6,922       6,927      6,953


 
---------------
 
(1) Includes $15.0 million of Trust Preferred Securities.
 
                                        14

 
                      UNAUDITED COMPARATIVE PER SHARE DATA
               OF PROASSURANCE CORPORATION AND NCRIC GROUP, INC.
 

     The information below should be read together with the historical financial
statements and related notes contained in the annual reports and other
information of ProAssurance and NCRIC that have been filed with the SEC and
incorporated herein by reference. The unaudited ProAssurance pro forma
consolidated data below is for illustrative purposes only. The companies may
have performed differently had they always been combined. This information
should not be relied upon as being indicative of the historical results that
would have been achieved had the companies always been combined or the future
results that the combined company will experience after the merger. See
"UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" beginning on
page 65 and "WHERE YOU CAN FIND MORE INFORMATION" beginning on page 79.

 

NET INCOME PER SHARE FOR THE THREE MONTHS ENDED MARCH 31, 2005

 



 
                                                           
ProAssurance (Historical)
  Basic.....................................................  $ 0.75
  Diluted...................................................  $ 0.71
NCRIC (Historical)
  Basic.....................................................  $ 0.10
  Diluted...................................................  $ 0.10
ProAssurance Pro Forma Consolidated(a)
  Basic.....................................................  $ 0.74
  Diluted...................................................  $ 0.70
NCRIC Pro Forma Equivalent(c)
  Basic.....................................................  $ 0.19
  Diluted...................................................  $ 0.18


 

NET INCOME PER SHARE FOR THE YEAR ENDED DECEMBER 31, 2004

 


 
                                                           
ProAssurance (Historical)
  Basic.....................................................  $ 2.50
  Diluted...................................................  $ 2.37
NCRIC (Historical)
  Basic.....................................................  $(1.12)
  Diluted...................................................  $(1.12)
ProAssurance Pro Forma Consolidated(a)
  Basic.....................................................  $ 2.13
  Diluted...................................................  $ 2.04
NCRIC Pro Forma Equivalent(c)
  Basic.....................................................  $ 0.53
  Diluted...................................................  $ 0.51

 

TOTAL CAPITAL PER OUTSTANDING COMMON SHARE AT MARCH 31, 2005

 



 
                                                           
ProAssurance (Historical)...................................  $20.91
NCRIC (Historical)..........................................  $10.22
ProAssurance Pro Forma Consolidated(b)......................  $22.03
NCRIC Pro Forma Equivalent..................................  $ 5.51


 
                                        15

 
---------------
 
(a) ProAssurance pro forma consolidated earnings per share gives effect to the
    merger of NCRIC, treated as a purchase of NCRIC, as if the transaction had
    occurred January 1, 2004.
 

(b) ProAssurance pro forma consolidated total capital per outstanding share
    gives effect to the merger of NCRIC, treated as a purchase transaction, as
    if the transaction had occurred March 31, 2005.

 
(c) NCRIC pro forma equivalent information represents the pro forma consolidated
    per share of NCRIC common stock assuming an exchange ratio of 0.25.
 
                                        16

 
                                  RISK FACTORS
 

     In addition to the other information included and incorporated by reference
in this proxy statement-prospectus, including the matters addressed in the
section entitled "Forward-Looking Statements," you should carefully consider the
risks set forth below before deciding whether to vote for the approval and
adoption of the Merger Agreement. You should also read and consider other
information in this proxy statement-prospectus and other documents incorporated
by reference in this proxy statement-prospectus. See the section entitled "WHERE
YOU CAN FIND MORE INFORMATION" beginning on page 80.

 
RISKS RELATING TO THE MERGER
 
  NCRIC STOCKHOLDERS CANNOT BE SURE OF THE MARKET VALUE OF THE PROASSURANCE
  COMMON STOCK THAT WILL BE ISSUED IN THE MERGER.
 
     Upon completion of the merger and subject to adjustment as provided in the
Merger Agreement, each share of NCRIC common stock will be converted into the
right to receive 0.25 of a share of ProAssurance common stock. The exchange
ratio is subject to adjustment if the average of the per share closing prices of
a share of ProAssurance common stock as reported on the NYSE during the ten
trading days preceding the effective date of the merger is greater than $44.00
or less than $36.00 such that the holder of a share of NCRIC common stock will
receive ProAssurance common stock having an average value of not less than $9.00
nor more than $11.00 during the measurement period. This average price may vary
from the closing price of the ProAssurance common stock on the date we announced
the merger, on the date this proxy statement-prospectus was mailed to NCRIC
stockholders, and on the date of the special meeting of stockholders of NCRIC.
Any change in the market price of ProAssurance common stock prior to completion
of the merger will affect the value and may possibly affect the amount of
ProAssurance shares that the NCRIC stockholders will receive upon completion of
the merger. Share price changes may result from a variety of factors including
general market and economic conditions, changes in ProAssurance's operations and
prospects, and regulatory considerations. Many of these factors are beyond
either ProAssurance's or NCRIC's control.
 
     Accordingly, at the time of the special meeting of NCRIC stockholders, the
NCRIC stockholders will not necessarily know or be able to calculate the value
of the number of shares of ProAssurance common stock that will be issued upon
the completion of the merger.
 
  NCRIC STOCKHOLDERS' ABILITY TO BENEFIT FROM INCREASES IN THE VALUE OF
  PROASSURANCE COMMON STOCK PRIOR TO CLOSING OF THE MERGER IS LIMITED.
 
     The exchange ratio under the Merger Agreement is subject to adjustments
that limit the range in the value of ProAssurance common stock to be received by
NCRIC stockholders in the merger. Therefore, the opportunity for NCRIC
stockholders to benefit from any increase in the market value of ProAssurance
common stock between the announcement of the merger and the closing of the
merger will be limited, which would not have been the case if the consideration
had been based on a fixed exchange ratio.
 
  COMBINING NCRIC AND PROASSURANCE MAY BE MORE DIFFICULT, COSTLY OR TIME
  CONSUMING THAN WE EXPECT.
 
     ProAssurance and NCRIC have operated, and until completion of the merger
will continue to operate, independently. It is possible that the integration
process could result in the loss of key employees or the disruption of each
company's ongoing business or inconsistencies in standards, procedures and
policies that adversely affect our ability to maintain relationships with
customers and employees or to achieve the anticipated benefits of the merger.
 
                                        17

 
  WE MUST OBTAIN SEVERAL GOVERNMENTAL CONSENTS TO COMPLETE THE MERGER WHICH, IF
  DELAYED, NOT GRANTED OR GRANTED WITH BURDENSOME CONDITIONS, MAY JEOPARDIZE OR
  POSTPONE THE MERGER, RESULT IN ADDITIONAL EXPENSE OR REDUCE THE ANTICIPATED
  BENEFITS OF THE TRANSACTION.
 
     We must obtain approvals and consents in a timely manner from several
federal and state (including the District of Columbia) agencies prior to
completion of the merger. If we do not receive these approvals, or do not
receive them on terms that satisfy the conditions set forth in the Merger
Agreement, then we will not be obligated to complete the merger. The
governmental agencies from which we will seek these approvals have broad
discretion in administering governing regulations. As a condition to approval of
the merger, agencies may impose requirements, limitations or costs that could
negatively affect the way ProAssurance conducts business following the merger.
These requirements, limitations or costs could jeopardize or delay completion of
the merger. If we agree to any material requirements, limitations or costs in
order to obtain any approvals required to complete the merger, these
requirements, limitations or additional costs could adversely affect
ProAssurance's ability to integrate the common aspects of the two companies'
operations or reduce the anticipated benefits of the merger. This could result
in a material adverse affect on the business and results of operations of
ProAssurance following the merger.
 
  FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT THE SHARE PRICES AND
  FUTURE BUSINESS AND FINANCIAL RESULTS OF NCRIC AND PROASSURANCE.
 
     If the merger is not completed, the ongoing business of NCRIC or
ProAssurance may be adversely affected and NCRIC and ProAssurance will be
subject to several risks, including the following:
 

     - Management of each of the companies may be focused on the merger instead
       of pursuing other opportunities that could be beneficial to the
       respective companies.

 
     - The two companies will be required to pay certain costs relating to the
       merger such as legal, accounting, financial advisor and printing fees and
       expenses.
 
     - NCRIC may be required under certain circumstances to pay ProAssurance a
       termination fee of $1,725,000 under the Merger Agreement.
 
  THE INTERNAL REVENUE SERVICE MAY DISAGREE WITH OUR DESCRIPTION OF THE FEDERAL
  INCOME TAX CONSEQUENCES.
 
     We have not applied for, nor do we expect to obtain, a ruling from the
Internal Revenue Service with respect to the federal income tax consequences of
the merger. NCRIC and ProAssurance will each receive an opinion of its legal
counsel as to certain anticipated federal income tax consequences as described
under "MATERIAL FEDERAL INCOME TAX CONSEQUENCES." Such opinion is qualified in
certain respects and is not binding on the Internal Revenue Service. No
assurance can be given that the Internal Revenue Service will not challenge the
favorable income tax consequences of the merger. We will vigorously contest any
such challenge.
 
  THE NCRIC OFFICERS AND DIRECTORS HAVE INTERESTS IN THE MERGER BESIDES THOSE OF
  A STOCKHOLDER.
 

     The directors and officers of NCRIC have interests in the merger that are
different from and in addition to your interests as NCRIC stockholders. As
discussed under "INTERESTS OF CERTAIN PERSONS IN THE MERGER," certain of the
officers of NCRIC have employment agreements that provide for payments in the
event that their employment is terminated (whether voluntarily or involuntarily)
after a change of control of NCRIC, and certain of them have stock options and
stock awards and other benefits that will vest upon the change of control. The
merger will result in a change of control for purposes of such arrangements and
other benefits. You should be aware of these interests relating to the benefits
available to certain of NCRIC's officers and directors in considering the
determinations of the NCRIC board of directors to approve the merger.

 
                                        18

 
  SUBSTANTIAL SALES OF PROASSURANCE COMMON STOCK COULD ADVERSELY AFFECT ITS
  MARKET PRICE.
 
     All of the shares of ProAssurance common stock that are to be issued in the
merger may be sold immediately except for those shares of stockholders who are
affiliates of NCRIC within the meaning of Rule 145 of the Securities Act of
1933. The sale of a substantial amount of ProAssurance common stock after the
merger could adversely affect its market price. It could also impair
ProAssurance's ability to raise money through the sale of more stock or other
forms of capital. In addition, the sale of authorized but unissued shares of
ProAssurance common stock by ProAssurance, after the merger, could adversely
affect its market price.
 
RISKS RELATING TO PROASSURANCE'S BUSINESS
 
     The NCRIC stockholders will own shares of ProAssurance common stock upon
completion of the merger. In determining whether to vote on the Merger
Agreement, you as a NCRIC stockholder should consider the following risk factors
regarding the business of ProAssurance. REFERENCES TO "WE," "US" OR "OUR" UNDER
THIS SUBHEADING ARE TO PROASSURANCE AND ITS SUBSIDIARIES, WHICH AFTER THE MERGER
WILL INCLUDE NCRIC AND ITS SUBSIDIARIES.
 
  OUR RESULTS MAY BE AFFECTED IF ACTUAL INSURED LOSSES DIFFER FROM OUR LOSS
  RESERVES.
 
     Significant periods of time often elapse between the occurrence of an
insured loss, the reporting of the loss to us and our payment of that loss. To
recognize liabilities for unpaid losses, we establish reserves as balance sheet
liabilities representing estimates of amounts needed to pay reported and
unreported losses and the related loss adjustment expense. The process of
estimating loss reserves is a difficult and complex exercise involving many
variables and subjective judgments. As part of the reserving process, we review
historical data and consider the impact of various factors such as:
 
     - trends in claim frequency and severity;
 
     - changes in operations;
 
     - emerging economic and social trends;
 
     - inflation; and
 
     - changes in the regulatory and litigation environments.
 
     This process assumes that past experience, adjusted for the effects of
current developments and anticipated trends, is an appropriate, but not
necessarily accurate, basis for predicting future events. There is no precise
method for evaluating the impact of any specific factor on the adequacy of
reserves, and actual results are likely to differ from original estimates.
 
     The loss reserves of our insurance subsidiaries also may be affected by
court decisions that expand liability on our policies after they have been
issued and priced. In addition, a significant jury award, or series of awards,
against one or more of our insureds could require us to pay large sums of money
in excess of our reserved amounts. Our policy to aggressively litigate claims
against our insureds may increase the risk that we may be required to make such
payments.
 
     To the extent loss reserves prove to be inadequate in the future, we would
need to increase our loss reserves and incur a charge to earnings in the period
the reserves are increased, which could have a material adverse impact on our
financial condition and results of operation.
 
  OUR RESULTS MAY BE AFFECTED BY THE OUTCOME OF CERTAIN LITIGATION AGAINST
  NCRIC.
 
     On February 20, 2004, a District of Columbia Superior Court entered a
judgment against NCRIC in favor of Columbia Hospital for Women Medical Center,
Inc. in the amount of $18.2 million (the "CHW Judgment"). NCRIC has filed
post-trial motions requesting the trial court to set aside the CHW Judgment or
in the alternative, to grant a new trial. In connection with the filing of the
post-trial motions, NCRIC posted a $19.5 million appellate bond and associated
letter of credit to secure payment of the
 
                                        19

 
CHW Judgment and projected post-trial interest. Because the trial court has not
yet ruled on the post-trial motions, the CHW Judgment is not final. The court's
decision on the post-trial motions and the verdict underlying the CHW Judgment
may be appealed if the trial court should not rule favorably on the post-trial
motions. NCRIC has not accrued liability for any possible loss arising from this
litigation because the CHW Judgment is not yet final and remains with the trial
judge and, because NCRIC believes that it has meritorious defenses and that it
is not probable that the preliminary judgment will prevail, nor is any potential
final outcome reasonably estimable at this time.
 
     If the merger is completed, ProAssurance will assume the risk of loss with
respect to the CHW Judgment and the costs associated with pursuing the
post-trial motions and any appeal of a final judgment. There can be no assurance
that the post-trial motions or any appeals will be successful in setting aside
the CHW Judgment. Any settlement of the CHW Judgment prior to or shortly after
the merger will be reflected as an adjustment to goodwill in ProAssurance's
consolidated balance sheet at the effective time of the merger. Any settlement
of the CHW Judgment beyond the period for which such adjustments are allowed
will be included as an expense in ProAssurance's current operations and may have
a material adverse effect on ProAssurance's results of operations for the period
in which the settlement occurs.
 
  IF WE ARE UNABLE TO MAINTAIN A FAVORABLE FINANCIAL STRENGTH RATING, IT MAY BE
  MORE DIFFICULT FOR US TO WRITE NEW BUSINESS OR RENEW OUR EXISTING BUSINESS.
 
     Third party rating agencies assess and rate the claims-paying ability of
insurers based upon criteria established by the agencies. Periodically the
rating agencies evaluate us to confirm that we continue to meet the criteria of
the ratings previously assigned to us. The financial strength ratings assigned
by rating agencies to insurance companies represent independent opinions of
financial strength and ability to meet policyholder obligations and are not
directed toward the protection of investors. Ratings by rating agencies are not
ratings of securities or recommendations to buy, hold or sell any security and
are not applicable to the securities being offered by this prospectus.
 
     Our operating subsidiaries hold a financial strength rating of "A-"
(Excellent) by A.M. Best which is currently under review with a negative
implication and "A-" (Strong) by Standard & Poor's. Financial strength ratings
are used by agents and customers as an important means of assessing the
financial strength and quality of insurers. If our financial position
deteriorates, we may not maintain our favorable financial strength ratings from
the rating agencies. Further, we cannot assure you that the merger will not
result in a downgrade of our ratings. A downgrade or withdrawal of any such
rating could severely limit or prevent us from writing desirable business.
 
  WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT.
 
     The property and casualty insurance business is highly competitive. We
compete with large national property and casualty insurance companies as well as
specialty insurers and self-insurance entities whose activities are limited to
regional and local markets. Our competitors include companies with substantially
greater financial resources than we have as well as companies that may have
lower return on equity objectives than we have, such as mutual companies and
other companies not owned by stockholders.
 
     Competition in the property and casualty insurance business is based on
many factors, including premiums charged and other terms and conditions of
coverage, services provided, financial ratings assigned by independent rating
agencies, claims services, reputation, perceived financial strength and the
experience of the insurance company in the line of insurance to be written.
Increased competition could cause us to charge lower premium rates, adversely
affect our ability to attract and retain business and reduce the profits that
would otherwise arise from operations.
 
  OUR REVENUES MAY FLUCTUATE WITH INSURANCE BUSINESS CYCLES.
 
     The supply of property and casualty insurance and reinsurance, or the
industry's underwriting capacity, is determined principally by the industry's
level of capitalization, historical underwriting results, returns on investment
and perceived premium rate adequacy. Historically, the financial performance of
the
 
                                        20

 
property and casualty insurance industry has tended to fluctuate in cyclical
patterns characterized by periods of greater competition in pricing and
underwriting terms and conditions (a soft insurance market) followed by periods
of capital shortage and lesser competition (a hard insurance market). In a soft
insurance market, competitive conditions could result in premium rates and
underwriting terms and conditions which may have an adverse effect on our
operating profitability.
 
     We derive a significant portion of our insurance premium revenue from
medical malpractice risks. For several years, the medical malpractice insurance
industry faced a soft insurance market that generally resulted in lower
premiums. More recently, premium rates have increased significantly which has
helped our profitability. We cannot predict whether these rate increases will
continue. In spite of these rate increases, however, loss costs have begun to
rise beyond normal inflationary levels. We are endeavoring to compete in this
market through premium rate increases and more selective underwriting practices,
but these practices may not be successful. Moreover, we cannot predict whether,
when or how market conditions will change, or the manner in which, or the extent
to which any such changes may adversely impact our results and operations.
 
  OUR REVENUES MAY FLUCTUATE WITH INTEREST RATES AND INVESTMENT RESULTS.
 

     We generally rely on the positive performance of our investment portfolio
to offset insurance losses and to contribute to our profitability. As our
investment portfolio is primarily comprised of interest-earning assets,
prevailing economic conditions, particularly changes in market interest rates,
may significantly affect our operating results. Changes in interest rates also
can affect the value of our interest-earning assets, which are principally
comprised of fixed and adjustable-rate investment securities. Generally, the
value of fixed-rate investment securities fluctuate inversely with changes in
interest rates. Interest rate fluctuations could adversely affect our GAAP
stockholders' equity, total comprehensive income and/or our cash flows. Our
total investments at March 31, 2005 were $2.520 billion, of which $2.249 billion
was invested in fixed maturities. Unrealized pre-tax net investment gains on
investments in fixed maturities were $1.2 million at March 31, 2005.

 
     Our investment portfolio is subject to prepayment risk primarily due to our
investments in mortgage-backed and other asset-backed securities. An investment
has prepayment risk when there is a risk that the timing of cash flows that
result from the repayment of principal might occur earlier than anticipated
because of declining interest rates or later than anticipated because of rising
interest rates. We are subject to reinvestment risk to the extent that we are
not able to reinvest prepayments at rates comparable to the rates on the
maturing investments.
 

     At March 31, 2005, we held equity investments having a fair value of $29.2
million in an available-for-sale portfolio and held additional equity securities
having a fair value of $4.4 million in a trading portfolio. The fair value of
these securities fluctuates depending upon company specific and general market
conditions. Any decline in the fair value of available-for-sale securities that
we determine to be other-than-temporary will reduce our net income. Any changes
in the fair values of trading securities, whether gains or losses, will be
included in net income in the period changed.

 
  CHANGES IN HEALTHCARE COULD HAVE A MATERIAL IMPACT ON OUR OPERATIONS.
 
     We derive substantially all of our medical professional liability insurance
premiums from physicians and other individual healthcare providers, physician
groups and smaller healthcare facilities. Significant attention has been focused
on reforming the healthcare industry at both the federal and state levels which
could result in changes to how health care providers insure their medical
malpractice risks. A broad range of healthcare reform measures have been
suggested, and public discussion of such measures will likely continue in the
future. Proposals have included, among others, spending limits, price controls,
limiting increases in insurance premiums, limiting the liability of doctors and
hospitals for tort claims, imposing liability on institutions rather than
physicians and restructuring the healthcare insurance system. We cannot predict
which, if any, reform proposals will be adopted, when they may be adopted or
what impact
 
                                        21

 
they may have on us. The adoption of certain of these proposals could materially
adversely affect our financial condition or results of operations.
 
     In addition to regulatory and legislative efforts, there have been
significant market driven changes in the healthcare environment. In recent
years, a number of factors related to the emergence of managed care have
negatively impacted or threatened to impact the medical practice and economic
independence of medical professionals. Medical professionals have found it more
difficult to conduct a traditional fee-for-service practice and many have been
driven to join or contractually affiliate with provider-supported organizations.
Such change and consolidation may result in the elimination of, or a significant
decrease in, the role of the physician in the medical malpractice insurance
purchasing decision. It could also result in greater emphasis on the role of
professional managers, who may seek to purchase insurance on a price competitive
basis, and who may favor insurance companies that are larger and more highly
rated than we are. In addition, such change and consolidation could reduce our
medical malpractice premiums as groups of insurance purchasers generally retain
more risk.
 
     The movement from traditional fee-for-service practice to the managed care
environment may also result in an increase in the liability profile of our
insureds. The majority of our insured physicians practice in primary care
specialties such as internal medicine, family practice, general practice and
pediatrics. In the managed care environment, these primary care physicians are
being required to take on the role of "gatekeeper" and restrain the use of
specialty care by controlling access to specialists and by performing certain
procedures that would customarily be performed by specialists in a
fee-for-service setting. These practice changes are resulting in an increase in
the claims frequency and severity experienced by primary care physicians and by
us as their insurance carrier.
 
  WE ARE A HOLDING COMPANY AND ARE DEPENDENT ON DIVIDENDS AND OTHER PAYMENTS
  FROM OUR OPERATING SUBSIDIARIES, WHICH ARE SUBJECT TO DIVIDEND RESTRICTIONS.
 

     We are a holding company whose principal source of funds is cash dividends
and other permitted payments from our operating subsidiaries. If our
subsidiaries are unable to make payments to us, or are able to pay only limited
amounts, we may be unable to make payments on our indebtedness. The payment of
dividends by these operating subsidiaries is subject to restrictions set forth
in the insurance laws and regulations of their respective states of domicile as
discussed under "DIVIDENDS" on page 64. We do not anticipate paying dividends to
stockholders in the foreseeable future.

 
  REGULATORY CHANGES AND THE UNPREDICTABILITY OF COURT DECISIONS COULD HAVE A
  MATERIAL IMPACT ON OUR OPERATIONS.
 
     Our insurance businesses are subject to extensive regulation by state
insurance authorities in each state in which we operate. Regulation is intended
for the benefit of policyholders rather than stockholders. In addition to the
amount of dividends and other payments that can be made by our insurance
subsidiaries, these regulatory authorities have broad administrative and
supervisory power relating to:
 
     - licensing requirements;
 
     - trade practices;
 
     - capital and surplus requirements;
 
     - investment practices; and
 
     - rates charged to insurance customers.
 
     These regulations may impede or impose burdensome conditions on rate
increases or other actions that we may want to take to enhance our operating
results, and could affect our ability to pay dividends on our common stock. In
addition, we may incur significant costs in the course of complying with
regulatory requirements. Most states also regulate insurance holding companies
like us in a variety of matters such as acquisitions, changes of control and the
terms of affiliated transactions. Future legislative or regulatory changes may
adversely affect our business operations.
 
                                        22

 
  THE POSSIBLE PASSAGE OF TORT REFORM OR OTHER LEGISLATION, AND THE SUBSEQUENT
  REVIEW OF SUCH LAWS BY THE COURTS COULD HAVE A MATERIAL IMPACT ON OUR
  OPERATIONS.
 
     Tort reforms generally restrict the ability of a plaintiff to recover
damages by, among other limitations, eliminating certain claims that may be
heard in a court, limiting the amount or types of damages, changing statutes of
limitation or the period of time to make a claim, and limiting venue or court
selection. A number of states in which we do business have enacted, or are
considering, tort reform legislation. Federal tort reform legislation has been
proposed by President George W. Bush. Except for the recent legislation
restricting class action litigation, the Senate has either voted down or refused
to consider federal tort reform proposals.
 
     While the effects of tort reform would appear to be beneficial to our
business generally, there can be no assurance that such reforms will be
effective or ultimately upheld by the courts in the various states. Further, if
tort reforms are effective, the business of providing professional and other
liability insurance may become more attractive, thereby causing an increase in
competition for our business.
 
     In addition, there can be no assurance that the benefits of tort reform
will not be accompanied by legislation or regulatory actions that may be
detrimental to our business. For example, various states have established or are
evaluating establishment of state sponsored malpractice insurance for their
resident physicians that may eliminate targeted physicians from the private
insurance market. Furthermore, insurance regulatory authorities may require
premium rate limitations and expanded coverage requirements as well as other
requirements in anticipation of the expected benefits of tort reform which may
or may not be realized.
 
  OUR GEOGRAPHIC CONCENTRATION TIES OUR PERFORMANCE TO THE ECONOMIC, REGULATORY
  AND DEMOGRAPHIC CONDITIONS OF THE MIDWESTERN AND SOUTHERN STATES.
 
     Our revenues and profitability are subject to prevailing economic,
regulatory, demographic and other conditions in the states in which we write
insurance. We currently write our professional liability insurance primarily in
states located in the midwestern and southern United States with approximately
71% of gross premiums written in five states, Alabama, Florida, Indiana,
Michigan and Ohio in 2004, and we write substantially all of our personal lines
insurance in Michigan. Because our business currently is concentrated in a
limited number of markets, adverse developments that are limited to a geographic
area in which we do business may have a disproportionately greater affect on us
than they would have if we did business in markets outside that particular
geographic area. If the merger is completed, these potential adverse
developments could be mitigated since we will have expanded our geographic
market to include the mid-Atlantic region.
 

     Our personal lines of property and casualty insurance business provide
coverage for personal automobile, homeowners, boat and umbrella insurance
primarily for residents of Michigan. The concentration of our personal lines
business in Michigan leaves us vulnerable to catastrophes and severe weather
specific to that state. Including our personal lines and professional liability
premiums, approximately 32.5% of our total 2004 premiums are written in the
state of Michigan.

 
  OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THE LOSS OF INDEPENDENT AGENTS.
 
     We depend in part on the services of independent agents and brokers in the
marketing of our insurance products. We face competition from other insurance
companies for the services and allegiance of independent agents and brokers.
These agents and brokers may choose to direct business to competing insurance
companies or may direct less desirable risks to us.
 
  IF MARKET CONDITIONS CAUSE REINSURANCE TO BE MORE COSTLY OR UNAVAILABLE, WE
  MAY BE REQUIRED TO BEAR INCREASED RISKS OR REDUCE THE LEVEL OF OUR
  UNDERWRITING COMMITMENTS.
 
     As part of our overall risk and capacity management strategy, we purchase
reinsurance for significant amounts of risk underwritten by our insurance
company subsidiaries. Market conditions beyond our control
 
                                        23

 
determine the availability and cost of the reinsurance we purchase, which may
affect the level of our business and profitability. We may be unable to maintain
our current reinsurance coverage or to obtain other reinsurance coverage in
adequate amounts and at favorable rates. If we are unable to renew our expiring
coverage or to obtain new reinsurance coverage, either our net exposure to risk
would increase or, if we are unwilling to bear an increase in net risk
exposures, we would have to reduce the amount of risk we underwrite.
 
  WE CANNOT GUARANTEE THAT OUR REINSURERS WILL PAY IN A TIMELY FASHION, IF AT
  ALL, AND, AS A RESULT, WE COULD EXPERIENCE LOSSES.
 

     We transfer some of the risk we have assumed to reinsurance companies in
exchange for part of the premium we receive in connection with the risk.
Although reinsurance makes the reinsurer liable to us to the extent the risk is
transferred, it does not relieve us of our liability to our policyholders. If
our reinsurers fail to pay us or fail to pay us on a timely basis, our financial
results would be adversely affected. At March 31, 2005, we had reinsurance
recoverables on unpaid losses and loss adjustment expenses, net of uncollectible
reinsurance reserves, of approximately $415.3 million.

 
  THE GUARANTY FUND ASSESSMENTS THAT WE ARE REQUIRED TO PAY TO STATE GUARANTY
  ASSOCIATIONS MAY INCREASE AND OUR RESULTS OF OPERATIONS AND FINANCIAL
  CONDITION COULD SUFFER AS A RESULT.
 
     Each state in which we operate has separate insurance guaranty fund laws
requiring property and casualty insurance companies doing business within their
respective jurisdictions to be members of their guaranty associations. These
associations are organized to pay covered claims (as defined and limited by the
various guaranty association statutes) under insurance policies issued by
insolvent insurance companies. Most guaranty association laws enable the
associations to make assessments against member insurers to obtain funds to pay
covered claims after a member insurer becomes insolvent. These associations levy
assessments (up to prescribed limits) on all member insurers in a particular
state on the basis of the proportionate share of the premiums written by member
insurers in the covered lines of business in that state. Maximum assessments
permitted by law in any one year generally vary between 1% and 2% of annual
premiums written by a member in that state. Some states permit member insurers
to recover assessments paid through surcharges on policyholders or through full
or partial premium tax offsets, while other states permit recovery of
assessments through the rate filing process.
 
     Property and casualty guaranty fund assessments incurred by us totaled
$396,000 and $321,000 for 2004 and 2003, respectively. Our policy is to accrue
the insurance insolvencies when notified of assessments. We are not able to
reasonably estimate the insolvent insurer's liabilities or develop a meaningful
range of the insolvent insurer's liabilities because of inadequate financial
data with respect to the estate of the insolvent company as supplied by the
guaranty funds.
 
  OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THE LOSS OF ONE OR MORE EMPLOYEES.
 
     We are heavily dependent upon our senior management and the loss of
services of our senior executives could adversely affect our business. Our
success has been, and will continue to be, dependent on our ability to retain
the services of our existing key employees and to attract and retain additional
qualified personnel in the future. The loss of the services of any of our senior
management or any other key employee, or the inability to identify, hire and
retain other highly qualified personnel in the future, could adversely affect
the quality and profitability of our business operations.
 
     Our board of directors is in the process of considering succession planning
relating to our Chief Executive Officer and is consulting with outside
professional advisors in its planning. Dr. Crowe, our current Chairman and Chief
Executive Officer, has indicated to us that he has no immediate plans for
retirement.
 
                                        24

 
  PROVISIONS IN OUR CHARTER DOCUMENTS, DELAWARE LAW AND STATE INSURANCE LAW MAY
  IMPEDE ATTEMPTS TO REPLACE OR REMOVE OUR MANAGEMENT OR IMPEDE A TAKEOVER,
  WHICH COULD ADVERSELY AFFECT THE VALUE OF OUR COMMON STOCK.
 
     Our certificate of incorporation and by-laws and Delaware law contain
provisions that may have the effect of inhibiting a non-negotiated merger or
other business combination. Additionally, the board of directors may issue
preferred stock, which could be used as an anti-takeover device, without a
further vote of our stockholders. No shares of our preferred stock are currently
outstanding, and we have no present intention to issue any shares of preferred
stock. However, because the rights and preferences of any series of preferred
stock may be set by our board of directors in its sole discretion, the rights
and preferences of any such preferred stock may be superior to those of our
common stock and thus may adversely affect the rights of the holders of our
common stock.
 
     The voting structure of our common stock and other provisions of the
certificate of incorporation are intended to encourage a person interested in
acquiring us to negotiate with, and to obtain the approval of, our board of
directors in connection with a transaction. However, certain of these provisions
may discourage our future acquisition, including an acquisition in which
stockholders might otherwise receive a premium for their shares. As a result,
stockholders who might desire to participate in such a transaction may not have
the opportunity to do so.
 
     In addition, state insurance laws provide that no person or entity may
directly or indirectly acquire control of an insurance company unless that
person or entity has received approval from the insurance regulator. An
acquisition of control of our insurance operating subsidiaries generally would
be presumed if any person or entity acquires 10% (5% in Alabama) or more of our
outstanding common stock, unless the applicable insurance regulator determines
otherwise. These provisions apply even if the offer may be considered beneficial
by some of our stockholders. If a change in management or a change of control is
delayed or prevented, the market price of our common stock could decline.
 
                             NCRIC SPECIAL MEETING
 
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING.
 

     This section contains information from NCRIC for NCRIC stockholders about
the special stockholder meeting NCRIC has called to consider and approve the
Merger Agreement. NCRIC is mailing this proxy statement-prospectus to you, as a
NCRIC stockholder, on or about June 27, 2005. Together with this proxy
statement-prospectus, NCRIC is also sending to you a notice of the NCRIC special
meeting, and a form of proxy that NCRIC's board of directors is soliciting for
use at the special meeting and at any adjournments or postponements of the
meeting. The special meeting will be held on August 2, 2005, at 4:00 p.m., local
time, at 1055 Thomas Jefferson Street, N.W., Washington, D.C.

 
     The purpose of the NCRIC special meeting is for you to consider and vote
upon:
 

     - Proposal 1 -- the approval and adoption of the Agreement and Plan of
       Merger dated February 28, 2005, providing for the merger of NCRIC into a
       wholly owned subsidiary of ProAssurance;

 

     - Proposal 2 -- any necessary adjournment of the meeting to permit further
       solicitation of proxies in the event insufficient shares to approve the
       Merger Agreement are represented at the meeting; and

 
     - any other matters as may properly come before the meeting or any
       adjournment thereof.
 
     A copy of the Merger Agreement is attached to this proxy
statement-prospectus as Appendix A.
 
VOTE REQUIRED.
 
     The approval of the proposal to approve and adopt the Merger Agreement and
the merger requires the affirmative vote of a majority of the shares of NCRIC
common stock eligible to vote at the special
 
                                        25

 
meeting. Because broker non-votes and abstentions are not affirmative votes,
they will have the effect of a vote against the proposal to approve and adopt
the Merger Agreement and the merger.
 
     The proposal to adjourn or postpone the special meeting for the purpose of
allowing additional time for the solicitation of proxies from stockholders to
vote at the meeting requires a favorable vote of a majority of the shares voting
on the matter without regard to broker non-votes or abstentions.
 
PROXIES.
 
     You should complete and return the proxy card accompanying this proxy
statement-prospectus to ensure that your vote is counted at the special meeting,
regardless of whether you plan to attend the special meeting. If your shares are
held in nominee or "street name" you will receive separate voting instructions
from your broker or nominee, which will be included with your proxy materials.
Most brokers and nominees offer telephone and Internet voting, but the
availability of and procedures for these alternatives will depend on the
arrangements established by each particular broker or nominee.
 
     If you are a registered NCRIC stockholder, you can revoke your proxy at any
time before the vote is taken at the special meeting by submitting to NCRIC's
corporate secretary written notice of revocation or a properly executed proxy of
a later date, or by attending the special meeting and voting in person.
Attendance at the special meeting will not by itself constitute revocation of a
proxy. Written notices of revocation and other communications about revoking
NCRIC proxies should be addressed to:
 
                           Attn: Corporate Secretary
                               NCRIC Group, Inc.
                              1115 30th St., N.W.
                             Washington, D.C. 20007
 
     If your shares are held in nominee or "street name," you should contact
your broker or other nominee regarding the revocation of proxies.
 
     All shares of NCRIC common stock represented by valid proxies NCRIC
receives through this solicitation, and not revoked before they are exercised,
will be voted in the manner specified on the proxies. If you sign and return
your proxy card but make no specification on your proxy card, your proxy will be
voted "FOR" approval of the Merger Agreement and "FOR" approval of any
adjournment or postponement of the special meeting. Brokers that hold shares of
NCRIC common stock in nominee or "street" name for customers who are the
beneficial owners of those shares may not give a proxy to vote those shares on
the Merger Agreement without specific instructions from those customers.
 
     NCRIC's board is presently unaware of any other matters that may be
presented for action at the special meeting. If other matters do properly come
before the special meeting, however, NCRIC intends that shares represented by
proxies in the form accompanying this proxy statement-prospectus will be voted
by and at the discretion of the persons named as proxies on the proxy card.
 
     You should not send in any stock certificates with your proxy card. The
exchange agent will mail to NCRIC stockholders a transmittal letter with
instructions for the surrender of stock certificates as soon as practicable
after the completion of the merger.
 
SOLICITATION OF PROXIES.
 
     NCRIC will bear the entire cost of soliciting proxies from its
stockholders, except that NCRIC and ProAssurance have agreed to each pay
one-half of the costs and expenses of printing and mailing this proxy
statement-prospectus and all filing and other fees relating to the merger paid
to the SEC. In addition to soliciting proxies by mail, NCRIC will request banks,
brokers and other record holders to send proxies and proxy material to the
beneficial owners of NCRIC common stock and secure their voting instructions, if
necessary. NCRIC will reimburse those banks, brokers and record holders for
their reasonable fees and expenses in taking those actions. NCRIC has also made
arrangements with Georgeson Shareholder Services to help in soliciting proxies
for the proposed merger and the special meeting and in
 
                                        26

 

communicating with stockholders. NCRIC has agreed to pay that company
approximately $15,000 plus expenses for its services. In addition, NCRIC's
directors, officers and regular employees may solicit proxies, without payment
of additional compensation to such persons, either personally or by telephone,
the Internet, telegram, fax, letter or special delivery letter.

 
RECORD DATE AND VOTING RIGHTS.
 

     In accordance with Delaware law and NCRIC's bylaws, NCRIC has fixed June
17, 2005, as the record date for determining the NCRIC stockholders entitled to
notice of and to vote at the special meeting. Only NCRIC stockholders of record
at the close of business on the record date are entitled to notice of and to
vote at the special meeting and any adjournments or postponements of the special
meeting. At the close of business on the record date, there were 6,909,782
shares of NCRIC common stock outstanding, held by approximately 204 holders of
record and approximately 500 beneficial owners. The presence in person or by
proxy of a majority of shares of common stock outstanding on the record date and
entitled to vote will constitute a quorum for purposes of conducting business at
the special meeting. On each matter properly submitted for consideration at the
special meeting, you are entitled to one vote for each outstanding share of
NCRIC common stock you held as of the close of business on the record date,
subject to the limitation on voting for stockholders beneficially owning more
than 10% of the outstanding shares of NCRIC common stock (See "STOCKHOLDER
VOTING LIMITS AND REQUIREMENTS" on page 75).

 
     Shares of NCRIC common stock present in person at the special meeting but
not voting, and shares of NCRIC common stock for which NCRIC has received
proxies indicating that their holders have abstained, will be counted as present
at the special meeting for purposes of determining whether there is a quorum for
transacting business at the special meeting. Shares represented by proxies
returned by a broker holding the shares in "street" name will be counted for
purposes of determining whether a quorum exists, even if those shares are not
voted by their beneficial owners on matters where the broker cannot vote the
shares in its discretion (so-called "broker non-votes").
 
     As of the record date:
 

     - NCRIC's directors and executive officers beneficially owned approximately
       488,428 shares of NCRIC common stock, excluding stock options,
       representing approximately 7.1% of the shares entitled to vote at the
       special meeting. NCRIC currently expects that its directors and executive
       officers will vote the shares of NCRIC common stock they beneficially own
       "FOR" approval of the Merger Agreement and "FOR" the proposal to adjourn
       the special meeting if additional votes are needed; and

 
     - ProAssurance and its directors and executive officers did not, as of the
       record date, beneficially own any shares of NCRIC common stock.
 
RECOMMENDATION OF NCRIC'S BOARD OF DIRECTORS.
 
     The NCRIC board has adopted the Merger Agreement. The NCRIC board believes
that the Merger Agreement and the transactions it contemplates are in the best
interests of NCRIC and its stockholders, and unanimously recommends that NCRIC
stockholders vote "FOR" approval of the Merger Agreement and "FOR" the proposal
to adjourn the special meeting if additional votes are needed.
 

     See "NCRIC'S REASONS FOR THE MERGER AND RECOMMENDATION OF NCRIC'S BOARD OF
DIRECTORS" beginning on page 29 for a more detailed discussion of the NCRIC
board's recommendation with regard to the Merger Agreement.

 

PROPOSAL TO ADJOURN THE SPECIAL MEETING.

 
     Pursuant to Delaware law, the holders of a majority of the outstanding
shares of common stock of NCRIC are required to approve the Merger Agreement. It
is rare for a company to achieve 100% stockholder participation at a special
meeting of stockholders, and only a majority of the holders of the outstanding
shares of common stock of NCRIC are required to be represented at a meeting, in
person or
                                        27

 
by proxy, for a quorum to be present. In the event that there are not sufficient
votes to constitute a quorum or to approve the adoption of the Merger Agreement
at the special meeting, NCRIC would like the flexibility to adjourn the special
meeting in order to attempt to secure broader stockholder participation in the
decision to approve the Merger Agreement.
 
     NCRIC has requested that you appoint your proxy to vote on a proposal to
adjourn the special meeting if there are an insufficient number of shares
present in person or by proxy to constitute a quorum or to approve the Merger
Agreement. The proposal to adjourn the special meeting will not be submitted to
the stockholders for a vote at the special meeting if a majority of the
outstanding shares of NCRIC common stock vote in favor of the proposal to
approve the Merger Agreement.
 
The NCRIC board of directors recommends that you vote "FOR" this proposal.
 
DELIVERY OF PROXY MATERIALS.
 
     To reduce the expenses of delivering duplicate proxy materials to NCRIC
stockholders, NCRIC is relying upon SEC rules that permits it to deliver only
one proxy statement-prospectus to multiple stockholders who share an address
unless we receive contrary instructions from any stockholder at that address. If
you share an address with another stockholder and have received only one proxy
statement-prospectus, you may write or call NCRIC as specified below to request
a separate copy of this proxy statement-prospectus and NCRIC will promptly send
it to you at no cost to you. For future NCRIC stockholder meetings, if any, you
may request separate copies of NCRIC's proxy materials, or request that NCRIC
send only one set of these materials to you if you are receiving multiple
copies, by contacting NCRIC at: NCRIC Group, Inc., 1115 30th St., N.W.,
Washington, D.C. 20007, or by telephoning us at (202) 969-1866.
 
                             PROPOSAL 1: THE MERGER
 

     The following is a discussion of material aspects of the merger. Because
this discussion is a summary, it may not contain all of the information that is
important to you. To understand the merger fully, and for a more complete
description of the legal terms of the merger, you should read carefully this
entire proxy statement-prospectus and the documents we have referred you to. See
"WHERE YOU CAN FIND MORE INFORMATION" beginning on page 79.

 
     A copy of the Merger Agreement without any schedules is attached as
Appendix A to this proxy statement-prospectus and is incorporated by reference.
We encourage you to read the agreement completely and carefully as it is the
legal document that governs the merger.
 
GENERAL.
 
     ProAssurance's and NCRIC's boards of directors have unanimously approved
the merger. When the merger is completed:
 
     - NCRIC will become a wholly owned subsidiary of ProAssurance;
 
     - subject to the adjustments and limitations described in this proxy
       statement-prospectus, each share of NCRIC common stock you own will be
       converted into the right to receive 0.25 of a share of ProAssurance
       common stock; and
 

     - former NCRIC stockholders will own approximately 5.37% of the then
       outstanding common stock of ProAssurance.

 
     The shares of ProAssurance common stock to be issued in the merger will be
approved for listing on the NYSE, subject to official notice of issuance, before
the completion of the merger.
 
     If the merger is completed, NCRIC common stock will be delisted from the
Nasdaq National Market, and NCRIC will no longer be subject to periodic
reporting requirements under the Securities Exchange Act of 1934, as amended.
 
                                        28

 
     We are working towards completing the merger as quickly as possible, and we
expect to complete the merger in the third quarter of 2005.
 
MERGER CONSIDERATION.
 
     When the merger is completed, each share of NCRIC common stock that is
outstanding on the effective date of the merger will cease to be outstanding and
will be converted into the right to receive 0.25 of a share of ProAssurance
common stock. The exchange ratio will be subject to adjustment so that for
purposes of determining the exchange ratio:
 

     - In no event will the implied value of the NCRIC common stock be less than
       $9.00 per share. If the average closing price of a share of ProAssurance
       common stock on the NYSE is less than $36.00 on the ten trading days
       ending on the day preceding the effective date of the merger, the
       exchange ratio will be adjusted and determined by dividing $9.00 by the
       average price of ProAssurance common stock during the measurement period.

 

     - In no event will the implied value of the NCRIC common stock be greater
       than $11.00 per share. If the average closing price of a share of
       ProAssurance common stock on the NYSE is more than $44.00 on the ten
       trading days ending on the day preceding the effective date of the
       merger, the exchange ratio will be adjusted and determined by dividing
       $11.00 by the average price of the ProAssurance common stock during the
       measurement period.

 

     The following table illustrates the approximate implied value of what a
holder of a share of NCRIC common stock will receive in the merger, assuming
varying average closing prices for ProAssurance common stock during the
measurement period and that ProAssurance common stock has a value equal to the
stated average closing prices. You should bear in mind that the value of
ProAssurance common stock is subject to market fluctuations and, therefore, the
value of a share of ProAssurance common stock as of the effective date of the
merger and after the merger may differ from the value of such stock as set forth
below. This table uses hypothetical ProAssurance common stock prices.

 



                                           IF YOU HOLD ONE SHARE OF NCRIC COMMON STOCK AND THE AVERAGE
                                            PROASSURANCE STOCK PRICE DURING THE MEASUREMENT PERIOD IS:
                                  ------------------------------------------------------------------------------
                                  $36.00   $37.00   $38.00   $39.00   $40.00   $41.00   $42.00   $43.00   $44.00
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------
                                                                               
The implied value of your share
  of NCRIC common stock
  is(1):........................  $9.00    $9.25    $9.50    $9.75    $10.00   $10.25   $10.50   $10.75   $11.00


 
---------------
 
(1) No fractional shares will be issued. Cash will be paid in lieu of fractional
    shares of ProAssurance common stock at a price of $40.00 per share, except
    that if the exchange ratio is adjusted, the per share price will be the
    average price of the ProAssurance common stock during the measurement
    period.
 
     YOU SHOULD OBTAIN CURRENT STOCK PRICE QUOTATIONS FOR PROASSURANCE COMMON
STOCK AND NCRIC COMMON STOCK. THESE QUOTATIONS ARE AVAILABLE FROM YOUR STOCK
BROKER, IN MAJOR NEWSPAPERS AND ON THE INTERNET.
 
NCRIC'S REASONS FOR THE MERGER AND RECOMMENDATION OF NCRIC'S BOARD OF DIRECTORS.
 
     Background of the Merger.  From time to time since the initial public stock
offering in 1999, the board of directors of NCRIC has explored the possibility
of affiliating with a larger company in a merger transaction as a means of
maximizing value for stockholders. Substantive discussions with potential third
party acquirers occurred during this period, but those discussions did not
result in any definitive proposals. Instead, NCRIC continued with the
development and execution of its business plan.
 
     At a regularly scheduled strategic planning meeting of the board of
directors of NCRIC in July 2004, the board discussed various strategic options
available to the company. The options identified by the board were: (i) continue
the execution of the current business plan as an independent entity; (ii) expand
the business model to include new products and new states; and (iii) pursue a
merger transaction with a larger
 
                                        29

 
insurance company. The board determined to continue the discussion of strategic
alternatives at the next strategic planning board meeting scheduled for February
2005, and management was directed to provide the board with more specific
information regarding each strategic alternative.
 
     On January 17, 2005, management became aware that the preliminary loss
reserve report from the company's independent, appointed actuary indicated
significant additional losses may be incurred as of the fourth quarter and year
ended December 31, 2004. The initial estimate of adverse development represented
an increase in 2004 of $16 million, or more than 20% over the 2003 year-end net
loss reserves, primarily for claims reported in years 2001, 2002 and 2003. Since
this preliminary report was inconsistent with management's expectations and
since additional loss reserves had been recorded at year-end 2003 for the same
prior report years, management believed that it would be appropriate to engage a
second actuarial firm to calculate reserve estimates as of December 31, 2004.
 
     At management's request, a meeting of the executive committee of NCRIC's
board was convened on January 21, 2005 to discuss the following: (i) the
preliminary report of the appointed actuary; (ii) the potentially adverse
ramifications to the company; and (iii) the steps that could be taken to
preserve and enhance stockholder value. Representatives of Sandler O'Neill,
which had from time to time provided investment banking services to NCRIC since
1999, attended the meeting and participated in the discussions.
 
     The executive committee and management discussed the preliminary report
from the appointed actuary and its financial and market implications to the
company, including the likelihood of an A.M. Best rating downgrade. The
committee reviewed a summary of the actuarial development of losses for the most
recent report years, noting the reserve strengthening in each of the past three
years. The committee believed that a rating downgrade by A.M. Best could
adversely affect future profitability by limiting or preventing the company from
writing desirable new business or renewing existing business and determined that
this could have a negative long-term impact on franchise and stockholder value.
The committee believed that the effects could also be disruptive to
policyholders, agency relationships and employees and that the company's
recovery from these effects would be difficult and could require an extended
period of time.
 
     The executive committee authorized management to engage a second
independent actuarial firm to calculate reserve estimates as of December 31,
2004. The committee determined that the company should be prepared to take
strategic action to preserve stockholder value in the event the second actuarial
review confirmed the need for significant additional reserves.
 
     The executive committee agreed to engage Sandler O'Neill as the company's
financial advisor in connection with the exploration of strategic alternatives,
including a merger transaction. The committee authorized Sandler O'Neill to
contact third parties to determine interest in pursuing a merger or acquisition
transaction with NCRIC. Sandler O'Neill discussed with the committee the process
that would be followed. The process was expected to involve identifying and
contacting third parties interested in and capable of pursuing a transaction
with NCRIC and having knowledge of the medical malpractice sector. In addition,
upon the execution of confidentiality agreements, third parties would be
provided with non-public information with respect to NCRIC, including the
initial reserve report and other preliminary fourth quarter financial
information. A detailed data room would be established to accommodate due
diligence requests by third parties.
 
     The executive committee concluded that all alternatives should be explored,
including a merger with another company, the continued execution of the
company's business plan, and additional board representation from the investment
community, which previously had been proposed by an investor group in a meeting
with management. The committee also discussed whether a new management team
could be expected to deliver improved performance and stockholder value, given
the company's circumstances.
 
     The executive committee instructed management to proceed on the dual track
of investigating strategic alternatives while completing the determination of
year-end loss reserves. The committee believed that, if feasible, it would be in
the best interests of the company and its stockholders for the board to have
 
                                        30

 
a strategic response to announce within the timeframe necessary to receive and
review the report of the second actuary, determine the required level of loss
reserves for the year ended December 31, 2004, and announce results of
operations for the year.
 
     Following the January 21 executive committee meeting, representatives of
Sandler O'Neill initiated contact regarding a possible transaction with NCRIC
with eight parties, which consisted of five insurance companies, including
ProAssurance, and three private equity firms. In addition, preparation of a data
room began.
 
     When contacted by Sandler O'Neill, ProAssurance expressed preliminary
interest in discussing a transaction and entered into a confidentiality
agreement with NCRIC. On January 24, Mr. Pate and a representative of Sandler
O'Neill met with Dr. A. Derrill Crowe, the chairman and chief executive officer
of ProAssurance. During this meeting Dr. Crowe was given an overview of NCRIC,
including the results of the preliminary actuarial report for 2004. Dr. Crowe
indicated that ProAssurance might be interested in a transaction between the two
companies.
 
     On January 27, management of NCRIC and ProAssurance met with NCRIC's
appointed actuary, who also is the appointed actuary for ProAssurance, to
discuss the actuary's preliminary loss reserve report for NCRIC. Additionally,
on January 28, ProAssurance's chief financial officer met with NCRIC management
to discuss management's analysis of the loss reserves as of December 31, 2004.
Following these meetings, ProAssurance confirmed its interest in continuing to
pursue a possible transaction with NCRIC and indicated its intent to submit a
proposal for consideration by the NCRIC board.
 
     At a special meeting of the board of directors held on February 1, 2005,
the board was advised of the developments with respect to the possible
additional loss reserves, and the proceedings of the executive committee on
January 21, as outlined above, and ratified the actions taken by the executive
committee. The chairs of the compensation and governance committees also
reported on a meeting that had been requested by the previously described
investor group. The chairs reported that the investor group believed that a
representative of a significant stockholder should be added to the board.
 
     Additionally, the board received an update from Sandler O'Neill regarding
the eight parties that had been contacted about their possible interest in a
business combination with NCRIC. Sandler O'Neill reported that two
confidentiality agreements had been executed with insurance companies, including
ProAssurance, one confidentiality agreement had been executed with a private
equity firm, and two confidentiality agreements were under negotiation with two
other insurance companies. Sandler O'Neill further reported that as of the date
of the meeting, only ProAssurance had indicated a firm interest in pursuing a
transaction.
 
     The board was informed of the meetings with ProAssurance's management and
that a proposal in the form of a letter from ProAssurance had been received. The
letter proposed a stock-for-stock merger transaction, and merger consideration
that would be based on a multiple of NCRIC's December 31, 2004 book value, as
adjusted by ProAssurance for certain items, including adverse loss development,
the Columbia Hospital for Women ("CHW") litigation and the goodwill associated
with the practice management subsidiary. According to the letter, the aggregate
merger consideration would range from $55 to $75 million. The board noted that
this aggregate valuation range indicated a per share merger consideration that
ranged from $7.97 to $10.86. The letter also required that NCRIC grant
ProAssurance exclusive rights to negotiate a definitive agreement for a 60-day
period.
 
     The board appointed a special committee, consisting of directors Burke,
McFarland, McNamara (committee chair), Pate and Trujillo, for the purpose of
further exploring strategic alternatives, and, if deemed appropriate and in the
best interests of the company, negotiating a non-binding letter of intent with
ProAssurance. It was determined that any agreement to grant ProAssurance an
exclusive negotiating period would require full board approval.
 
     Following this board meeting, the special committee met and discussed the
letter of intent submitted by ProAssurance. Sandler O'Neill indicated that it
would seek clarification from ProAssurance as to the
 
                                        31

 
pricing and certain other terms in the letter. The special committee was advised
that it would likely need to meet again prior to the regularly scheduled
February 12 board meeting.
 
     Following the February 1 meetings, discussions continued between NCRIC and
ProAssurance management and between the companies' financial advisors. On
February 4, ProAssurance submitted a revised letter of intent regarding a
stock-for-stock merger of NCRIC with ProAssurance. The letter proposed a "Base
Purchase Price" that ProAssurance calculated by applying a multiple of 1.3x to
NCRIC's December 31, 2004 tangible book value as adjusted by ProAssurance for
certain items including additional loss reserves. According to the letter, the
Base Purchase Price was $59 million, which indicated a per share merger
consideration of $8.57. The final purchase price would be the sum of the "Base
Purchase Price" and two "Additions:" one relating to the CHW litigation, and one
relating to a sale or agreed upon sale of the practice management subsidiary.
The Base Purchase Price would be increased on a dollar-for-dollar basis for the
following: (1) any resolution of the CHW litigation for less than $19.5 million;
and (2) the amount by which NCRIC's tangible book value would be increased by
the proceeds from an actual or agreed-upon sale of the practice management
subsidiary. If the CHW lawsuit did not settle prior to the closing of the
transaction, ProAssurance proposed to establish an escrow account, and to
release the amount, if any, by which the ultimate resolution or settlement was
less than $19.5 million.
 
     ProAssurance expressed its desire to proceed expeditiously. The letter of
intent indicated that ProAssurance was prepared to begin due diligence the
following week and requested an opportunity to meet with NCRIC's board at its
earliest convenience. The letter also proposed a shorter exclusive negotiating
period, through March 1, 2005, and a break-up fee in an amount equal to 1.75% of
the aggregate purchase price should a definitive agreement be negotiated.
 
     Prior to February 4, two additional insurance companies executed
confidentiality agreements and were provided certain information regarding
NCRIC. Three other parties were not interested in pursuing a transaction and
declined to execute a confidentiality agreement. Of the parties which entered
into confidentiality agreements, after a review of confidential information, two
insurance companies and one private equity firm declined to pursue further
discussions or due diligence which could lead to a transaction. One insurance
company indicated that it was unable to determine in a timely fashion whether it
was interested in pursuing a transaction.
 
     On February 5, the special committee met to discuss the revised proposal
from ProAssurance. First, Sandler O'Neill updated the committee on the results
of its contact with the eight parties regarding a possible transaction with
NCRIC.
 

     Sandler O'Neill and counsel then reviewed the terms of the revised proposal
submitted by ProAssurance. The committee discussed the uncertainty associated
with the value of the proposed merger consideration based both on ultimate
determination and realization of the adjustments. The committee believed that a
stock-for-stock merger transaction with ProAssurance could be in the best
interests of NCRIC stockholders and therefore that it was appropriate to
continue negotiations with ProAssurance, including with respect to the merger
consideration. Accordingly, the committee recommended that the board authorize
the execution of the ProAssurance letter of intent, and, in light of the lack of
interest from other parties, to grant the exclusive negotiating period
requested.

 
     At a special meeting of the board of directors held on February 6, the
board received the report of the special committee and reviewed and discussed
the February 4 letter of intent with its legal and financial advisors. The board
was also updated as to Sandler O'Neill's contacts with the other possible merger
partners and the absence of interest other than from ProAssurance. The board was
informed that the letter of intent from ProAssurance was non-binding except for
the grant of exclusive negotiating rights through March 1, the obligations of
confidentiality and the agreement that each party bear its own expenses. The
board authorized management to execute the letter of intent.
 
     On February 8, Mr. Pate and Dr. Crowe met to discuss due diligence and the
continuing merger negotiations. On February 9, Mr. Pate met with the senior
management of ProAssurance to further discuss
 
                                        32

 
these matters. ProAssurance conducted its on-site due diligence investigation of
NCRIC on February 10 and 11 and continued with due diligence throughout the
merger negotiations.
 
     The regularly scheduled February 12 strategic planning meeting of the board
of directors was held to review and discuss strategic responses to the possible
need for additional loss reserves. Management and Sandler O'Neill provided an
update as to the status of negotiations with ProAssurance. The board was
informed by management that the second actuarial firm had not completed its
study of year-end loss reserves. The board reviewed the options of continuing to
execute its business plan as an independent entity versus affiliating with a
strategic partner through a merger transaction. Sandler O'Neill then summarized
and reviewed the financial terms offered by ProAssurance in the letter of
intent.
 
     Following this review, Dr. Crowe and Mr. Victor T. Adamo, president of
ProAssurance, were invited into the board meeting and made a presentation
regarding ProAssurance, its history and operations and its proposed plans for a
combination of the companies. Dr. Crowe and Mr. Adamo responded to questions
from the board and departed the meeting.
 
     The board then received a report from the chairs of the governance and
compensation committees as to the previously described meeting with the investor
group.
 
     The board then discussed the ProAssurance presentation and its proposal for
a merger with NCRIC. The board noted the apparent similarity between NCRIC's and
ProAssurance's management philosophies, and their commitments to the medical
communities they serve. Questions were asked of both Sandler O'Neill and NCRIC's
legal counsel. The board discussed the adjustable and contingent nature of the
merger consideration proposed and the related risks and uncertainties. The board
expressed the view that a proposal without price adjustments and contingent
consideration would be in the best interests of stockholders. The board agreed
to continue moving forward with ProAssurance through the special committee and
discussed the likely need to meet again. A meeting was tentatively scheduled for
February 27.
 
     The board then met in executive session and discussed whether changes in
management would be warranted in the event that the company did not proceed with
a merger. The board unanimously expressed confidence in the capabilities and
competence of the management team, noted the inherent difficulties of being a
small company in a volatile business, and stated its belief that any management
team would face difficulties following an announcement of significant additional
loss reserves.
 
     The board determined to continue on the dual track of finalizing the review
of year-end loss reserves upon receipt of the report of the second actuary and
the negotiation of the proposal from ProAssurance.
 
     Subsequent to the February 12 board meeting, counsel for ProAssurance
distributed a draft of a proposed merger agreement. On February 16, senior
management of ProAssurance and NCRIC, together with each company's financial and
legal advisors, met in Washington D.C. to discuss the agreement, deal terms and
pricing issues. ProAssurance outlined revised pricing terms, again subject to
adjustment based primarily on the resolution of the CHW litigation and on an
actual or agreed-upon sale of the practice management subsidiary prior to
closing, while NCRIC expressed its strong preference for a proposal without
price adjustments and contingent consideration.
 
     On February 17 and 18, NCRIC management, along with the company's financial
and legal advisors, conducted an on-site due diligence investigation of
ProAssurance.
 
     By letter dated February 23, and in response to NCRIC's concerns about the
price adjustments and contingent consideration, ProAssurance proposed either (i)
a purchase price of $10.00 per share, without adjustments or contingencies; or
(ii) a revised Base Purchase Price, subject to adjustments relating to the CHW
litigation and the practice management subsidiary. The Base Purchase Price was
$72.1 million, or $10.47 per share, and assumed a settlement of the CHW
litigation for $12 million and an increase in tangible book value of $3 million
from a sale of the practice management subsidiary prior to closing. The Base
Purchase Price would be subject to adjustment, upward or downward, upon the
settlement or resolution of the CHW litigation for more or less than $12 million
(and all amounts relating to CHW
 
                                        33

 
would be escrowed if the litigation were not settled or resolved before
closing), and upon a change in tangible book value by more or less than $3
million from the sale of the practice management subsidiary (if there was no
sale or agreed upon sale prior to closing, there could be a $3 million downward
adjustment).
 
     On February 24, the special committee met with the company's financial and
legal advisors to consider the revised ProAssurance proposal. The committee
again discussed the risks and uncertainty associated with adjustable and
contingent merger consideration. Additionally, the committee acknowledged and
confirmed the company's view that the CHW litigation is without merit and its
preference not to settle the case. The committee also discussed its belief that
the announcement of a merger agreement subject to adjustments relating to the
CHW litigation and the practice management subsidiary could compromise the value
of the practice management subsidiary and the likelihood of a favorable
settlement, if any, of the CHW litigation.
 
     The special committee discussed the proposed $10.00 merger consideration
that did not include any adjustment or contingency and considered a number of
factors, including information regarding ProAssurance's business, financial
condition, results of operations and stock trading history. The committee
believed that NCRIC stockholders would benefit from the significantly greater
liquidity in the trading market for ProAssurance common stock, which trades on
the NYSE. The committee also discussed the other strategic alternatives
available to the company, including remaining independent. Management advised
the committee that the report of the second actuary had been received, that the
reconciliation to the report of the appointed actuary had been completed
February 23, and that the second actuary's conclusions as to the loss reserve
estimates as of December 31, 2004 were not materially different from those of
the appointed actuary.
 
     Following further discussion among the special committee and the company's
financial and legal advisors, the committee concluded that the proposal without
adjustments and contingent consideration would be in the best interests of NCRIC
stockholders. The committee decided to recommend to the board that NCRIC enter
into a merger agreement with ProAssurance at the $10.00 per share value offered,
without adjustment or contingency, but directed management and the company's
financial advisors to negotiate a fixed exchange ratio.
 

     On February 25, Mr. Pate and Dr. Crowe agreed to submit to their respective
boards an agreement with an exchange ratio of 0.25 shares of ProAssurance common
stock for each NCRIC share. The exchange ratio was based on the closing price of
ProAssurance common stock on the previous trading day. Additionally, they agreed
to recommend a collar for the exchange ratio, so that in the event that the
market price of the ProAssurance common stock prior to the closing either
exceeds $44.00 or is less than $36.00, the exchange ratio adjusts so that the
implied value per NCRIC share would neither exceed $11.00 nor be less than
$9.00, respectively.

 
     On February 27, a special meeting of the board of directors was held to
consider an agreement to merge with ProAssurance based on an exchange ratio of
0.25 shares of ProAssurance for every NCRIC share, subject to adjustment based
on the collar previously described. Based on ProAssurance's closing price on
February 25 (the last trading day prior to the February 27 special meeting of
the board of directors), the implied per share value of the share exchange was
$10.10. Counsel reviewed the board's fiduciary duties in general and in
particular in connection with merger and acquisition transactions. The board
reviewed a proposed press release for the quarter and year ended December 31,
2004, which reported a net loss of $8.3 million for the quarter and a net loss
of $7.1 million for the year, primarily as a result of adverse development on
claims reported in prior years, book value per share of $10.45, and tangible
book value per share of $9.39, as of December 31, 2004.
 
     The special committee reported its unanimous recommendation that the board
approve a merger agreement with ProAssurance. NCRIC's counsel reviewed the terms
of the definitive merger agreement, including the representations and warranties
of the parties, the affirmative and negative covenants, the restriction on
soliciting other offers and the "fiduciary out" exception, the break-up fee of
$1.725 million (2.5% of the aggregate purchase price) in the event that NCRIC
were to accept an offer from another
 
                                        34

 
party and terminate the agreement with ProAssurance, and the various conditions
to closing and termination provisions. Sandler O'Neill reviewed the financial
terms of the agreement, and presented its view that, as of that date, the
exchange ratio was fair to NCRIC's stockholders from a financial point of view.
Management and the company's financial and legal advisors also reported on the
outcome of the due diligence investigation of ProAssurance.
 
     After conducting a comprehensive review of factors that could affect
stockholder value -- ranging from NCRIC's long-term prospects if it were to
continue operating as an independent company to the short-and medium-term
negative impact that the upcoming announcement of the adverse reserve adjustment
would likely have on the value of NCRIC stock -- the board agreed unanimously
that the merger agreement with ProAssurance was in the best interests of NCRIC's
stockholders. The board then authorized Mr. Pate to execute the agreement on
behalf of NCRIC. The merger agreement was executed and announced on the
following morning, February 28.
 
     Recommendation of NCRIC's Board of Directors.  In reaching its
determination that the merger and the Merger Agreement are advisable and in the
best interests of NCRIC and its stockholders, the board consulted with the
company's legal and financial advisors and considered a variety of factors,
including the following:
 
     - The potential for growth and profitability and the current and
       prospective business and competitive environments in which NCRIC
       operates;
 
     - The risks associated with remaining an independent company of relatively
       small size in the volatile medical professional liability insurance
       business;
 
     - The likelihood that the significant additional loss reserves and reported
       loss for the year ended December 31, 2004 would result in a rating
       downgrade by A.M. Best, which would negatively affect future growth and
       profitability;
 
     - The strategic alternatives to the merger reviewed by the board of
       directors;
 
     - The trading history, the number of shares outstanding, and the average
       trading volume of ProAssurance common stock, and the belief that NCRIC
       stockholders would benefit from the greater liquidity in the market for
       shares of ProAssurance common stock;
 
     - The similarity between NCRIC's and ProAssurance's management
       philosophies, and their commitments to the medical communities served by
       their medical professional liability insurance subsidiaries;
 
     - The strength of ProAssurance's business, financial condition, management,
       business philosophy and future prospects, and the strategic fit between
       the parties;
 
     - The board's belief that the merger presents an attractive opportunity to
       merge with a leading medical malpractice insurance group that will have
       significantly greater financial strength and earning power than NCRIC
       would have on its own;
 
     - The absence of interest in pursuing a merger transaction from any of the
       third parties contacted other than ProAssurance;
 
     - The merger consideration to be paid by ProAssurance, including the
       exchange ratio that had a value of $10.10 per NCRIC share based on the
       February 25 closing price of ProAssurance common stock, and which, after
       giving effect to the collar, could result in merger consideration having
       a value at the time of closing of as much as $11.00, but not less than
       $9.00;
 
     - The terms of the Merger Agreement, including the flexibility of the board
       of directors to consider unsolicited proposals from other possible
       acquirers after the execution of the Merger Agreement, and the related
       $1,725,000 termination fee that would be payable to ProAssurance in the
       event NCRIC accepted a superior proposal from a third party;
 
                                        35

 
     - The fact that the stock-for-stock exchange is tax-free for federal income
       tax purposes and offers NCRIC stockholders the opportunity to participate
       in the future growth and profitability of the combined company;
 
     - The favorable results of the due diligence investigation of ProAssurance;
       and
 
     - The opinion of Sandler O'Neill that, as of February 27, 2005, the
       exchange ratio was fair to NCRIC stockholders from a financial point of
       view.
 
In reaching its determination to approve and recommend the merger, the board of
directors did not assign any specific or relative weights to the factors under
consideration, and individual directors may have given different weights to
different factors.
 
     On the basis of these considerations, the Merger Agreement was unanimously
approved by NCRIC's board of directors.
 
     THE BOARD OF DIRECTORS OF NCRIC UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF NCRIC APPROVE THE AGREEMENT AND PLAN OF MERGER
 
OPINION OF NCRIC'S FINANCIAL ADVISOR
 
     By letter dated as of January 26, 2005, NCRIC retained Sandler O'Neill to
act as its financial advisor in connection with NCRIC's strategic planning and
merger and acquisition analyses and as financial advisor to NCRIC in connection
with any business combinations arising out of such analyses. Sandler O'Neill is
a nationally recognized investment banking firm whose principal business
specialty is financial institutions. In the ordinary course of its investment
banking business, Sandler O'Neill is regularly engaged in the valuation of
financial institutions and their securities in connection with mergers and
acquisitions and other corporate transactions.
 

     Sandler O'Neill acted as financial advisor to NCRIC in connection with the
proposed merger and participated in certain of the negotiations leading to the
Merger Agreement. At the February 27, 2005 meeting at which NCRIC's board
considered and approved the Merger Agreement, Sandler O'Neill delivered to the
board its oral opinion, subsequently confirmed in writing as of February 28,
2005, that, as of such date, the exchange ratio was fair to NCRIC's stockholders
from a financial point of view. Sandler O'Neill has confirmed its February 27th
opinion by delivering to the board a written opinion dated June 20, 2005. In
rendering its updated opinion, Sandler O'Neill confirmed the appropriateness of
its reliance on the analyses used to render its earlier opinion by reviewing the
assumptions upon which its analyses were based, performing procedures to update
certain of its analyses and reviewing the other factors considered in rendering
its opinion. The full text of Sandler O'Neill's updated opinion is attached as
Appendix B to this proxy statement-prospectus. The opinion outlines the
procedures followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by Sandler O'Neill in rendering its
opinion. The description of the opinion set forth below is qualified in its
entirety by reference to the opinion. Sandler O'Neill urges NCRIC stockholders
to read the entire opinion carefully in connection with their consideration of
the proposed merger.

 
     Sandler O'Neill's opinion speaks only as of the date of the opinion. The
opinion was directed to the NCRIC board and is directed only to the fairness,
from a financial point of view, of the exchange ratio to holders of NCRIC common
stock. It does not address the underlying business decision of NCRIC to engage
in the merger or any other aspect of the merger and is not a recommendation to
any NCRIC stockholder as to how such stockholder should vote at the special
meeting with respect to the merger or any other matter.
 
                                        36

 
     In connection with rendering its February 27, 2005 opinion, Sandler O'Neill
reviewed and considered, among other things:
 
          (1) the Merger Agreement;
 
          (2) certain publicly available financial statements and other
     historical financial information of NCRIC that Sandler O'Neill deemed
     relevant;
 
          (3) certain publicly available financial statements and other
     historical financial information of ProAssurance that Sandler O'Neill
     deemed relevant;
 
          (4) earnings projections and earnings per share estimates for NCRIC
     for the year ending December 31, 2005, prepared by and reviewed in
     discussions with senior management of NCRIC (adjusted to reflect three
     possible financial resolutions concerning the Judgment described below) and
     earnings projections for the years thereafter, reviewed in discussions with
     senior management of NCRIC;
 
          (5) earnings per share estimates for ProAssurance for the years ending
     December 31, 2005 and 2006 and long-term earnings per share growth rate
     estimates for periods thereafter published by Thomson First Call and
     reviewed with senior management of ProAssurance as to reasonableness for
     use by Sandler O'Neill in its analyses;
 
          (6) the pro forma financial impact of the merger on ProAssurance based
     on assumptions relating to transaction expenses, purchase accounting
     adjustments, cost savings and expenses associated with the Judgment
     referred to below determined by the senior management of ProAssurance;
 
          (7) the publicly reported historical price and trading activity for
     NCRIC's and ProAssurance's common stock, including a comparison of certain
     financial and stock market information for NCRIC and ProAssurance with
     similar publicly available information for certain other companies the
     securities of which are publicly traded;
 
          (8) the financial terms, to the extent publicly available, of certain
     recent business combinations in the medical malpractice insurance industry;
 
          (9) the current market environment generally and the medical
     malpractice insurance industry environment in particular; and
 
          (10) such other information, financial studies, analyses and
     investigations and financial, economic and market criteria as Sandler
     O'Neill considered relevant.
 
     Sandler O'Neill also discussed with certain members of senior management of
NCRIC the business, financial condition, results of operations and prospects of
NCRIC and held similar discussions with certain members of senior management of
ProAssurance regarding the business, financial condition, results of operations
and prospects of ProAssurance.
 
     Sandler O'Neill was aware that on February 20, 2004, a judgment of $18.2
million was entered against NCRIC with respect to certain counterclaims made by
Columbia Hospital for Women Medical Center, Inc. in a premium collection
litigation brought by NCRIC (the "Judgment"). The Judgment is not final because
NCRIC has filed certain post-trial motions with respect to the Judgment and may
be appealed when and if made final. In connection with filing the post-trial
motions, NCRIC secured a $19.5 million appellate bond and associated letter of
credit. While, with NCRIC's concurrence and as discussed more fully below,
Sandler O'Neill has performed certain of its analyses using three possible
financial resolutions of the Judgment, Sandler O'Neill has performed no
independent evaluation of (i) the merits of the counter claims, post-trial
motions or any potential appeal of the Judgment, (ii) the prospects or amount of
any potential settlement, liability or other payment relating to the Judgment,
or (iii) the actual or potential costs of the actions or matters referred to in
clauses (i) and (ii). Instead, at NCRIC's direction, with regard to the
Judgment, Sandler O'Neill has relied exclusively on information provided by
NCRIC and its legal advisors.
 
                                        37

 
     In performing its reviews and analyses and in rendering its opinion,
Sandler O'Neill relied upon the accuracy and completeness of all of the
financial and other information that was available from public sources, that was
provided by NCRIC or ProAssurance or their respective representatives or that
was otherwise reviewed by Sandler O'Neill and have assumed such accuracy and
completeness for purposes of rendering this opinion. Sandler O'Neill further
relied on the assurances of management of NCRIC and ProAssurance that they are
not aware of any facts or circumstances that would make any of such information
inaccurate or misleading. Sandler O'Neill has not been asked to and has not
undertaken an independent verification of any of such information and Sandler
O'Neill does not assume any responsibility or liability for the accuracy or
completeness thereof. Sandler O'Neill did not make an independent evaluation or
appraisal of the specific assets, the collateral securing assets or the
liabilities (contingent or otherwise) of NCRIC or ProAssurance or any of their
subsidiaries, or the collectibility of any such assets, nor has Sandler O'Neill
been furnished with any such evaluations or appraisals. Sandler O'Neill has not
been furnished with any actuarial analyses or reports, except for certain
analyses and reports prepared by NCRIC's actuarial advisors. Sandler O'Neill is
not an actuarial firm and its services did not include actuarial determinations
or evaluations by it or an attempt to evaluate any actuarial assumptions. In
that regard, Sandler O'Neill has made no analysis of, and expresses no opinion
as to, the adequacy of NCRIC's losses and loss adjustment expense reserves,
including the reserve strengthening taken by NCRIC in the fourth quarter of 2004
or of the reserves of ProAssurance. Sandler O'Neill has not evaluated the
solvency or fair value of NCRIC or ProAssurance under any state or federal laws
relating to bankruptcy, insolvency or similar matters.
 
     Sandler O'Neill's opinion was necessarily based upon financial, economic,
market and other conditions as they existed on, and could be evaluated as of,
the date of its opinion. Sandler O'Neill assumed, in all respects material to
its analysis, that all of the representations and warranties contained in the
Merger Agreement and all related agreements are true and correct, that each
party to such agreements will perform all of the covenants required to be
performed by such party under such agreements and that the conditions precedent
in the Merger Agreement are not waived. Sandler O'Neill also assumed, with
NCRIC's consent, that there has been no material change in NCRIC's and
ProAssurance's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements made available to
Sandler O'Neill, that NCRIC and ProAssurance will remain as going concerns for
all periods relevant to its analyses, and that the merger will qualify as a
tax-free reorganization for federal income tax purposes. Finally, with NCRIC's
consent, Sandler O'Neill relied upon the advice NCRIC received from its legal,
actuarial, accounting and tax advisors as to all legal, actuarial, accounting
and tax matters relating to the Merger Agreement and the other transactions
contemplated thereby.
 
     In rendering its February 27, 2005 opinion, Sandler O'Neill performed a
variety of financial analyses. The following is a summary of the material
analyses performed by Sandler O'Neill, but is not a complete description of all
the analyses underlying Sandler O'Neill's opinion. The summary includes
information presented in tabular format. In order to fully understand the
financial analyses, these tables must be read together with the accompanying
text. The tables alone do not constitute a complete description of the financial
analyses. The preparation of a fairness opinion is a complex process involving
subjective judgments as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. The process, therefore, is not necessarily susceptible to a
partial analysis or summary description. Sandler O'Neill believes that its
analyses must be considered as a whole and that selecting portions of the
factors and analyses considered without considering all factors and analyses, or
attempting to ascribe relative weights to some or all such factors and analyses,
could create an incomplete view of the evaluation process underlying its
opinion. Also, no company included in Sandler O'Neill's comparative analyses
described below is identical to NCRIC or ProAssurance and no transaction is
identical to the merger. Accordingly, an analysis of comparable companies or
transactions involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading values or merger transaction
values, as the case may be, of NCRIC or ProAssurance and the companies to which
they are being compared.
 
                                        38

 
     The financial projections and earnings estimates used and relied upon by
Sandler O'Neill in its analyses for NCRIC were reviewed with the senior
management of NCRIC who confirmed to Sandler O'Neill that those projections
reflected the best currently available estimates and judgments of such
management of the future financial performance of NCRIC. The earnings per share
estimates used and relied upon by Sandler O'Neill in its analyses for
ProAssurance were reviewed with the senior management of ProAssurance as to
reasonableness for use in Sandler O'Neill's analyses. The projections of
transaction costs, estimates of purchase accounting adjustments and expected
cost savings relating to the merger used and relied upon by Sandler O'Neill in
its analyses were reviewed with senior management of ProAssurance and such
management confirmed that those projections reflected the best currently
available estimates and judgments of such management. With respect to all
projections and estimates used in its analyses, Sandler O'Neill assumed that
financial performance reflected in those projections and estimates would be
achieved. Sandler O'Neill expressed no opinion as to such financial projections
or estimates or the assumptions on which they were based. These projections and
estimates, as well as the other estimates used by Sandler O'Neill in its
analyses, were based on numerous variables and assumptions which are inherently
uncertain and, accordingly, actual results could vary materially from those set
forth in such projections and estimates.
 
     In performing its analyses, Sandler O'Neill also made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which cannot be predicted and are beyond the
control of NCRIC, ProAssurance and Sandler O'Neill. The analyses performed by
Sandler O'Neill are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Sandler O'Neill prepared its analyses solely for purposes of
rendering its opinion and provided such analyses to the NCRIC board at the
board's February 27, 2005 meeting. Estimates of the values of companies do not
purport to be appraisals or necessarily reflect the prices at which companies or
their securities may actually be sold. Such estimates are inherently subject to
uncertainty and actual values may be materially different. Accordingly, Sandler
O'Neill's analyses do not necessarily reflect the value of NCRIC's common stock
or ProAssurance's common stock or the prices at which NCRIC's or ProAssurance's
common stock may be sold at any time.
 
     Summary of Proposal.  Sandler O'Neill reviewed the financial terms of the
proposed transaction. Assuming that each share of NCRIC common stock is
exchanged for 0.25 of a share of ProAssurance common stock and a price of $40.41
for each ProAssurance share of common stock (the closing price of ProAssurance
common stock on February 25, 2005), Sandler O'Neill calculated an implied
transaction value of $10.10 per share. Based upon per share financial
information for NCRIC for the twelve-month period ended December 31, 2004,
Sandler O'Neill calculated multiples of the transaction value to tangible book
value per share as of December 31, 2004 adjusted as described below. Sandler
O'Neill also calculated multiples of the transaction value to estimated 2005
earnings per share as provided by NCRIC management, adjusted as described below.
 
     With NCRIC's consent, Sandler O'Neill calculated the multiples using
adjusted per share tangible book value and earnings amounts using various
assumptions as to the amount that may potentially be paid out in connection with
the Judgment. These assumptions were as follows: (i) NCRIC makes a payment of
$12 million in connection with the Judgment ("Case 1"); (ii) NCRIC makes no
payment in connection with the Judgment ("Case 2"); and (iii) NCRIC makes a
payment of $19.5 million in connection with the Judgment ("Case 3"). As used in
Sandler O'Neill's analyses, the payments in connection with the Judgment were
calculated on an after-tax basis using a 34% tax rate (based on information
provided by NCRIC management).
 
                                        39

 


                                                              PER SHARE   MULTIPLE
                                                              ---------   --------
                                                                    
12/31/04 Adjusted Tangible Book Value(1)(2)
  Case 1....................................................    $8.16       1.24x
  Case 2....................................................     9.30       1.09
  Case 3....................................................     7.45       1.36
2005 Estimated Earnings(3)
  Case 1....................................................    $0.72       14.0x
  Case 2....................................................     0.77       13.1
  Case 3....................................................     0.70       14.4

 
---------------
 
(1) Based on 6,960,253 fully diluted shares outstanding.
 
(2) Includes the impact of the $15.6 million reserve strengthening before taxes,
    $10.3 million after taxes at a 34% tax rate or $1.48 per share in the fourth
    quarter of 2004.
 
(3) Based on per share earnings estimates provided by NCRIC management, as
    adjusted for the three Cases with respect to the Judgment. The adjustments
    give effect to a reduction in NCRIC's investment income due to payment of
    the three assumed amounts but not to the actual payments themselves, which
    are, for purposes of this analysis, treated as non-recurring expenses.
 
     The aggregate transaction value was approximately $69.6 million based on
6,892,517 outstanding shares as of December 31, 2004. Sandler O'Neill noted
that, on the dates set forth in the table below the per share transaction value
represented the discounts and premiums to the closing price of NCRIC's common
stock set forth beside each such date:
 



                                                              STOCK     PREMIUM
DATE(1)                                                       PRICE    (DISCOUNT)
-------                                                       ------   ----------
                                                                 
Closing price (February 25, 2005)...........................  $10.94      (7.7)%
Closing price (1-week prior)................................   11.07      (8.8)
Closing price (1-month prior)...............................   10.74      (6.0)
Closing price (3-months prior)..............................    9.64       4.8
52-week high (February 8, 2005).............................   11.90     (15.1)
52-week low (September 28, 2004)............................    8.37      20.7
IPO price-first step MHC conversion (July 29, 1999).........    3.75     169.3
IPO price-second step full conversion (June 25, 2003).......   10.00       1.0


 
---------------
 
(1) All dates precede public announcement of NCRIC's fourth quarter 2004 loss.
 
     Stock Trading History.  Sandler O'Neill reviewed the history of the
reported trading prices and volume of NCRIC's common stock for the one-year
period ended February 25, 2005 and the period between July 29, 1999 (the date of
NCRIC's first step conversion) and February 25, 2005. Sandler O'Neill also
reviewed the history of the reported trading prices and volume of ProAssurance's
common stock for the one-year and three-year periods ended February 25, 2005.
Sandler O'Neill compared the relationship between the movements in the prices of
NCRIC's and ProAssurance's common stock to movements in the prices of the S&P
Property and Casualty Insurance Index, S&P 500 Index and the weighted average
(by market capitalization) performance of composite peer groups of publicly
traded medical malpractice insurers selected by Sandler O'Neill for NCRIC and
ProAssurance, respectively.
 
     During the one-year period ended February 25, 2005, NCRIC generally
underperformed all of the indices and the peer group to which it was compared.
During the period between July 29, 1999 and February 25, 2005, NCRIC generally
outperformed all of the indices and the peer group to which it was compared.
 
                                        40

 


                                                        NCRIC'S STOCK PRICE PERFORMANCE
                                                   ------------------------------------------
                                                   BEGINNING INDEX VALUE   ENDING INDEX VALUE
                                                     FEBRUARY 24, 2004     FEBRUARY 25, 2005
                                                   ---------------------   ------------------
                                                                     
NCRIC............................................          100.0%                104.2%
NCRIC Peer Group(1)..............................          100.0                 135.1
S&P Property and Casualty Insurance Index........          100.0                 106.9
S&P 500..........................................          100.0                 106.3

 


                                                   BEGINNING INDEX VALUE   ENDING INDEX VALUE
                                                       JULY 29, 1999       FEBRUARY 25, 2005
                                                   ---------------------   ------------------
                                                                     
NCRIC............................................          100.0%                270.0%
NCRIC Peer Group(1)..............................          100.0                 104.4
S&P Property and Casualty Insurance Index........          100.0                 143.8
S&P 500..........................................          100.0                  90.3

 
---------------
 
(1) The NCRIC Peer Group consists of American Physicians Capital, Inc., FPIC
    Insurance Group, Inc., ProAssurance Corporation, and SCPIE Holdings Inc.
 
     During the one-year period ended February 25, 2005, ProAssurance
outperformed the S&P Property and Casualty Index and the S&P 500 Index but
generally underperformed its peer group. During the three-year period ended
February 25, 2005, ProAssurance outperformed all of the indices and the peer
group to which it was compared.
 


                                                     PROASSURANCE'S STOCK PRICE PERFORMANCE
                                                   ------------------------------------------
                                                   BEGINNING INDEX VALUE   ENDING INDEX VALUE
                                                     FEBRUARY 24, 2004     FEBRUARY 25, 2005
                                                   ---------------------   ------------------
                                                                     
ProAssurance.....................................          100.0%                123.5%
ProAssurance Peer Group(1).......................          100.0                 150.6
S&P Property and Casualty Insurance Index........          100.0                 106.9
S&P 500..........................................          100.0                 106.3

 



                                                   BEGINNING INDEX VALUE   ENDING INDEX VALUE
                                                     FEBRUARY 22, 2002     FEBRUARY 25, 2005
                                                   ---------------------   ------------------
                                                                     
ProAssurance.....................................          100.0%                252.7%
ProAssurance Peer Group(1).......................          100.0                 153.8
S&P Property and Casualty Insurance Index........          100.0                 122.4
S&P 500..........................................          100.0                 111.2


 
---------------
 
(1) The ProAssurance Peer Group consists of American Physicians Capital, Inc.,
    FPIC Insurance Group, Inc., NCRIC Group, Inc., and SCPIE Holdings Inc.
 
     Comparable Company Analysis.  Sandler O'Neill used publicly available
information to compare selected financial and market trading information for
NCRIC and a group of publicly traded malpractice insurers which consisted of the
following:
 
     - ProAssurance Corporation
 
     - FPIC Insurance Group, Inc.
 
     - American Physicians Capital, Inc.
 
     - SCPIE Holdings Inc.
 
     To the extent publicly available, Sandler O'Neill reviewed the stock price
of the comparable companies as of February 25, 2005 as a multiple of (a) 2005
estimated earnings per share; (b) 2006 estimated earnings per share; (c) book
value at December 31, 2004 (except for SCPIE Holdings Inc. where the book value
was at September 30, 2004); and (d) tangible book value at December 31, 2004
(except for SCPIE Holdings Inc. where the tangible book value was at September
30, 2004). Sandler
 
                                        41

 
O'Neill calculated the multiples for the above comparable companies and then
applied the 2005 high and low estimated earnings per share and tangible book
value multiples for those companies to NCRIC's 2005 estimated earnings and to
NCRIC's adjusted tangible book value as of December 31, 2004 to derive imputed
ranges of values for NCRIC's common stock. Sandler O'Neill then applied a
control premium of 20.4% to those implied ranges of value and calculated an
implied range of values for NCRIC of $4.61 to $22.59 per share. The implied
transaction value of the merger, as calculated by Sandler O'Neill, was $10.10.
 


                                             NCRIC PER          MARKET       IMPLIED VALUATION
                                             SHARE DATA       MULTIPLES       PER SHARE RANGE
                                           --------------   --------------   -----------------
                                                                    
12/31/04 Adjusted Tangible Book
  Value(1)(2)
  Case 1.................................      $8.16         0.51x - 2.02x      $4.19 - $16.47
  Case 2.................................       9.30         0.51  - 2.02        4.78 -  18.76
  Case 3.................................       7.45         0.51  - 2.02        3.83 -  15.03
2005 Estimated earnings(3)
  Case 1.................................      $0.72         12.4x - 14.0x      $8.90 - $10.10
  Case 2.................................       0.77         12.4  - 14.0        9.50 -  10.79
  Case 3.................................       0.70         12.4  - 14.0        8.65 -   9.83
                                       CONTROL PREMIUM(4)            20.4%      $4.61 - $22.59

 
---------------
 
(1) Based on 6,960,253 fully diluted shares outstanding.
 
(2) Includes the impact of the $15.6 million reserve strengthening before taxes,
    $10.3 million after taxes at a 34% tax rate or $1.48 per share in the fourth
    quarter of 2004.
 
(3) Based on earnings per share estimates provided by NCRIC management, as
    adjusted for the three Cases with respect to the Judgment. The adjustments
    give effect to a reduction in NCRIC's investment income due to payment of
    the three assumed amounts but not to the actual payments themselves, which
    are, for purposes of this analysis, treated as non-recurring expenses.
 
(4) Represents the median premium over the one-day trading price of insurance
    companies acquired between January 2000 and February 2005.
 

     Analysis of Selected Merger Transactions.  Sandler O'Neill reviewed certain
merger and acquisition transactions announced since 1997 involving medical
malpractice insurers as acquired institutions for which information was publicly
available. Sandler O'Neill reviewed the transaction equity values as a multiple
of (a) last twelve months' ("LTM") operating earnings; (b) book value; and (c)
tangible book value for the target company, in each case, as of a date at or
near the public announcement of the transaction, to the extent publicly
available. Sandler O'Neill then applied the high and low multiples from the
comparable transactions to the financial information of NCRIC for the twelve
months ended December 31, 2004 (as adjusted to reflect each of the three Cases
with respect to the Judgment) and calculated an implied range of values for
NCRIC common stock of $5.16 to $15.55 per share. The implied transaction value
of the merger, as calculated by Sandler O'Neill, was $10.10.

 
                                        42

 


                                                    NCRIC                       IMPLIED
                                                  PER SHARE     MARKET       VALUATION PER
                                                    DATA       MULTIPLES      SHARE RANGE
                                                  ---------   -----------   ---------------
                                                                   
12/31/04 Adjusted Tangible Book Value(1)(2)
  Case 1.......................................     $8.16     0.69 - 1.67   $5.65 - $13.64
  Case 2.......................................      9.30     0.69 - 1.67    6.44 -  15.55
  Case 3.......................................      7.45     0.69 - 1.67    5.16 -  12.46
2005 Estimated earnings(3)
  Case 1.......................................     $0.72      9.5 - 19.8   $6.87 - $14.29
  Case 2.......................................      0.77      9.5 - 19.8    7.34 -  15.26
  Case 3.......................................      0.70      9.5 - 19.8    6.68 -  13.89

 
                                                      VALUATION
 
                                                      RANGE       $5.16 - $15.55
 


 
                                                                 

 
---------------
 
(1) Based on 6,960,253 fully diluted shares outstanding.
 
(2) Includes the impact of the $15.6 million reserve strengthening before taxes,
    $10.3 million after taxes at a 34% tax rate or $1.48 per share in the fourth
    quarter of 2004.
 
(3) Based on earnings per share estimates provided by NCRIC management, as
    adjusted for the three Cases with respect to the Judgment. The adjustments
    give effect to a reduction in NCRIC's investment income due to payment of
    the three assumed amounts but not to the actual payments themselves, which
    are, for purposes of this analysis, treated as non-recurring expenses.
 

     Sandler O'Neill performed an analysis that estimated the future stream of
cash flows of NCRIC through December 31, 2009 assuming that NCRIC performed in
accordance with the earnings projections for 2005 (as adjusted for each of the
Cases with respect to the Judgment (giving effect to the payment of the actual
assumed Judgment amounts)) and the years thereafter, furnished by and/or
reviewed with senior management of NCRIC. To approximate the terminal value of
NCRIC's common stock at December 31, 2009, Sandler O'Neill applied price to
forward earnings multiples of 10.0x to 14.0x and multiples of tangible book
value ranging from 0.90x to 1.70x. The cash flow streams and terminal values
were then discounted to present values using different discount rates ranging
from 9.0% to 13.0% chosen to reflect different assumptions regarding required
rates of return of holders or prospective buyers of NCRIC's common stock. As
illustrated in the following tables, this analysis indicated an imputed range of
values per share of $6.98 to $12.14 per share under Case 1; $7.52 to $12.93 per
share under Case 2; and $5.93 to $10.80 per share under Case 3. The implied
value of the merger as calculated by Sandler O'Neill was $10.10 per share.

 
     Case 1: NCRIC makes a $12 million payment in connection with the Judgment
 
                           FORWARD EARNINGS MULTIPLES
 


DISCOUNT RATE                                 10.0X   11.0X   12.0X    13.0X    14.0X
-------------                                 -----   -----   ------   ------   ------
                                                                 
 9.0%.......................................  $9.31   $9.89   $10.47   $11.04   $11.62
10.0%.......................................   8.96    9.51    10.06    10.61    11.16
11.0%.......................................   8.62    9.15     9.67    10.20    10.73
12.0%.......................................   8.30    8.80     9.31     9.81    10.31
13.0%.......................................   8.00    8.48     8.96     9.44     9.92

 
                                        43

 
                         TANGIBLE BOOK VALUE MULTIPLES
 


DISCOUNT RATE                                 0.90X   1.10X   1.30X    1.50X    1.70X
-------------                                 -----   -----   ------   ------   ------
                                                                 
 9.0%.......................................  $8.10   $9.11   $10.12   $11.13   $12.14
10.0%.......................................   7.80    8.76     9.73    10.69    11.66
11.0%.......................................   7.51    8.43     9.36    10.28    11.20
12.0%.......................................   7.24    8.12     9.01     9.89    10.77
13.0%.......................................   6.98    7.83     8.67     9.51    10.36

 
     Case 2: NCRIC makes no payment in connection with the Judgment.
 
                           FORWARD EARNINGS MULTIPLES
 


DISCOUNT RATE                               10.0X    11.0X    12.0X    13.0X    14.0X
-------------                               ------   ------   ------   ------   ------
                                                                 
 9.0%.....................................  $10.02   $10.62   $11.23   $11.84   $12.45
10.0%.....................................    9.64    10.22    10.80    11.38    11.96
11.0%.....................................    9.28     9.84    10.39    10.95    11.50
12.0%.....................................    8.95     9.48    10.01    10.54    11.07
13.0%.....................................    8.62     9.13     9.64    10.14    10.65

 
                         TANGIBLE BOOK VALUE MULTIPLES
 


DISCOUNT RATE                                 0.90X   1.10X   1.30X    1.50X    1.70X
-------------                                 -----   -----   ------   ------   ------
                                                                 
 9.0%.......................................  $8.70   $9.76   $10.82   $11.88   $12.93
10.0%.......................................   8.39    9.40    10.41    11.42    12.43
11.0%.......................................   8.08    9.05    10.02    10.98    11.95
12.0%.......................................   7.80    8.72     9.65    10.57    11.49
13.0%.......................................   7.52    8.41     9.29    10.18    11.06

 
     Case 3: NCRIC makes a $19.5 million payment in connection with the
Judgment.
 
                           FORWARD EARNINGS MULTIPLES
 


DISCOUNT RATE                                  10.0X   11.0X   12.0X   13.0X    14.0X
-------------                                  -----   -----   -----   ------   ------
                                                                 
 9.0%........................................  $8.51   $9.08   $9.66   $10.23   $10.80
10.0%........................................   8.17    8.71    9.26     9.81    10.35
11.0%........................................   7.84    8.36    8.88     9.41     9.93
12.0%........................................   7.53    8.03    8.53     9.03     9.53
13.0%........................................   7.23    7.71    8.19     8.67     9.14

 
                         TANGIBLE BOOK VALUE MULTIPLES
 


DISCOUNT RATE                                   0.90X   1.10X   1.30X   1.50X   1.70X
-------------                                   -----   -----   -----   -----   ------
                                                                 
 9.0%.........................................  $6.95   $7.88   $8.80   $9.73   $10.65
10.0%.........................................   6.68    7.56    8.45    9.33    10.21
11.0%.........................................   6.42    7.26    8.11    8.95     9.80
12.0%.........................................   6.17    6.98    7.78    8.59     9.40
13.0%.........................................   5.93    6.70    7.48    8.25     9.02

 

     In addition, Sandler O'Neill performed an analysis that estimated the
future stream of cash flows of ProAssurance through December 31, 2009, assuming
that ProAssurance performed in accordance with Thomson First Call earnings per
share projections for 2005 and 2006, and for periods thereafter, that earnings
per share grew at an annual growth rate of 11.3% as published by Thomson First
Call, all of

 
                                        44

 

which estimates were reviewed with management of ProAssurance as to
reasonableness for use by Sandler O'Neill in its analyses. To approximate the
terminal value of ProAssurance common stock at December 31, 2009, Sandler
O'Neill applied price to forward earnings multiples of 10.0x to 14.0x and
multiples of tangible book value ranging from 0.90x to 1.70x. The cash flow
streams and terminal values were then discounted to present values using
different discount rates ranging from 9.0% to 13.0% chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of ProAssurance's common stock. As illustrated in the following table, this
analysis indicated an imputed range of values per share of $18.64 to $47.75. The
closing price of ProAssurance's common stock on February 25, 2005 was $40.41.

 
                           FORWARD EARNINGS MULTIPLES
 


DISCOUNT RATE                               10.0X    11.0X    12.0X    13.0X    14.0X
-------------                               ------   ------   ------   ------   ------
                                                                 
 9.0%.....................................  $34.11   $37.52   $40.93   $44.34   $47.75
10.0%.....................................   32.59    35.85    39.10    42.36    45.62
11.0%.....................................   31.15    34.26    37.37    40.49    43.60
12.0%.....................................   29.78    32.76    35.74    38.71    41.69
13.0%.....................................   28.48    31.33    34.18    37.03    39.88

 
                              BOOK VALUE MULTIPLES
 


DISCOUNT RATE                               0.90X    1.10X    1.30X    1.50X    1.70X
-------------                               ------   ------   ------   ------   ------
                                                                 
 9.00%....................................  $22.32   $27.28   $32.25   $37.21   $42.17
10.00%....................................   21.33    26.07    30.81    35.55    40.28
11.00%....................................   20.38    24.91    29.44    33.97    38.50
12.00%....................................   19.49    23.82    28.15    32.48    36.81
13.00%....................................   18.64    22.79    26.93    31.07    35.21

 
     In connection with its analyses, Sandler O'Neill considered and discussed
with the NCRIC board how the present value analyses would be affected by changes
in the underlying assumptions. Sandler O'Neill noted that the discounted cash
flow stream and terminal value analysis is a widely used valuation methodology,
but the results of such methodology are highly dependent upon the numerous
assumptions that must be made, and the results thereof are not necessarily
indicative of actual values or future results.
 
     Pro Forma Merger Analysis.  Sandler O'Neill analyzed certain potential pro
forma effects of the merger, assuming the following:
 
          (1) the merger closes on June 30, 2005;
 
          (2) earnings per share projections for NCRIC are consistent with per
     share estimates for 2005 and 2006 confirmed with NCRIC's management
     (adjusted to reflect a payment on the Judgment consistent with Case 1, as
     directed by the management of ProAssurance);
 
          (3) earnings per share projections for ProAssurance are consistent
     with per share estimates for 2005 and 2006 published by Thomson First Call
     and reviewed with senior management of ProAssurance as to reasonableness
     for use by Sandler O'Neill in its analyses;
 
          (4) purchase accounting adjustments, charges and transaction costs
     associated with the merger and cost savings determined by the senior
     management of ProAssurance; and
 
          (5) options to purchase common stock of NCRIC are cashed out.
 
          The analyses indicated that for the years ending December 31, 2005 and
     December 31, 2006, the merger would be accretive to ProAssurance's
     projected earnings per share and book value per share, and dilutive to its
     return on equity. The actual results achieved by the combined company may
     vary from projected results and the variations may be material.
 
                                        45

 

     NCRIC has agreed to pay Sandler O'Neill a transaction fee in connection
with the merger of approximately $894,377 (based on the average ProAssurance
closing prices for the five day period ended June 17, 2005), of which $299,000
has been paid and the balance of which is contingent, and payable, upon closing
of the merger. The actual total transaction fee will be 1.25% of a defined
transaction value determined closer to the closing of the merger. Of the
$299,000 received by Sandler O'Neill, $50,000 represented a retainer fee and
$125,000 represented a fee for rendering its opinion, each of which fees will be
credited against the transaction fee payable at closing. NCRIC has also agreed
to reimburse certain of Sandler O'Neill's reasonable out-of-pocket expenses
incurred in connection with its engagement and to indemnify Sandler O'Neill and
its affiliates and their respective partners, directors, officers, employees,
agents, and controlling persons against certain expenses and liabilities,
including liabilities under securities laws.

 

     Sandler O'Neill has, in the past, provided certain other investment banking
services to NCRIC (including advising in NCRIC's first step conversion in 1999
and in the demutualization of NCRIC 's mutual holding company in 2003) and has
received compensation for such services. In addition, Sandler O'Neill has
provided certain investment banking services to ProAssurance in the past and has
received compensation for such services, including participating as a co-manager
in a follow-on offering of common stock of ProAssurance in 2002. Sandler O'Neill
may provide investment banking services for ProAssurance in the future and may
receive compensation for such services, including during the pendency of the
merger. A principal of Sandler O'Neill and certain members of his family are
stockholders of NCRIC. As of the date of this proxy statement-prospectus, the
principal, who was not involved in providing investment banking services to
NCRIC in connection with the merger, owned 41,063 shares of NCRIC common stock.

 
     In the ordinary course of Sandler O'Neill's business as a broker-dealer,
Sandler O'Neill may purchase securities from and sell securities to NCRIC and
ProAssurance and their affiliates. Sandler O'Neill may also actively trade the
debt and/or equity securities of NCRIC or ProAssurance or their affiliates for
Sandler O'Neill's own account and for the accounts of Sandler O'Neill's
customers and, accordingly, may at any time hold a long or short position in
such securities.
 
PROASSURANCE BOARD OF DIRECTORS' REASONS FOR THE MERGER
 
     After careful consideration, at its meeting on February 27, 2005,
ProAssurance's board determined that the Merger Agreement and the merger are in
the best interests of ProAssurance and its stockholders. Accordingly,
ProAssurance's board, by a unanimous vote of the directors, adopted the Merger
Agreement.
 
     In concluding that the merger is in the best interests of ProAssurance and
its stockholders, ProAssurance's board considered, among other things, the
following factors that supported the decision to approve the merger:
 
     - The merger with NCRIC is consistent with ProAssurance's plan to grow in
       states within or adjacent to ProAssurance's geographic footprint.
 
      - ProAssurance will inherit NCRIC's dominant share in the medical
        liability insurance market of the District of Columbia.
 

      - NCRIC is the largest writer of professional liability insurance in the
        State of Delaware and the fourth largest writer in the Commonwealth of
        Virginia, each of which are states ProAssurance has recently targeted
        for growth; and

 
     - The merger will continue the expansion of ProAssurance's medical
       professional liability insurance business through combinations with other
       professional liability insurers.
 
      - ProAssurance has had success integrating other companies like NCRIC that
        were originally formed by physicians and that are close with the local
        physician community.
 
      - NCRIC's claims and underwriting staff will enable ProAssurance to apply
        local knowledge to individual risk selection and claims management in
        the District of Columbia and surrounding states.
 
                                        46

 
     - From a financial point of view, the board believes that the merger will
       benefit ProAssurance's stockholders.
 
     - At the meeting on February 27, 2005, ProAssurance's financial advisor,
       Cochran, Caronia & Co., LLC, provided its financial analysis and rendered
       its oral opinion as to the fairness, from a financial point of view, of
       the exchange ratio to ProAssurance.
 
     ProAssurance's board also considered the following factors that potentially
created risks if the board decided to approve the merger:
 
     - reserves could continue to develop adversely;
 
     - the risk that the verdict obtained by the Columbia Hospital for Women
       Medical Center will not be settled or resolved for less than the amount
       of judgment; and
 
     - the difficult legal environment for medical professional liability in the
       District of Columbia.
 
     ProAssurance's board concluded that the anticipated benefits of combining
with NCRIC outweighed the preceding risks.
 
     Although each member of ProAssurance's board individually considered these
and other factors, the board did not collectively assign any specific or
relative weights to the factors considered and did not make any determination
with respect to any individual factor. The board collectively made its
determination with respect to the merger based on the conclusion reached by its
members, in light of the factors that each of them considered appropriate, that
the merger is in the best interests of ProAssurance and its stockholders.
 
     ProAssurance's board of directors realized there can be no assurance about
future results, including results expected or considered in the factors listed
above, such as assumptions regarding anticipated earnings accretion. However,
the board concluded the potential positive factors outweighed the potential
risks of consummating the merger.
 

     It should be noted that this explanation of the ProAssurance board's
reasoning and all other information presented in this section is forward-looking
in nature and, therefore, should be read in light of the factors discussed under
the heading "FORWARD-LOOKING STATEMENTS" on page 80.

 
INTERESTS OF CERTAIN PERSONS IN THE MERGER.
 
     Some of NCRIC's officers and directors have interests in the merger that
are in addition to and may be different from the interests as NCRIC stockholders
they may share with you. The NCRIC board of directors was aware of these
different interests and considered them, among other matters, in adopting the
Merger Agreement and the transactions it contemplates.
 
     NCRIC has employment agreements with certain of its officers, namely R. Ray
Pate, Rebecca B. Crunk, William E. Burgess and Eric R. Anderson. In addition,
ProAssurance has agreed that NCRIC may enter into an employment agreement with
Anne K. Missett, with terms similar to the employment agreement with Mr.
Anderson. Each of these employment agreements provides for cash severance
compensation if NCRIC terminates the executive's employment without cause or if
the executive's employment is terminated for any reason within three months
after a change of control such as the merger. The amount of severance
compensation payable to Mr. Pate is three times his annual base salary, the
amount of severance compensation payable to Ms. Crunk and Mr. Burgess is two
times their annual base salary, and the amount payable to Mr. Anderson and Ms.
Missett is their annual base salary.
 
     ProAssurance has agreed to assume each of these employment agreements,
including the obligation to pay cash severance compensation. ProAssurance has
further agreed to offer to continue the employment of these executives after the
merger subject to the following changes in the terms of their employment:
 
     - during the first year after the effective date of the merger,
       ProAssurance and each executive will have the ability to voluntarily
       terminate the employment contract, and if either ProAssurance or the
       executive terminates the contract, the executive will receive the
       benefits as called for in the
 
                                        47

 
       employment contract from the date of termination in exchange for an
       agreement by the executive to not compete in the medical malpractice
       insurance business in the District of Columbia, Virginia and Delaware for
       the one-year period immediately following the termination of employment;
 
     - within the first year after the merger, ProAssurance may offer a
       severance agreement on terms comparable to agreements with other
       ProAssurance executives that would provide severance compensation for
       termination of the executive's compensation without cause in the
       following amounts:
 
      - Mr. Pate would initially receive three years' compensation, which will
        be reduced by one day for each day that Mr. Pate remains employed during
        the two year period beginning on the first anniversary of the effective
        date of the merger, and after the third anniversary of the effective
        date of the merger his severance will be one year's compensation;
 
      - Ms. Crunk and Mr. Burgess would initially receive two years'
        compensation, which will be reduced by one day for each day she or he
        remains employed during the year beginning on the first anniversary of
        the effective date of the merger, and after the second anniversary of
        the effective date of the merger her or his severance will be one year's
        compensation;
 
      - Mr. Anderson and Ms. Missett would receive one year's compensation as
        severance compensation; and
 
     - if an agreement is not offered, the executive will then be entitled to
       receive the benefits under his or her NCRIC employment agreement.
 
     We estimate that cash severance payments of up to $2.3 million in the
aggregate could become payable if all of the executive officers terminate their
employment within the applicable time frames after the merger.
 
     In 2003, NCRIC established an unfunded deferred compensation plan for
executive officers and directors, which requires NCRIC to make matching
contributions to officers of up to 5% of their compensation. The matching
contributions vest if the executive remains employed after five years. Upon a
change of control, all matching contributions will be fully vested and all
amounts held for account of the participants will be distributed in lump sum.
 

     NCRIC has granted stock options and stock awards to directors and certain
executive officers under its stock option plans. All of the stock options are
currently exercisable and the stock awards vest ratably over periods expiring
August 10, 2008. ProAssurance has agreed to assume the outstanding stock awards
and stock options as described under "TREATMENT OF STOCK OPTIONS AND AWARDS" on
page 51.

 

     The Merger Agreement provides that NCRIC will terminate its employee stock
ownership plan as of the effective time of the merger. NCRIC's executive
officers are participants in the ESOP with other employees. As a result of the
termination of the ESOP, all participants in the ESOP, including the officers,
will receive allocations of shares of ProAssurance common stock after the
completion of the merger as described under "EMPLOYEE BENEFIT PLANS" on page 56.

 
     ProAssurance has agreed to retain each member of the board of directors of
NCRIC for services on an advisory committee of ProAssurance, which provides for
compensation of $2,500 per month through December 31, 2006. The agreement
requires the directors to serve on advisory committees to be established to
facilitate the transition of NCRIC's business and prohibits them from competing
with the business of ProAssurance during the terms of their agreements.
 
     The Merger Agreement provides that, upon completion of the merger,
ProAssurance will, to the fullest extent permitted by law, indemnify, defend and
hold harmless all present and former directors, officers and employees of NCRIC
against all costs and liabilities arising out of actions or omissions occurring
at or before the completion of the merger to the same extent as directors,
officers and employees of NCRIC are indemnified or have the right to advancement
of expenses under NCRIC's certificate of incorporation and bylaws.
 
                                        48

 
     The Merger Agreement also provides that for a period of three years after
the merger is completed, ProAssurance will use its best efforts to provide
directors' and officers' liability insurance for the present and former officers
and directors of NCRIC with respect to claims arising from facts or events
occurring before the merger is completed. This directors' and officers'
liability insurance generally will contain at least the same coverage and
amounts, and terms and conditions no less advantageous, as NCRIC's existing
coverage. However, if ProAssurance is unable to maintain or obtain such levels
of insurance at a cost of less than 300% of the premium paid by NCRIC for such
insurance or is otherwise unable to obtain such insurance, ProAssurance is
required to use its best efforts to obtain as much comparable insurance as is
reasonably available.
 
RESTRICTIONS ON RESALES BY AFFILIATES.
 
     The shares of ProAssurance common stock that NCRIC stockholders will own
following the merger have been registered under the Securities Act of 1933, as
amended. They may be traded freely and without restriction by you if you are not
deemed to be an affiliate of ProAssurance or NCRIC under the Securities Act. An
"affiliate" of ProAssurance or NCRIC as defined by the rules under the
Securities Act, is a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
ProAssurance or NCRIC. Persons that are affiliates of ProAssurance or NCRIC at
the time the merger is submitted for vote of the NCRIC stockholders or of the
combined company following completion of the merger may not sell their shares of
ProAssurance common stock acquired in the merger except pursuant to an effective
registration statement under the Securities Act or an applicable exemption from
the registration requirements of the Securities Act, including Rules 144 and 145
under the Securities Act. Affiliates generally include directors, executive
officers and beneficial owners of 10% or more of any class of capital stock.
 
     This proxy statement-prospectus does not cover any resale of ProAssurance
common stock received in the merger by any person that may be deemed to be an
affiliate of NCRIC or ProAssurance.
 
NO DISSENTERS' RIGHTS.
 
     Under applicable Delaware law, holders of NCRIC common stock do not have
any dissenters' rights in connection with the merger.
 
REGULATORY APPROVALS REQUIRED FOR THE MERGER.
 
     We have agreed to use best efforts to obtain the regulatory approvals
required for the merger. We refer to these approvals, along with the expiration
of any statutory waiting periods related to these approvals, as the "requisite
regulatory approvals". These include approval from insurance regulators and
various other state regulatory authorities. We have either filed or intend to
complete the filing promptly after the date of this proxy statement-prospectus
of applications and notifications to obtain the requisite regulatory approvals.
The merger cannot proceed in the absence of the requisite regulatory approvals.
We cannot assure you as to whether or when the requisite regulatory approvals
will be obtained, and, if obtained, we cannot assure you as to the date of
receipt of any of these approvals, the terms thereof or the absence of any
litigation challenging them. Likewise, we cannot assure you that the DOJ or a
state attorney general will not attempt to challenge the merger on antitrust
grounds, or, if such a challenge is made, as to the result of that challenge.
 
     We are not aware of any other material governmental approvals or actions
that are required prior to the parties' completion of the merger other than
those described below. We presently contemplate that if any additional
governmental approvals or actions are required, these approvals or actions will
be sought. However, we cannot assure you that any of these additional approvals
or actions will be obtained.
 

     District of Columbia Insurance Laws.  We cannot complete the merger unless
a pre-acquisition notification statement (Form A) containing information as
prescribed by insurance holding company laws and regulations of the District of
Columbia has been filed with and approved by the Mayor of the District of
Columbia. We filed the Form A with the District of Columbia on April 15, 2005,
and a public hearing

 
                                        49

 

on the Form A was held on June 6, 2005. The Mayor is required to make a
determination within 120 days after the conclusion of the hearing.

 
     Other Regulatory Authorities.  Applications or notifications may be
required to be filed with various state regulatory authorities and
self-regulatory organizations in connection with the merger (including any
necessary state blue sky registrations or exemption filings) or changes in
control of subsidiaries of NCRIC that may be deemed to result from the merger.
We might also be subject to additional pre-acquisition notification filing
requirements and approval, in addition to the Form A filing requirement, in
states where NCRIC is authorized to do business. These authorities may be
empowered under the applicable state laws and regulations to investigate or
disapprove the merger under the circumstances and based upon the review provided
for in applicable state laws and regulations.
 

     Antitrust.  The merger is subject to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, or HSR Act. The HSR Act prohibits the completion of
transactions such as the merger unless the parties notify the Federal Trade
Commission, or FTC, and the Department of Justice, or DOJ, in advance and a
specified waiting period expires. ProAssurance and NCRIC have filed pre-merger
notification and report forms with the FTC and the Antitrust Division of the
DOJ. A transaction or portion of a transaction that is notifiable under the HSR
Act may not be consummated until the expiration of a 30 calendar-day waiting
period, or the early termination of that waiting period, following the filing of
pre-merger notification and report forms by the parties with the FTC and DOJ.
The FTC granted early termination of the waiting period effective May 24, 2005.
At any time before or after the merger and the exchange of shares, the FTC or
the DOJ could take whatever action under the antitrust laws it deems necessary
or desirable in the public interest, including seeking to enjoin the merger or
the exchange of shares, or seeking a divestiture of shares or assets.

 
ACCOUNTING TREATMENT.
 
     ProAssurance will treat the merger as a purchase of NCRIC under GAAP. Under
the purchase method of accounting, the assets and liabilities of the company not
surviving a merger are, as of completion of the merger, recorded at their
respective fair values and added to those of the surviving company. Financial
statements of the surviving company issued after completion of the merger
reflect these values, but are not restated retroactively to reflect the
historical financial position or results of operations of the company not
surviving.
 
     All unaudited pro forma financial information contained in this proxy
statement-prospectus has been prepared using the purchase method to account for
the merger. The final allocation of the purchase price will be determined after
the merger is completed and after completion of a thorough analysis to determine
the fair values of NCRIC's tangible and identifiable intangible assets and
liabilities. In addition, estimates related to restructuring and merger-related
charges are subject to final decisions related to combining the companies.
Accordingly, the final purchase accounting adjustments, restructuring and
merger-related charges may be materially different from the unaudited pro forma
adjustments presented in this proxy statement-prospectus. Any decrease in the
net fair value of the assets and liabilities of NCRIC as compared to the
information shown in this proxy statement-prospectus will have the effect of
increasing the amount of the purchase price allocable to goodwill.
 
STOCK EXCHANGE LISTING.
 
     ProAssurance has agreed to list the shares of ProAssurance common stock to
be issued in the merger on the NYSE (including shares to be issued following
exercise of the NCRIC stock options assumed by ProAssurance). It is a condition
to the completion of the merger that those shares be approved for listing on the
NYSE, subject to official notice of issuance. Following the merger,
ProAssurance's common stock will continue to trade on the NYSE under the symbol
"PRA".
 
                                        50

 
                              THE MERGER AGREEMENT
 
     The following sections of this proxy statement-prospectus describe the
material provisions of the Merger Agreement. This description does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
the Merger Agreement, which is attached as Appendix A and incorporated by
reference into this proxy statement-prospectus. You are urged to read the Merger
Agreement carefully and in its entirety.
 
STRUCTURE
 
     ProAssurance formed NCP on February 25, 2005, as a Delaware corporation
solely for the purpose of merging with NCRIC under the Merger Agreement. Under
the terms of the Merger Agreement and in accordance with Delaware law, NCRIC
will be merged into NCP with NCP surviving the merger as a wholly owned
subsidiary of ProAssurance. After completion of the merger:
 

     - each share of NCRIC common stock will be converted into 0.25 of a share
       of ProAssurance common stock, subject to the adjustments described under
       "MERGER CONSIDERATION" on page 29;

 
     - each share of ProAssurance common stock outstanding at the time of the
       merger will remain outstanding and not be affected by the merger;
 
     - each share of NCP common stock outstanding at the time of the merger, all
       of which are owned by ProAssurance, will remain outstanding and no
       additional shares will be issued in the merger;
 
     - the corporate existence of NCRIC will terminate and NCP will continue its
       corporate existence under the Certificate of Incorporation and By-Laws in
       effect for NCP immediately preceding the merger, except that the
       Certificate of Incorporation will be amended to change NCP's name to
       "NCRIC Corporation."
 
TREATMENT OF OPTIONS AND STOCK AWARDS.
 
     In the merger, ProAssurance will assume all outstanding NCRIC stock options
and awards in accordance with their respective terms as in effect immediately
prior to the merger. Each outstanding stock award will be converted into shares
of ProAssurance common stock using the exchange ratio. The NCRIC stock option
plans will be amended to allow former members of NCRIC's board of directors to
participate under the NCRIC stock option plans during the term of such
director's service on ProAssurance's advisory committee.
 
     Each holder of an option to acquire NCRIC common stock outstanding and
unexercised immediately prior to completion of the merger will have the election
to either:
 
     - exchange his or her NCRIC stock options for the right to acquire shares
       of ProAssurance common stock, in which event the number of shares
       issuable under those options will be adjusted by multiplying the exchange
       ratio by the number of shares of NCRIC common stock subject to the
       option, and the exercise price for the shares of ProAssurance common
       stock subject to the assumed options will be determined by dividing the
       exchange ratio into the exercise price of the shares of NCRIC common
       stock subject to the option; or
 
     - surrender his or her stock options for a cash payment equal to the
       greater of either:
 
      - the amount by which the adjusted share value exceeds the unadjusted
        exercise price for each share of NCRIC common stock subject to the
        continuing stock option; or
 
      - $1.00 for each share of NCRIC common stock subject to the stock option
        so surrendered.
 
                                        51

 
     "Adjusted share value" means, for these purposes, an amount equal to 0.25
multiplied by the average closing price of a share of ProAssurance common stock
on the NYSE during the ten trading days preceding the effective date of the
merger, except that
 
      - if the average price of a share of ProAssurance common stock is greater
        than $44.00, the adjusted share value will be $11.00, or
 
      - if the average price of a share of ProAssurance common stock is less
        than $36.00, the adjusted share value will be $9.00.
 
     The holders of NCRIC stock options who desire cash will be required to make
their elections prior to the effective date of the merger. ProAssurance will
provide an election form to the holders of NCRIC options at least twenty days
prior to the effective date of the merger. The holder of a NCRIC option will
have no right to surrender his option for cash unless the election form is
returned to ProAssurance prior to the effective date of the merger.
 

     All fractional shares resulting from the conversion of the outstanding
stock options and restricted stock awards will be eliminated. ProAssurance will
take the corporate actions that are necessary to reserve a sufficient number of
shares of its common stock for issuance upon exercise of the new options. In
addition, ProAssurance will file appropriate registration statements with the
SEC to register the shares of its common stock underlying the new options.

 
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES.
 
     Exchange Procedures.  Prior to the effective time of the merger,
ProAssurance will deposit with an exchange agent, which will be Mellon Investor
Services LLC, or another bank or trust company reasonably acceptable to NCRIC,
(1) certificates or evidence of shares in book entry form, representing the
shares of ProAssurance common stock to be issued under the Merger Agreement
(together with any dividends and distributions with respect to such shares with
a record date after the merger) and (2) sufficient cash to be paid instead of
any fractional shares of ProAssurance common stock to be issued under the Merger
Agreement.
 
     Promptly after the effective time, but no later than 5 business days
thereafter, the exchange agent will mail transmittal materials to NCRIC
stockholders. The transmittal materials will contain instructions about the
surrender of NCRIC common stock certificates for ProAssurance common stock
certificates and any cash to be paid instead of fractional shares of common
stock.
 
     NCRIC common stock certificates should not be returned with the enclosed
proxy card. They should not be forwarded to the exchange agent unless and until
you receive a transmittal letter following completion of the merger.
 
     NCRIC common stock certificates presented for transfer after completion of
the merger will be canceled and exchanged for certificates representing the
applicable number of shares of ProAssurance common stock.
 
     After the merger, there will be no transfers of shares of NCRIC common
stock on the stock transfer books of NCRIC or the surviving corporation.
 
     All shares of ProAssurance common stock into which shares of NCRIC common
stock are converted on the merger completion date will be deemed issued as of
that date. After that date, former NCRIC stockholders of record will be entitled
to vote, at any meeting of ProAssurance stockholders having a record date on or
after the merger completion date, the number of whole shares of ProAssurance
common stock into which their shares of NCRIC common stock have been converted,
regardless of whether they have surrendered their NCRIC stock certificates.
ProAssurance dividends having a record date on or after the effective date of
the merger will include dividends on ProAssurance common stock issued to NCRIC
stockholders in the merger. However, no dividend or other distribution payable
to the holders of record of ProAssurance common stock after the effective date
of the merger will be distributed to the holder of any NCRIC common stock
certificates until that holder physically surrenders all of his or her NCRIC
 
                                        52

 
common stock certificates as described above. Promptly after surrender,
ProAssurance's common stock certificates to which that holder is entitled, all
undelivered dividends and other distributions, and payment for any fractional
share interests, if applicable, will be delivered to that holder, in each case
without interest.
 
     No Fractional Shares Will Be Issued.  ProAssurance will not issue
fractional shares of ProAssurance common stock in the merger. There will be no
dividends or voting rights with respect to any fractional common shares. For
each fractional share of common stock that would otherwise be issued,
ProAssurance will pay cash in an amount determined by multiplying the fractional
share of PRA common stock to which such holder would otherwise be entitled by
either (i) $40.00 or (ii) the average closing price of a share of ProAssurance
common stock during the ten trading days preceding the effective date of the
merger if the average price is less than $36.00 or more than $44.00.
 
     None of ProAssurance, NCRIC or any other person will be liable to any
former holder of NCRIC common stock for any amount properly delivered in good
faith to a public official pursuant to any applicable abandoned property laws.
 
     Lost, Stolen or Destroyed NCRIC Common Stock Certificates.  If a holder has
lost a certificate representing NCRIC common stock, or it has been stolen or
destroyed, ProAssurance will issue to such holder the common stock payable under
the Merger Agreement if:
 
     - the holder presents evidence to the reasonable satisfaction of the
       exchange agent and ProAssurance that the certificate has been lost,
       wrongfully taken or destroyed;
 
     - the holder provides indemnity or security as may be reasonably requested
       by the exchange agent or ProAssurance to protect against any claim that
       may be made against ProAssurance or the exchange agent about ownership of
       the lost, wrongfully taken or destroyed certificate; and
 
     - the holder provides evidence satisfactory to the exchange agent and
       ProAssurance that such person is the owner of the shares represented by
       each certificate claimed to be lost, wrongfully taken or destroyed.
 

     For a description of ProAssurance common stock and a description of the
differences between the rights of NCRIC stockholders and ProAssurance
stockholders, SEE "DESCRIPTION OF PROASSURANCE CAPITAL STOCK" beginning on page
73 and "COMPARISON OF STOCKHOLDER RIGHTS" beginning on page 75.

 
EFFECTIVE TIME.
 

     The effective time of the merger will be the time set forth in the legal
documents that we will file with the Secretary of State of the State of Delaware
on the date the merger is completed. We anticipate that we will complete the
merger during the quarter ending September 30, 2005. However, completion could
be delayed if there is a delay in obtaining the necessary regulatory approvals
or for other reasons. There can be no assurances as to if or when these
approvals will be obtained or as to if or when the merger will be completed. If
we do not complete the merger by December 31, 2005, either party may terminate
the Merger Agreement without penalty unless the failure to complete the merger
by that date is due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe its obligations under the Merger Agreement. See
"CONDITIONS TO COMPLETION OF THE MERGER" beginning on page 59 and "REGULATORY
APPROVALS REQUIRED FOR THE MERGER" beginning on page 49.

 
REPRESENTATIONS AND WARRANTIES.
 
     The Merger Agreement contains a number of representations and warranties by
ProAssurance and NCRIC regarding aspects of their respective businesses,
financial condition, structure and other facts pertinent to the merger that are
customary for a merger transaction. They include, among other things:
 
     - the corporate organization and existence of each party and its
       subsidiaries and the valid ownership of its significant subsidiaries;
 
                                        53

 
     - the accuracy of each party's books and records;
 
     - the capitalization of each party;
 
     - the authority of each party and its subsidiaries to enter into the Merger
       Agreement and make it valid and binding;
 
     - the fact that the Merger Agreement does not breach:
 
      - the certificate of incorporation and bylaws of each party,
 
      - applicable law, and
 
      - agreements, instruments or obligations of each party;
 
     - governmental approvals;
 
     - regulatory investigations and orders;
 
     - each party's statutory statements of its respective insurance
       subsidiaries filed with any insurance regulator and each party's filing
       of the insurance holding company act reports;
 
     - each party's financial statements and filings with the SEC;
 
     - each party's compliance with the Sarbanes-Oxley Act of 2002;
 
     - the absence of any liabilities or obligations of any nature whatsoever
       since December 31, 2004 that, either individually or in the aggregate,
       would have a material adverse affect on in each party's business;
 
     - the absence of undisclosed material legal proceedings and injunctions;
 
     - the filing and accuracy of each party's tax returns;
 
     - each party's compliance with applicable law;
 
     - environmental matters; and
 
     - the inapplicability to the merger of state anti-takeover laws.
 
     In addition, NCRIC has made representations and warranties with respect to:
 
     - its employee benefit plans, labor matters, employees and related matters;
 
     - the validity of, and the absence of material defaults under, NCRIC's
       material contracts;
 
     - ownership rights and restrictions with respect to NCRIC's investment
       assets, real and personal property, and intellectual property; and
 
     - its loss reserves, reinsurance treaties or agreements and other related
       matters.
 
CONDUCT OF BUSINESS PENDING THE MERGER.
 
     The Merger Agreement contains various restrictions on the operations of
NCRIC before the effective time of the merger. NCRIC has agreed that, except as
expressly contemplated or permitted by the Merger Agreement, it will not, and
will not agree to, without ProAssurance's consent:
 
     - conduct its business other than in the ordinary and usual course;
 
     - fail to use reasonable best efforts to preserve intact its business
       organizations, assets and other rights, its existing relations with
       customers and other parties and retain services of key employees and
       agents;
 
     - take any action which would adversely affect or delay the ability of any
       party to the Merger Agreement to obtain any required regulatory approval
       or to perform its covenants and agreements under the Merger Agreement;
 
                                        54

 
     - incur, assume or guarantee any indebtedness for borrowed money other than
       short-term indebtedness to refinance indebtedness of NCRIC to its
       subsidiaries or of its subsidiaries to NCRIC;
 
     - redeem, repay, discharge or defease any surplus note unless required in
       order to obtain regulatory approval;
 
     - adjust, split, combine or reclassify any capital stock or redeem,
       purchase or otherwise acquire any of its own stock;
 
     - declare or pay any dividend or distribution on any shares of its stock,
       other than dividends paid by any of its wholly owned subsidiaries to it
       or any of its wholly owned subsidiaries;
 
     - grant any stock options, stock awards or stock appreciation rights, or
       issue additional shares of its capital stock except pursuant to the
       exercise of NCRIC stock options or warrants outstanding as of the date of
       the Merger Agreement;
 
     - sell, transfer, mortgage, encumber or otherwise dispose of any assets,
       deposits, business or properties, other than in the ordinary course of
       business consistent with past practice, pursuant to agreements in force
       as of the date of the Merger Agreement, except that NCRIC may sell its
       practice management business for cash or may otherwise sell or dispose of
       its practice management business with the prior written approval of
       ProAssurance;
 
     - make any material non-portfolio investment in any person other than a
       subsidiary except pursuant to agreements in force at the date of the
       Merger Agreement;
 
     - enter into, terminate or materially change a material agreement;
 
     - increase employee compensation or pay any bonuses, except that NCRIC and
       its subsidiaries may make annual increases in salaries and wages in the
       ordinary course of business that do not exceed 4% of the aggregate amount
       of compensation paid in the preceding 12 months;
 
     - except as permitted by the Merger Agreement, pay any pension or
       retirement allowance not required by an existing plan or agreement;
 
     - settle any claim, action or proceeding involving money damages other than
       in the ordinary course of business in accordance with past practice,
       except that NCRIC has agreed to consult with ProAssurance regarding
       settlement of claims against NCRIC or its subsidiaries exceeding
       $1,000,000 and NCRIC has further agreed that it will not settle without
       ProAssurance's prior consent the verdict obtained against NCRIC by
       Columbia Hospital for Women Medical Center, Inc. in the Superior Court of
       the District of Columbia;
 
     - take any action that is reasonably likely to impede the merger from
       qualifying as a tax-free reorganization under federal tax laws;
 
     - materially change its investment securities portfolio;
 
     - offer or sell insurance or reinsurance of any type in any jurisdiction
       other than such lines of insurance and reinsurance as offered on the date
       of the Merger Agreement and other than in jurisdictions in which such
       insurance and reinsurance is offered on the date of the Merger Agreement;
 
     - take any action that is intended or may reasonably be expected to result
       (i) in any of its representations and warranties set forth in the Merger
       Agreement becoming untrue in a material respect, (ii) in any of the
       conditions to the merger not being satisfied, or (iii) in violation of
       any provision of the Merger Agreement, except as required by applicable
       law;
 
     - amend its certificate of incorporation or bylaws; or
 
     - agree to, or make any commitment to, take any of the actions listed
       above.
 
                                        55

 
     In addition, NCRIC has agreed to consult with ProAssurance with respect to
reserve policies and practices relating to losses and loss adjustment expenses
of NCRIC's subsidiaries, any litigation against NCRIC and its subsidiaries, and
amount and timing of restructuring charges. NCRIC has also agreed to make its
financial officers available to discuss with ProAssurance NCRIC's disclosure
controls, internal controls and financial statements in anticipation of
ProAssurance's need to comply with the requirements of the Sarbanes Oxley Act of
2002 after the merger with respect to NCRIC.
 
     ProAssurance has agreed, except as expressly contemplated or permitted by
the Merger Agreement, that it will not, and will not agree to, without NCRIC's
consent:
 
     - take any action that is reasonably likely to impede the merger from
       qualifying as a tax-free reorganization under federal tax laws
 
     - amend its certificate of incorporation or bylaws, except as provided in
       the Merger Agreement;
 
     - take any action that is intended or may reasonably be expected to result
       (i) in any of its representations and warranties set forth in the Merger
       Agreement becoming untrue in a material respect, (ii) in any of the
       conditions to the merger not being satisfied, or (iii) in violation of
       any provision of the Merger Agreement, except as required by applicable
       law;
 
     - take any action that is intended or likely to adversely affect its
       ability to perform its covenants and agreements under the Merger
       Agreement; or
 
     - agree to, or make any commitment to, take any of the actions listed
       above.
 
     Under the Merger Agreement, prior to the completion of the merger, neither
NCRIC nor any of its subsidiaries can acquire, directly or indirectly,
beneficial or record ownership of any equity securities of ProAssurance,
including shares of ProAssurance common stock, or any securities convertible
into or exercisable for any equity securities of ProAssurance.
 

     In addition, Federal law prohibits ProAssurance and NCRIC from purchasing
shares of either company's common stock from the date this proxy
statement-prospectus is first mailed to stockholders until completion of NCRIC's
special meeting of stockholders. ProAssurance has not purchased any shares of
NCRIC common stock since February 28, 2005. Neither NCRIC nor ProAssurance has
purchased any shares of ProAssurance common stock since February 28, 2005.

 
EMPLOYEE BENEFIT PLANS.
 
     We agreed that ProAssurance will continue NCRIC's employee benefit plans
until it determines whether to continue, amend or terminate the plans.
ProAssurance agreed that it will provide NCRIC employees who continue in
employment with ProAssurance:
 
     - compensation and benefits that are substantially similar to compensation
       and benefits provided to similarly situated employees of ProAssurance;
 
     - credit for their service as NCRIC employees for purposes of determining
       eligibility and vesting under ProAssurance's employee benefit plans; and
 
     - incentive compensation for their performance in the full year ending
       December 31, 2005, in accordance with ProAssurance's incentive
       compensation and practices.
 
     We agreed that NCRIC will terminate its employee stock ownership plan, or
ESOP, as of the effective time of the merger. All of the shares of NCRIC common
stock held by the ESOP will be converted into the right to receive shares of
ProAssurance common stock in accordance with the exchange ratio in the Merger
Agreement. At December 31, 2004, the ESOP held 483,432 shares of NCRIC common
stock, which included approximately 350,141 shares that were purchased with the
proceeds of a loan from NCRIC to the ESOP and that have not yet been allocated
to the accounts of participants. Upon its termination, the ESOP will repay the
loan from NCRIC by surrendering unallocated shares of ProAssurance common stock
that have a current market value equal to the amount of principal and
 
                                        56

 
accrued interest on the loan. The loan had an outstanding principal balance of
$2,478,498 on December 31, 2004. Any unallocated shares that are not used to
repay the loan will be allocated to the accounts of the participants in the
ESOP. All accounts will be fully vested upon the termination of the ESOP, and
the shares of ProAssurance common stock held in the participants' accounts will
be distributed to the participants in accordance with the terms of the ESOP and
applicable laws and regulations.
 
     The NCRIC deferred compensation plan provides that all amounts credited to
the accounts of participants will be distributed in lump sum to participants
upon a change of control of NCRIC. We agreed that NCRIC would terminate its
deferred compensation plan and that all amounts credited to the accounts of the
participants would be distributed as required by the plan.
 

     ProAssurance agreed to honor employment agreements with certain officers of
NCRIC, including the obligation to pay cash severance on termination of
employment after a change of control. ProAssurance also agreed to offer to
continue their employment and to allow such executive officers to receive their
severance compensation if they terminated their employment within one year after
the merger and if they agreed not to compete with ProAssurance's business for a
period of one year after termination of employment. For certain officers of
NCRIC continuing with employment with ProAssurance, ProAssurance also agreed to
enter into a severance agreement on terms similar to severance agreements in
place for ProAssurance's executive officers that would provide severance
compensation as described under "INTERESTS OF CERTAIN PERSONS IN THE MERGER" on
page 47.

 
TAX OPINION AND ACCOUNTANT'S COMFORT LETTER.
 

     We agreed that each of ProAssurance and NCRIC will obtain a separate
opinion as to the material tax consequences to ProAssurance, NCRIC and their
respective stockholders in connection with the merger. Each opinion was required
to be delivered at the time of filing this proxy statement-prospectus with the
SEC and is required to be updated at closing. The opinions will be delivered
prior to mailing of this proxy statement-prospectus and are discussed under
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES" beginning on page 61.

 
     NCRIC agreed to deliver to ProAssurance a letter from its independent
registered public accounting firm, Deloitte & Touche, LLP, prior to mailing this
proxy statement-prospectus. The letter addresses the independence of Deloitte &
Touche, LLP with respect to NCRIC and provides assurance that the consolidated
financial statements of NCRIC in its most recent SEC reports comply as to form
with the requirements of the federal securities laws in all material respects.
The letter is expected to be delivered prior to mailing of this proxy
statement-prospectus in a form acceptable to ProAssurance.
 
ACQUISITION PROPOSALS BY THIRD PARTIES.
 
     NCRIC has agreed that it will not initiate, entertain, solicit, encourage,
engage in or participate in any negotiations with any person relating to any
acquisition proposal. However, if NCRIC receives an unsolicited acquisition
proposal and NCRIC's board determines in good faith that such action is
appropriate in furtherance of the best interests of its stockholders, NCRIC can
participate in negotiations with and provide confidential information to the
third party and recommend the proposal to its stockholders. Before providing any
nonpublic information, NCRIC must enter into a written agreement which provides
for (i) the furnishing to NCRIC of information regarding such third party that
is relevant to its ability to finance its acquisition proposal, (ii) the
confidentiality of all non-public information furnished to the third party by
NCRIC, and (iii) procedures designed to restrict or limit the provision of
information regarding NCRIC that could be used to the competitive disadvantage
of NCRIC or in a manner that would be detrimental to its stockholders. NCRIC
must disclose to ProAssurance that it is furnishing information to and entering
into negotiations with such third party, as well as disclose the terms of such
negotiations (but not the identity of the third party), and must keep
ProAssurance informed of the status of such negotiations (except to the extent
it would require NCRIC to disclose confidential information about the third
party).
 
                                        57

 
     If NCRIC's board of directors has authorized, recommended, approved or
entered into an agreement with any third party to effect an acquisition
proposal, then NCRIC must pay to ProAssurance $1,725,000 in damages and NCRIC
can terminate the Merger Agreement.
 
     For purposes of the Merger Agreement, the term "acquisition proposal"
means:
 
     - any proposal pursuant to which any third party would acquire or
       participate in a merger or other business combination involving NCRIC or
       any of NCRIC's Subsidiaries, directly or indirectly;
 
     - any proposal by which any third party would acquire the right to vote 25%
       or more of the voting stock of NCRIC or any of NCRIC's subsidiaries;
 
     - any acquisition of 25% or more of the assets of NCRIC or any of NCRIC's
       subsidiaries, other than in the ordinary course of business;
 
     - any acquisition in excess of 25% of the outstanding capital stock of
       NCRIC or any of NCRIC's subsidiaries, other than as contemplated by the
       Merger Agreement; or
 
     - any transaction similar to the foregoing.
 
     In addition, NCRIC has agreed to use all reasonable best efforts to obtain
from its stockholders approval of the Merger Agreement, subject to its fiduciary
duties. However, if NCRIC's board notifies ProAssurance in writing that it is
unable or unwilling to recommend the Merger Agreement to its stockholders, then
ProAssurance may terminate the Merger Agreement. Such termination by
ProAssurance will result in NCRIC's obligation to pay damages under the Merger
Agreement in the amount of $1,725,000.
 
OTHER AGREEMENTS.
 
     In addition to the agreements we have described above, we have also agreed
in the Merger Agreement to take several other actions, such as:
 
     - we agreed, subject to applicable law, to cooperate with each other and to
       prepare promptly and file all necessary documentation to obtain, and to
       cause our subsidiaries to obtain, all required permits, consents,
       approvals, authorizations (or exemptions thereof) of third parties and
       governmental entities, including this proxy statement-prospectus and the
       registration statement for the ProAssurance common stock to be issued in
       the merger;
 
     - we agreed to use all reasonable commercial efforts to cause our
       respective auditors to render any consent required by the SEC to include
       their reports on our consolidated financial statements in the
       registration statement;
 
     - we agreed to provide each other with information concerning our business,
       subsidiaries, directors, officers, stockholders and such other matters as
       necessary;
 
     - we agreed to advise each other of any communication from a governmental
       authority whose consent or approval is required for the completion of the
       merger which we believe indicates that any requisite regulatory approval
       will not be obtained or will be materially delayed;
 
     - we agreed to keep any nonpublic information confidential;
 
     - we agreed to cooperate on all press releases and other public statements
       and communications;
 
     - we agreed that NCRIC would convene a meeting of its stockholders as soon
       as practicable to consider and vote on the Merger Agreement;
 
     - we agreed not to take any actions that would cause the transactions
       contemplated by the Merger Agreement to be subject to any anti-takeover
       laws or anti-takeover provisions of our certificates of incorporation or
       bylaws;
 
                                        58

 
     - we agreed that ProAssurance would cause its shares of common stock to be
       issued in the merger to be approved for listing on the NYSE prior to the
       completion of the merger, subject to official notice of issuance;
 
     - we agreed to give notice to the other party of any event that would or
       would be likely to cause any of our representations or warranties to be
       untrue or incorrect in any material respect, or of any failure on our
       part to comply with or satisfy in any material respect any covenant,
       condition or agreement in the Merger Agreement.
 
CONDITIONS TO COMPLETION OF THE MERGER.
 
     ProAssurance's and NCRIC's obligations to complete the merger are subject
to the satisfaction or waiver, where permissible, of a number of conditions,
including the following:
 
     - the Merger Agreement must be approved by the holders of a majority of the
       outstanding shares of common stock of NCRIC;
 
     - the ProAssurance common stock that is to be issued in the merger must be
       approved for listing on the NYSE (including shares to be issued following
       exercise of the NCRIC stock options and stock awards assumed by
       ProAssurance);
 
     - the registration statement filed with the SEC with this proxy
       statement-prospectus must be effective;
 
     - the filing of a certificate of merger with the appropriate governmental
       authority;
 
     - the required regulatory approvals must be obtained and any waiting
       periods required by law must expire;
 
     - there must be no government action or other legal restraint or
       prohibition preventing completion of, making illegal the consummation or,
       or materially restricting the merger;
 
     - each of ProAssurance and NCRIC must receive an opinion dated as of the
       effective date of the merger to the effect that the merger will be
       treated as a tax-free reorganization under federal tax laws, no gain or
       loss will be recognized by NCRIC stockholders who receive shares of
       ProAssurance stock in exchange for their NCRIC common stock (except with
       respect to any cash received instead of fractional interests), and no
       gain or loss will be recognized by either ProAssurance, NCRIC or their
       subsidiaries;
 
     - the representations and warranties of each party in the Merger Agreement
       must be true and correct, except as would not or would not reasonably be
       expected to have a material adverse effect as defined in the Merger
       Agreement, and each party must have performed in all material respects
       all obligations that we are required to perform under the Merger
       Agreement;
 
     - neither party nor its subsidiaries can suffer a material adverse effect
       as defined in the Merger Agreement, and no event or circumstance can
       occur which has or will be likely to have a material adverse effect on
       its ability to conduct its respective businesses;
 
     - NCRIC must not have any inquiries or actions initiated by any
       governmental or regulatory authority alleging that it, its subsidiaries
       or their respective directors and officers have violated federal
       securities laws; and
 
     - each party has provided the other with all certificates and instruments
       as the other party reasonably requests.
 
     No assurance can be provided as to whether or not, or when, the required
regulatory approvals necessary to consummate the merger will be obtained, or
whether all of the other conditions to the merger will be satisfied or waived by
the party permitted to do so. As discussed below, if the merger is not completed
on or before December 31, 2005, either ProAssurance or NCRIC may terminate the
Merger Agreement, unless the failure to complete the merger by that date is due
to the failure of the party
 
                                        59

 
seeking to terminate the Merger Agreement to perform or observe its covenants
and agreements set forth in the Merger Agreement.
 
TERMINATION OF THE MERGER AGREEMENT.
 
     The Merger Agreement may be terminated at any time before or after the
Merger Agreement is approved by NCRIC stockholders:
 
     - by our mutual written consent;
 
     - by either ProAssurance or NCRIC if any governmental entity that must
       grant a regulatory approval has denied approval of the merger by final
       and nonappealable action, but not by a party whose action or inaction
       caused such denial;
 
     - by either ProAssurance or NCRIC if the merger is not completed on or
       before December 31, 2005, but not by a party whose action or inaction
       caused such delay;
 
     - if there is a breach of any covenants or agreements in the Merger
       Agreement by the other party and such breach continues after 45 days'
       written notice to the breaching party, as long as such breach would allow
       the non-breaching party not to complete the merger;
 
     - if there is a continuing breach of any representation or warranty in the
       Merger Agreement by the other party that has had or is reasonably
       expected to have a material adverse effect and such breach continues
       after 45 days' written notice to the breaching party, as long as such
       breach would allow the non-breaching party not to complete the merger;
 
     - by ProAssurance if the board of directors of NCRIC is unwilling or unable
       to publicly recommend in the proxy statement that its stockholders
       approve and adopt the Merger Agreement, or if after recommending the
       Merger Agreement, NCRIC's board otherwise withdraws, amends or modifies
       its recommendation in any respect materially adverse to ProAssurance for
       approval or discloses an intention to do so;
 
     - by ProAssurance if the board of directors of NCRIC authorizes,
       recommends, approves or proposes an acquisition proposal other than the
       merger, or enters into an agreement with a third party regarding an
       acquisition proposal other than the merger;
 
     - by NCRIC if its board of directors (i) fails to recommend approval of the
       Merger Agreement to its stockholders or withdraws or materially and
       adversely modifies its recommendation, (ii) authorizes, recommends,
       approves or proposes an acquisition proposal other than the merger, or
       (iii) enters into an agreement with a third party regarding an
       acquisition proposal other than the merger;
 
     - by either ProAssurance or NCRIC if approval of NCRIC's stockholders has
       not been obtained by reason of failure to obtain required votes;
 
     - by either ProAssurance or NCRIC if the other party discloses a material
       adverse effect or any change to the disclosure schedules to the Merger
       Agreement which has, or is likely to have, a material adverse affect; and
 
     - by either ProAssurance or NCRIC if the Form S-4 registration statement
       has not been filed with the Securities and Exchange Commission on or
       before June 30, 2005, unless the failure to do so is due to the failure
       of the party seeking to terminate the Merger Agreement.
 
     Any decision by the NCRIC board of directors to authorize, recommend,
approve or propose an acquisition proposal other than the merger, or enter into
an agreement with a third party regarding an acquisition proposal other than the
merger will result in NCRIC's obligation to pay to ProAssurance damages in the
amount of $1,725,000. Furthermore, if ProAssurance terminates the Merger
Agreement as a result of the board of directors of NCRIC failing to recommend
approval of the Merger Agreement or withdrawing or adversely modifying its
recommendation of the merger, NCRIC shall be obligated to pay such damages in
the amount of $1,725,000.
 
                                        60

 
     The boards of directors of both companies considered, and believed it was
appropriate to make, the foregoing commitments for the limited period of time
involved, especially in light of the relatively short term of the commitments
and the relatively lengthy regulatory and integration processes involved in such
transactions.
 
WAIVER AND AMENDMENT OF THE MERGER AGREEMENT.
 
     We may jointly amend the Merger Agreement, and each of us may waive our
right to require the other party to follow particular provisions of the Merger
Agreement. However, we may not amend the Merger Agreement after NCRIC's
stockholders approve the Merger Agreement if the amendment would change the
amount or the form of consideration to be delivered to NCRIC stockholders. If
any amendment or waiver changes the amount or form of the consideration to be
delivered to NCRIC stockholders after approval for the merger has already been
obtained, then such amendment or waiver would require further approval by NCRIC
stockholders.
 
EXPENSES
 
     The Merger Agreement provides that each of ProAssurance and NCRIC will pay
its own expenses in connection with the merger and the transactions contemplated
by the Merger Agreement. However, ProAssurance and NCRIC will (i) evenly divide
the costs and expenses that are incurred in preparing, printing and mailing this
proxy statement-prospectus and filing fees paid in connection with the
registration statement and (ii) share the cost of the HSR Act filing fees in
proportion to each party's relative assets as of December 31, 2004.
 
                    MATERIAL FEDERAL INCOME TAX CONSEQUENCES
 
     In the opinion of Burr & Forman LLP, counsel to ProAssurance, and Luse
Gorman Pomerenk & Schick, P.C., counsel to NCRIC, the following section
describes the anticipated material United States federal income tax consequences
of the merger to holders of NCRIC common stock. This discussion addresses only
those NCRIC stockholders that hold their NCRIC common stock as a capital asset
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended, and does not address all the United States federal income tax
consequences that may be relevant to particular NCRIC stockholders in light of
their individual circumstances or to NCRIC stockholders that are subject to
special rules, such as:
 
     - financial institutions,
 
     - investors in pass-through entities,
 
     - insurance companies,
 
     - tax-exempt organizations,
 
     - dealers in securities or currencies,
 
     - traders in securities that elect to use a mark to market method of
       accounting,
 
     - persons that hold NCRIC common stock as part of a straddle, hedge,
       constructive sale or conversion transaction,
 
     - persons who are not citizens or residents of the United States, and
 
     - stockholders who acquired their shares of NCRIC common stock through the
       exercise of an employee stock option or otherwise as compensation.
 
     The following is based upon the Internal Revenue Code, its legislative
history, existing and proposed regulations thereunder and published rulings and
decisions, all as currently in effect as of the date hereof, and all of which
are subject to change, possibly with retroactive effect. Tax considerations
under state, local and foreign laws, or federal laws other than those pertaining
to the income tax, are not addressed in
 
                                        61

 
this proxy statement-prospectus. Determining the actual tax consequences of the
merger to you may be complex. They will depend on your specific situation and on
factors that are not within our control. You should consult with your own tax
advisor as to the tax consequences of the merger in your particular
circumstances, including the applicability and effect of the alternative minimum
tax and any state, local or foreign and other tax laws and of changes in those
laws.
 
     In rendering their opinions, Burr & Forman LLP and Luse Gorman Pomerenk &
Schick, P.C. have relied upon representations of NCRIC and ProAssurance and upon
customary assumptions, including the assumption that the merger will be
consummated in accordance with the terms of the Merger Agreement. Neither of
these tax opinions will be binding on the Internal Revenue Service. Neither
ProAssurance nor NCRIC intends to request any ruling from the Internal Revenue
Service as to the United States federal income tax consequences of the merger.
 
     Tax Consequences of the Merger Generally.  The merger will qualify as a
plan of reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. As a consequence:
 
     - no gain or loss will be recognized by stockholders of NCRIC who receive
       shares of ProAssurance common stock in exchange for shares of NCRIC
       common stock, except with respect to any cash received instead of
       fractional share interests in ProAssurance common stock;
 
     - the aggregate basis of the ProAssurance common stock received in the
       merger will be the same as the aggregate basis of the NCRIC common stock
       for which it is exchanged, less any basis attributable to fractional
       share interests in ProAssurance common stock for which cash is received;
       and
 
     - the holding period of ProAssurance common stock received in exchange for
       shares of NCRIC common stock will include the holding period of the NCRIC
       common stock for which it is exchanged.
 
     Cash Received Instead of a Fractional Share of ProAssurance Common
Stock.  A stockholder of NCRIC who receives cash instead of a fractional share
of ProAssurance common stock will be treated as having received the fractional
share pursuant to the merger and then as having exchanged the fractional share
for cash in a redemption by ProAssurance. As a result, a NCRIC stockholder will
generally recognize gain or loss equal to the difference between the amount of
cash received and the basis in his or her fractional share interest as set forth
above. This gain or loss will generally be capital gain or loss, and will be
long-term capital gain or loss if, as of the effective date of the merger, the
holding period for such shares is greater than one year. The deductibility of
capital losses is subject to limitations.
 
     WE URGE YOU TO CONSULT WITH YOUR OWN TAX ADVISORS ABOUT THE PARTICULAR TAX
CONSEQUENCES OF THE MERGER TO YOU, INCLUDING THE EFFECTS OF UNITED STATES
FEDERAL, STATE OR LOCAL, OR FOREIGN AND OTHER TAX LAWS.
 
     Tax Opinions as Condition to Merger.  We will not be obligated to complete
the merger unless ProAssurance receives a further opinion of Burr & Forman LLP
and NCRIC receives a further opinion of Luse Gorman Pomerenk & Schick, P.C.,
each in form and substance reasonably satisfactory to us, and dated as of the
date of completion of the merger, concluding that (i) the merger will be treated
as a plan of reorganization within the meaning of Section 368(a) of the Code,
(ii) no gain or loss will be recognized by stockholders of NCRIC who receive
shares of ProAssurance common stock in exchange for all their NCRIC common
stock, except with respect to any cash received in lieu of fractional shares,
and (iii) no gain or loss will be recognized by PRA, NCRIC or its subsidiaries.
In rendering their opinions, counsel will require and rely upon factual
representations contained in certificates of officers of ProAssurance and NCRIC.
 
     Like other conditions to the merger, the Merger Agreement allows us to
waive this condition. However, if the receipt of either of the legal opinions is
waived, we will recirculate revised proxy materials and resolicit the vote of
stockholders.
 
     Backup Withholding and Information Reporting.  Payments of cash to a holder
of NCRIC common stock instead of a fractional share of ProAssurance common stock
may, under certain circumstances, be
 
                                        62

 
subject to information reporting and backup withholding unless the holder
provides proof of an applicable exemption or furnishes its taxpayer
identification number, and otherwise complies with all applicable requirements
of the backup withholding rules. Any amounts withheld from payments to a holder
under the backup withholding rules are not additional tax and will be allowed as
a refund or credit against the holder's United States federal income tax
liability, provided the required information is furnished to the Internal
Revenue Service.
 
                   PRICE RANGE OF COMMON STOCK AND DIVIDENDS
 
PROASSURANCE
 
     ProAssurance common stock is listed on the NYSE and traded under the symbol
"PRA". The following table shows the high and low reported closing sales prices
per share of ProAssurance common stock on the NYSE composite transactions
reporting system for the periods indicated.
 



                                                              PRICE RANGE OF
                                                               COMMON STOCK
                                                              ---------------
                                                               HIGH     LOW
                                                              ------   ------
                                                                 
2003
First Quarter...............................................  $23.92   $20.69
Second Quarter..............................................   30.50    23.40
Third Quarter...............................................   28.90    24.50
Fourth Quarter..............................................   32.97    26.86
2004
First Quarter...............................................   35.00    30.33
Second Quarter..............................................   37.42    32.83
Third Quarter...............................................   35.20    30.20
Fourth Quarter..............................................   40.57    33.48
2005
First Quarter...............................................   41.90    37.00
Second Quarter through June 17, 2005........................   41.19    36.60


 
     Past price performance is not necessarily indicative of likely future
performance. Because market prices of ProAssurance common stock will fluctuate,
you are urged to obtain current market prices for shares of ProAssurance common
stock.
 
                                        63

 
NCRIC
 
     NCRIC common stock is listed on the Nasdaq National Market and traded under
the symbol "NCRI". The following table shows the high and low reported closing
sales prices per share of NCRIC common stock on the Nasdaq National Market
system for the periods indicated.
 



                                                              PRICE RANGE OF
                                                               COMMON STOCK
                                                              ---------------
                                                               HIGH     LOW
                                                              ------   ------
                                                                 
2003
First Quarter...............................................  $12.86   $ 5.99
Second Quarter..............................................   10.60     8.20
Third Quarter...............................................   11.56    10.15
Fourth Quarter..............................................   11.51     9.11
2004
First Quarter...............................................   11.92     9.45
Second Quarter..............................................   10.14     9.11
Third Quarter...............................................   10.02     8.37
Fourth Quarter..............................................   10.06     8.38
2005
First Quarter...............................................   11.90     9.33
Second Quarter through June 17, 2005........................    9.90     9.07


 
     Past price performance is not necessarily indicative of likely future
performance. Because market prices of NCRIC common stock will fluctuate, you are
urged to obtain current market prices for shares of NCRIC common stock.
 
DIVIDENDS
 
     ProAssurance does not currently pay dividends on its common stock and does
not intend to pay any dividends in the foreseeable future. As a holding company
with no direct operations, ProAssurance would rely on cash dividends and other
permitted payments from its subsidiaries to pay dividends to its stockholders.
ProAssurance's insurance subsidiaries are subject to state and statutory
restrictions, including regulatory restrictions that are imposed as a matter of
administrative policy, applicable generally to any insurance company in its
state of domicile. The restrictions limit the amount of dividends or
distributions an insurance company may pay to its stockholders without prior
regulatory approval. Generally dividends may be paid only out of earned surplus.
In every case, surplus subsequent to the payment of a dividend must be
reasonable in relation to the insurance company's outstanding liabilities and
must be adequate to meet its financial needs. In addition, state insurance
holding company acts require insurance companies to obtain prior approval before
the payment of extraordinary dividends. Generally a dividend is extraordinary if
the combined dividends and distributions from the insurance company to its
parent holding company in any twelve-month period exceed the greater of either
10% of the insurance company's surplus at the end of the preceding fiscal year
or the statutory income of the insurance company in the preceding fiscal year.
If insurance regulators determine that payment of a dividend or other payments
to the holding company would be detrimental to the policyholders because of its
effect on the insurance company's financial condition, the regulators may
prohibit such payments even if they would otherwise be permitted without prior
approval.
 

     NCRIC does not currently pay dividends on its common stock. Like
ProAssurance, NCRIC is an insurance holding company and its insurance subsidiary
is subject to restrictions on payment of dividends under the laws and
regulations governing insurance companies and their holding companies. In
addition, the Merger Agreement restricts the dividends that may be paid on
NCRIC's common stock pending completion of the merger. See "CONDUCT OF BUSINESS
PENDING THE MERGER" beginning on page 54.

 
                                        64

 
                   UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
 

     The following unaudited pro forma condensed consolidated financial
statements are intended to aid you in your analysis of the financial aspects of
the proposed merger. The unaudited pro forma condensed consolidated balance
sheet gives effect to the proposed merger of NCRIC into NCP, a wholly owned
subsidiary ProAssurance, as if it had occurred on March 31, 2005. The unaudited
pro forma condensed consolidated statements of income for the three months ended
March 31, 2005 and for the year ended December 31, 2004, give effect to the
merger of NCRIC into NCP, treated as a purchase transaction, as if the
transactions had occurred January 1, 2004. (See "ACCOUNTING TREATMENT" on page
50 of this proxy statement-prospectus). The statements include pro forma
adjustments as described in the notes accompanying the financial statements.

 

     This information is derived from the unaudited condensed consolidated
financial statements of ProAssurance and NCRIC for the three months ended March
31, 2005 and the audited consolidated financial statements of ProAssurance and
NCRIC for the year ended December 31, 2004. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the
historical financial statements and related notes of ProAssurance and NCRIC,
which are incorporated by reference in this proxy statement-prospectus.

 
     The unaudited pro forma consolidated financial information is presented for
illustrative purposes only and does not purport to be indicative of the
operating results or financial position that would have actually occurred if the
merger had been in effect on the dates indicated, nor is it indicative of the
future operating results or financial position of the combined companies. The
pro forma adjustments are based on the information and assumptions available at
the time of the printing of this proxy statement-prospectus.
 
                                        65

 
                            PROASSURANCE CORPORATION
 
            UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

                                 MARCH 31, 2005

 



                                               PROASSURANCE     NCRIC       PRO FORMA
                                                HISTORICAL    HISTORICAL   ADJUSTMENTS     PROFORMA
                                               ------------   ----------   -----------    ----------
                                                              (DOLLARS IN THOUSANDS)
                                                                              
                                               ASSETS
Investments:
  Fixed maturities available for sale, at
     fair value..............................   $2,248,984     $188,388    $       --     $2,437,372
  Equity securities available for sale, at
     fair value..............................       29,241       26,372            --         55,613
  Equity securities, trading portfolio, at
     fair value..............................        4,385           --            --          4,385
  Real estate, net...........................       20,148           --            --         20,148
  Short-term investments.....................      118,323           --            --        118,323
  Business owned life insurance..............       54,705           --            --         54,705
  Other......................................       43,999           --            --         43,999
                                                ----------     --------    ----------     ----------
Total investments............................    2,519,785      214,760            --      2,734,545
Cash and cash equivalents....................       28,587        7,326          (595)A       35,318
Premiums and accounts receivable, net........      145,672        5,672            --        151,344
Receivable from reinsurers on unpaid losses
  and loss adjustment expenses...............      415,294       45,122            --        460,416
Prepaid reinsurance premiums.................       18,122           --            --         18,122
Deferred taxes...............................       92,768        9,276          (379)B      101,665
Other assets.................................      120,399       19,809         5,867 C      139,863
                                                                               (7,296)D
                                                                                1,084 E
                                                ----------     --------    ----------     ----------
Total assets.................................   $3,340,627     $301,965    $   (1,319)    $3,641,273
                                                ==========     ========    ==========     ==========

                                LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Policy liabilities and accruals:
       Reserve for losses and loss adjustment
          expenses...........................   $2,096,705     $155,947    $       --     $2,252,652
       Unearned premiums.....................      335,773       53,663            --        389,436
       Reinsurance premiums payable..........       70,559          691            --         71,250
                                                ----------     --------    ----------     ----------
     Total policy liabilities................    2,503,037      210,301            --      2,713,338
     Other liabilities.......................       74,377        6,062            --         80,439
     Long-term debt..........................      151,554       15,000            --        166,554
                                                ----------     --------    ----------     ----------
Total liabilities............................    2,728,968      231,363            --      2,960,331
Commitments and contingencies................           --           --            --             --
Stockholders' equity:
  Common stock...............................          294           70           (70)G          311
                                                                                   17 H
  Additional paid-in capital.................      315,832       45,691       (45,691)G      385,098
                                                                               67,189 H
                                                                                2,077 I
  Accumulated other comprehensive (loss)
     income..................................        1,224         (166)          166 G        1,224
  Retained earnings..........................      294,365       25,562       (25,562)G      294,365
                                                ----------     --------    ----------     ----------
                                                   611,715       71,157        (1,874)       680,998
  Less treasury stock, at cost...............          (56)        (555)          555 G          (56)
                                                ----------     --------    ----------     ----------
Total stockholders' equity...................      611,659       70,602        (1,319)       680,942
                                                ----------     --------    ----------     ----------
Total liabilities and stockholders' equity...   $3,340,627     $301,965    $   (1,319)    $3,641,273
                                                ==========     ========    ==========     ==========


 

See accompanying notes.

                                        66

 
                            PROASSURANCE CORPORATION
 
          UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT

                       THREE MONTHS ENDED MARCH 31, 2005

 



                                                   PROASSURANCE     NCRIC       PRO FORMA
                                                    HISTORICAL    HISTORICAL   ADJUSTMENTS     PROFORMA
                                                   ------------   ----------   -----------     --------
                                                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                                   
Revenues:
  Net premiums earned............................    $174,180      $17,843        $  --        $192,023
  Net investment income..........................      25,422        1,915           --          27,337
  Net realized investment gains..................         942          302          596J          1,840
  Practice management and related income.........                    1,176           --           1,176
  Other income...................................       1,646          178           --           1,824
                                                     --------      -------        -----        --------
Total revenues...................................     202,190       21,414          596         224,200

Expenses:
  Net losses and loss adjustment expenses........     139,216       14,446           --         153,662
  Underwriting, acquisition and insurance
     expenses....................................      30,603        4,335           --          34,938
  Practice management and related expenses.......          --        1,345           --           1,345
  Interest expense...............................       2,136          254           --           2,390
                                                     --------      -------        -----        --------
Total expenses...................................     171,955       20,380           --         192,335
                                                     --------      -------        -----        --------
Income before income taxes and minority
  interest.......................................      30,235        1,034          596          31,865
Income taxes.....................................       8,298          398          209K          8,905
                                                     --------      -------        -----        --------
Net income.......................................    $ 21,937      $   636        $ 387        $ 22,960
                                                     ========      =======        =====        ========

Earnings per share:
  Basic..........................................        0.75                                      0.74
                                                     ========                                  ========
  Diluted........................................        0.71                                      0.70
                                                     ========                                  ========

Weighted average shares outstanding:
  Basic..........................................      29,217                     1,658L         30,875
                                                     ========                     =====        ========
  Diluted........................................      32,070                     1,667L         33,737
                                                     ========                     =====        ========


 

See accompanying notes.

                                        67

 
                            PROASSURANCE CORPORATION
 
          UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
                          YEAR ENDED DECEMBER 31, 2004
 



                                                   PROASSURANCE     NCRIC       PRO FORMA
                                                    HISTORICAL    HISTORICAL   ADJUSTMENTS     PROFORMA
                                                   ------------   ----------   -----------     --------
                                                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                                   
Revenues:
  Net premiums earned............................    $696,020      $66,462      $     --       $762,482
  Net investment income..........................      87,225        7,256            --         94,481
  Net realized investment gains (losses).........       7,609          475          (133)J        7,951
  Practice management and related income.........          --        4,395            --          4,395
  Other income...................................       3,699          820            --          4,519
                                                     --------      -------      --------       --------
Total revenues...................................     794,553       79,408          (133)       873,828

Expenses:
  Net losses and loss adjustment expenses........     572,881       70,310            --        643,191
  Underwriting, acquisition and insurance
     expenses....................................     117,689       15,149            --        132,838
  Practice management and related expenses.......          --        5,016            --          5,016
  Interest expense...............................       6,515          857            --          7,372
                                                     --------      -------      --------       --------
Total expenses...................................     697,085       91,332            --        788,417
                                                     --------      -------      --------       --------
Income before income taxes and minority
  interest.......................................      97,468      (11,924)         (133)        85,411
Income tax expense (benefit).....................      24,657       (4,804)          (47)K       19,806
                                                     --------      -------      --------       --------
Net income.......................................    $ 72,811      $(7,120)     $    (86)      $ 65,605
                                                     ========      =======      ========       ========

Earnings per share:
  Basic..........................................        2.50                                      2.13
                                                     ========                                  ========
  Diluted........................................        2.37                                      2.04
                                                     ========                                  ========

Weighted average shares outstanding:
  Basic..........................................      29,164                      1,658L        30,820
                                                     ========                   ========       ========
  Diluted........................................      31,984                      1,667L        33,651
                                                     ========                   ========       ========


 

See accompanying notes.

                                        68

 
                            PROASSURANCE CORPORATION
 
              NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
 
NOTE 1.  BASIS OF PRESENTATION
 
     The Unaudited Pro Forma Condensed Consolidated Balance Sheet and Unaudited
Pro Forma Condensed Consolidated Income Statement give effect to the merger of
NCRIC into NCP, a wholly owned subsidiary of ProAssurance Corporation. The
merger of NCRIC into NCP will be treated as a purchase transaction.
 

     The merger agreement provides that upon completion of the transaction, each
share of NCRIC common stock will be exchanged into 0.25 shares of ProAssurance
common stock. The merger agreement provides that if the average price of
ProAssurance common stock as measured during the ten trading days ending on the
date preceding the effective date of the merger is greater than $44.00 per share
or less than $36.00 per share, the exchange ratio will be adjusted so that the
implied value of a share of NCRIC common stock will not be greater than $11.00
or less than $9.00. These pro forma statements have been prepared assuming an
exchange ratio of 0.25.

 
     In accordance with GAAP, ProAssurance shares issued in the transaction will
be valued based on the market price of ProAssurance stock a few days before and
after the measurement date of the transaction, excluding days after the
effective date of the transaction. The measurement date is defined as the first
date on which the number of ProAssurance shares to be issued in the transaction
and the amount of other consideration becomes fixed without subsequent revision.
If the exchange ratio remains at 0.25 as initially specified in the Merger
Agreement, the measurement date is expected to be February 28, the date the
transaction was announced. If the exchange ratio is adjusted, the measurement
date is expected to be the day when the certificate of merger is filed with the
Secretary of State of Delaware or at such later date as ProAssurance and NCRIC
agree and specify in the certificate of merger. For pro forma purposes, the
measurement date is assumed to be February 28, 2005 and the value of the
ProAssurance shares used to determine the purchase price is assumed to be
$40.54, which is the rounded average ProAssurance closing market price for a few
days before and after February 28, 2005.
 
                                        69

                            PROASSURANCE CORPORATION
 
              NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)
 
     Described below is the pro forma estimate of the total purchase price of
the transaction as well as the adjustments to allocate the purchase price based
on preliminary estimates of the fair values of the assets and liabilities of
NCRIC (in thousands, except for per share amounts).
 



 
                                                            
Calculation of Purchase Price:
NCRIC outstanding shares as of March 31, 2005...............     6,910
Exchange ratio per NCRIC share..............................      0.25
                                                               -------
ProAssurance shares to be issued............................     1,727
Fair value per ProAssurance share...........................   $ 40.54
                                                               -------
Fair value of ProAssurance shares to be issued..............   $70,013
Value of unallocated ProAssurance shares to be repurchased
  from NCRIC benefit trusts at $40.54 per share:
  ESOP Plan.................................................    (2,444)
  Stock Award Plan..........................................      (363)
                                                               -------
Fair value of ProAssurance shares to be issued, net of
  repurchased shares........................................   $67,206
Fair value of NCRIC options assumed.........................     2,077 I
Estimated acquisition costs.................................       595 A
                                                               -------
Total purchase price........................................   $69,878
                                                               =======
Allocation of Purchase Price:
NCRIC net assets, less NCRIC historical goodwill of
  $7,296....................................................   $63,306
Unearned compensation related to unvested stock awards......     1,084 E
Deferred tax liability......................................      (379)B
Goodwill....................................................     5,867 C
                                                               -------
Total purchase price........................................   $69,878
                                                               =======


 
     The fair value of NCRIC's reserve for losses and loss adjustment expense
and related reinsurance recoverables were estimated based on the present value
of the expected underlying cash flows of the loss reserves and reinsurance
recoverables, and include a risk premium and a profit margin. In determining the
fair value estimate, management discounted NCRIC's historical undiscounted net
loss reserves to present value assuming a 5% discount rate, which approximates
the current U.S. Treasury rate. The discounting pattern was actuarially
developed from NCRIC's historical loss data. An expected profit margin of 5% was
applied to the discounted loss reserves, which consistent with management
understanding of the returns anticipated by the reinsurance market (the
reinsurance market representing a willing partner in the purchase of loss
reserves). Additionally, an estimated risk premium of 5% was applied to the
discounted reserves which is deemed to be reasonable and consistent with
expectations in the market place given the long-tail nature and the related high
degree of uncertainty of such reserves. The above calculations did not result in
an adjustment to NCRIC's carried reserve for loss and loss adjustment expense.
 
NOTE 2.  PRO FORMA ADJUSTMENTS
 
     The purchase accounting and pro forma adjustments related to the unaudited
pro forma consolidated balance sheet and statement of income are described
below.
 

(A)  Management estimates it will incur approximately $595,000 for acquisition
     costs, which are the direct costs paid by ProAssurance related to the
     merger and consist primarily of professional fees.

 

(B)  Reduction to net deferred tax asset to reflect tax effect associated with
     the purchase adjustment to establish unearned compensation for unvested
     stock options assumed (see adjustment E).

 
                                        70

                            PROASSURANCE CORPORATION
 
              NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)
 
(C)  The excess of the purchase price over the net fair value of assets acquired
     will be allocated to goodwill.
 
(D)  Elimination of NCRIC historical goodwill.
 

(E)  NCRIC's employee Stock Award Plan will be assumed by ProAssurance.
     Outstanding awards under the plan will be converted to ProAssurance shares
     based upon the established exchange ratio and will continue to vest as
     originally awarded. Unearned compensation will be established equal to the
     number of unvested shares multiplied by the fair value of each share on the
     date of the merger. For purposes of these pro forma statements we have
     estimated 26,741 unvested shares and assumed the fair value of each share
     to be $40.54.

 
(F)  On February 20, 2004, a District of Columbia Superior Court entered a
     judgment against NCRIC in favor of Columbia Hospital for Women Medical
     Center, Inc. in the amount of $18.2 million (the "CHW Judgment"). NCRIC has
     filed post-trial motions requesting the trial court to set aside the CHW
     Judgment or in the alternative, to grant a new trial. In connection with
     the filing of the post-trial motions, NCRIC posted a $19.5 million
     appellate bond and associated letter of credit to secure payment of the CHW
     Judgment and projected post-trial interest. Because the trial court has not
     yet ruled on the post-trial motions, the CHW Judgment is not final. The
     court's decision on the post-trial motions and the verdict underlying the
     CHW Judgment may be appealed if the trial court should not rule favorably
     on the post-trial motions. NCRIC has not accrued liability for any possible
     loss arising from this litigation because the CHW Judgment is not yet final
     and remains with the trial judge and, because NCRIC believes that it has
     meritorious defenses and that it is not probable that the preliminary
     judgment will prevail, nor is any potential final outcome reasonably
     estimable at this time.
 
     If the merger is completed, ProAssurance will assume the risk of loss with
     respect to the CHW Judgment and the costs associated with pursuing the
     post-trial motions and any appeal of a final judgment. There can be no
     assurance that the post-trial motions or any appeals will be successful in
     setting aside the CHW Judgment. Any settlement of the CHW Judgment prior to
     or shortly after the merger will be reflected as an adjustment to goodwill
     in ProAssurance's consolidated balance sheet at the effective time of the
     merger. Any settlement of the CHW Judgment beyond the period for which such
     adjustments are allowed, will be included as an expense in ProAssurance's
     current operations and may have a material adverse effect on ProAssurance's
     results of operations for the period in which the settlement occurs.
 
(G)  Elimination of NCRIC's historical stockholders' equity accounts.
 

(H)  Approximately 1,727,000 shares of ProAssurance common stock will be issued
     assuming an exchange ratio of 0.25, a measurement date value of $40.54, and
     a par value of $0.01 for each ProAssurance share issued. Approximately
     69,000 shares not allocable to plan participants are expected to be
     repurchased from NCRIC benefit trusts; repurchased shares are valued at
     $40.54 for pro forma purposes.

 

(I)  Fair value of vested NCRIC stock options outstanding that will be assumed
     by ProAssurance upon completion of the merger. Each NCRIC stock option will
     be exchanged for equivalent ProAssurance options, with both the number of
     shares and the exercise price adjusted based upon the exchange ratio. At an
     exchange ratio of 0.25, ProAssurance will assume options for 102,643
     ProAssurance common shares at a weighted average exercise price of $37.31.
     The fair value of the options assumed was calculated using the Black
     Scholes option pricing model using the following assumptions, which vary,
     as noted, due to differing terms of the various option agreements.

 


                                                           
Volatility..................................................   .280 to .313
Risk-free interest rate.....................................  4.04% to 4.53%
Dividend yield..............................................        0%
Expected life...............................................   4 to 8 years


 
                                        71

                            PROASSURANCE CORPORATION
 
              NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)
 
(J)  NCRIC available-for-sale investment securities are stated at fair value in
     the historical NCRIC financial statements. However, the accounting cost
     basis of these securities will be adjusted from historical cost to the fair
     value of the securities on the date of the merger transaction. This, in
     effect, creates a purchase premium related to fixed maturity securities.
     The purchase premium related to fixed maturity securities will be amortized
     to investment income over the remaining life of the related fixed maturity
     securities.
 
(K)  The income tax effect of the pro forma adjustments is reflected in the
     income statements at the federal statutory rate of 35%.
 

(L)  Basic weighted average shares has been increased by approximately 1,658,000
     ProAssurance shares issued in the merger transaction (see H). Diluted
     weighted average has likewise been increased by the number of ProAssurance
     shares issued and will also increase for the dilutive effect of NCRIC
     options assumed (see I).

 
NOTE 3. EARNINGS PER SHARE
 

     Basic earnings per share is computed by dividing the net income by the
weighted average number of commons shares outstanding. Diluted earnings per
share is computed as follows (in thousands except per share data):

 



                                           FOR THREE MONTHS ENDED         FOR YEAR ENDED
                                               MARCH 31, 2005           DECEMBER 31, 2004
                                          ------------------------   ------------------------
                                          PROASSURANCE               PROASSURANCE
                                           HISTORICAL    PRO FORMA    HISTORICAL    PRO FORMA
                                          ------------   ---------   ------------   ---------
                                                                        
Diluted earnings per share calculation:
  Numerator:
  Net income............................    $21,937       $22,960      $72,811       $65,605
  Effect of assumed conversion of
     contingently convertible debt
     instruments........................        742           742        2,967         2,967
                                            -------       -------      -------       -------
  Net income-diluted computation........    $22,679       $23,702      $75,778       $68,572
                                            =======       =======      =======       =======

  Denominator:
  Weighted average number of common
     shares outstanding.................     29,217        30,875       29,164        30,820
  Assumed conversion of dilutive stock
     options and awards.................        281           290          248           259
  Assumed conversion of contingently
     convertible debt instruments.......      2,572         2,572        2,572         2,572
                                            -------       -------      -------       -------
  Diluted weighted average equivalent
     shares.............................     32,070        33,737       31,984        33,651
                                            =======       =======      =======       =======
  Diluted earnings per share:...........    $  0.71       $  0.70      $  2.37       $  2.04
                                            =======       =======      =======       =======


 
NOTE 4.  NCRIC 2004 RESULTS
 
     NCRIC's historical income statement for the year ended December 31, 2004
includes loss and loss adjustment expense of $17.2 million incurred due to
adverse development of claims originally reported in earlier years. The adverse
development primarily relates to losses originally incurred in 2003 but also
includes some adverse development related to losses originally incurred in 2002
and 2001.
 
                                        72

 
                   DESCRIPTION OF PROASSURANCE CAPITAL STOCK
 
     As a result of the merger, NCRIC stockholders will become stockholders of
ProAssurance. Both companies are incorporated under Delaware law, and therefore,
your rights as stockholders of ProAssurance will continue to be governed by
Delaware law. Your rights will also be governed by the certificate of
incorporation and bylaws of ProAssurance. This description of ProAssurance's
capital stock, including the common stock to be issued in the merger, reflects
the anticipated state of affairs upon completion of the merger. The following
summarizes the material terms of ProAssurance's capital stock but does not
purport to be complete, and is qualified in its entirety by reference to the
applicable provisions of state laws governing insurance holding companies,
Delaware law and ProAssurance's certificate of incorporation and bylaws.
REFERENCES TO "WE", "US" AND "OUR" IN THIS SECTION REFER TO PROASSURANCE AND ITS
SUBSIDIARIES.
 
COMMON STOCK
 
     ProAssurance is authorized to issue up to 100,000,000 shares of common
stock, par value $0.01 per share.
 
     Holders of record of common stock are entitled to one vote per share on all
matters upon which stockholders have the right to vote. The rights attached to
the shares of common stock do not provide for cumulative voting rights or
preemptive rights. Therefore, holders of more than 50% of the shares of common
stock are able to elect all our directors eligible for election each year. All
issued and outstanding shares of our common stock are validly issued, fully paid
and non-assessable. Holders of our common stock are entitled to such dividends
as may be declared from time to time by our board of directors out of funds
legally available for that purpose. Upon dissolution, holders of our common
stock are entitled to share pro rata in the assets of our company remaining
after payment in full of all of our liabilities and obligations, including
payment of the liquidation preference, if any, of any preferred stock then
outstanding. There are no redemption or sinking fund provisions applicable to
the common stock.
 
PREFERRED STOCK
 
     Our board may, from time to time, issue up to an aggregate 50,000,000
shares of preferred stock in one or more series without stockholder approval.
The board of directors can fix the designation powers, rights, preferences and
privileges of the shares of each series and any qualifications, limitations or
restrictions. Issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of our
outstanding voting stock. No shares of preferred stock are currently
outstanding. We have no present plans to issue any shares of preferred stock.
 
DELAWARE ANTI-TAKEOVER STATUTE AND CHARTER PROVISIONS
 
     Under Delaware law, we may not engage in a "business combination," which
includes a merger or sale of more than 10% of our assets, with any "interested
stockholder," namely, a stockholder who owns 15% or more of our outstanding
voting stock, as well as affiliates and associates of any of these persons, for
three years following the time that stockholder became an interested stockholder
unless:
 
     - the transaction in which the stockholder became an interested stockholder
       is approved by our board of directors prior to the time the interested
       stockholder attained that status;
 
     - upon completion of the transaction that resulted in the stockholder
       becoming an interested stockholder, the interested stockholder owned at
       least 85% of our voting stock outstanding at the time the transaction
       commenced, excluding those shares owned by persons who are directors and
       also officers; or
 
     - at or after the time the stockholder became an interested stockholder the
       business combination is approved by the board of directors and authorized
       at an annual or special meeting of stockholders
 
                                        73

 
       by the affirmative vote of at least two-thirds of the outstanding voting
       stock which is not owned by the interested stockholder.
 
     The authorization of undesignated preferred stock in our charter makes it
possible for our board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of ProAssurance. These and other provisions may have the effect
of deterring hostile takeovers or delaying changes in control or management of
ProAssurance.
 
AUTHORIZED BUT UNISSUED SHARES
 
     We believe that the availability of shares of ProAssurance common stock is
advisable to provide ProAssurance with the flexibility to take advantage of
opportunities to issue such stock in order to obtain capital, as consideration
for possible acquisitions or for other purposes (including, without limitation,
the issuance of additional shares of ProAssurance common stock through stock
splits and stock dividends in appropriate circumstances). There are, at present,
no plans, understandings, agreements or arrangements concerning the issuance of
additional shares of ProAssurance common stock, except for
 
     - the shares of ProAssurance common stock to be issued in the merger, and
 
     - shares of ProAssurance common stock presently reserved for issuance with
       respect to options and awards granted or to be granted under
       ProAssurance's stock option and award plans, including the NCRIC stock
       options and awards assumed by ProAssurance, and
 
     - the shares of common stock reserved for issuance upon conversion of
       ProAssurance's convertible debentures.
 
     Uncommitted authorized but unissued shares of ProAssurance common stock may
be issued from time to time to such persons and for such consideration as our
board of directors may determine and holders of our then outstanding shares of
our common stock may or may not be given the opportunity to vote thereon,
depending upon the nature of any such transactions, applicable law, the rules
and policies of the NYSE and the judgment of the our board of directors
regarding the submission of such issuance to ProAssurance's stockholders. Our
stockholders have no preemptive rights to subscribe to newly issued shares.
 
     Moreover, it is possible that additional shares of our common stock could
be issued for the purpose of making an acquisition by an unwanted suitor of a
controlling interest in ProAssurance more difficult, time-consuming or costly or
to otherwise discourage an attempt to acquire control of ProAssurance. Under
these circumstances the availability of authorized and unissued shares of
ProAssurance common stock may make it more difficult for stockholders to obtain
a premium for their shares. These authorized and unissued shares could be used
to create voting or other impediments or to frustrate a person seeking to obtain
control of ProAssurance by means of a consolidation, tender offer, proxy contest
or other means. They could also be privately placed with purchasers who might
cooperate with our board of directors in opposing such an attempt by a third
party to gain control of ProAssurance. The issuance of new shares of
ProAssurance common stock could also be used to dilute ownership of a person or
entity seeking to obtain control of ProAssurance. Although we do not currently
contemplate taking such action, shares of our common stock could be issued for
the purposes and effects described above and ProAssurance's board of directors
reserves its rights to issue such stock for such purposes, consistent with its
fiduciary responsibilities.
 
TRANSFER AGENT AND REGISTRAR
 
     The transfer agent and registrar for our common stock is Mellon Investor
Services LLC, whose offices are at 44 Wall Street, New York, NY 10005.
 
                                        74

 
                        COMPARISON OF STOCKHOLDER RIGHTS
 
     The rights of both ProAssurance stockholders and NCRIC stockholders are
governed by the Delaware General Corporation Law, or DGCL, as well as each
company's respective certificate of incorporation and bylaws. After the merger,
the rights of NCRIC's and ProAssurance's stockholders will be governed by the
DGCL and ProAssurance's certificate of incorporation and bylaws. Since the
rights of stockholders of both companies are governed by the DGCL, the only
material differences in stockholders' rights exist in the certificates of
incorporation of ProAssurance and NCRIC. The following is a brief summary of the
material differences between the certificates of incorporation of ProAssurance
and of NCRIC.
 
STOCKHOLDER VOTING LIMITS AND REQUIREMENTS
 
     Under ProAssurance's certificate of incorporation, each holder of common
stock is entitled to one vote for each share of common stock having voting power
held by him or her. NCRIC's certificate of incorporation, however, provides that
any record owner of common stock who beneficially owns more than 10% of the
outstanding shares of common stock is not entitled to vote the shares held in
excess of 10%. After the completion of the merger, each NCRIC stockholder who
receives ProAssurance common stock will be entitled to one vote for each common
share entitled to vote, regardless of the percentage of outstanding stock that
such person holds.
 
     In addition to the voting limitation discussed above, NCRIC stockholders
who receive ProAssurance common stock upon the completion of the merger will be
subject to other voting provisions of ProAssurance's certificate of
incorporation. Any question brought before a meeting of ProAssurance's
stockholders is decided by a vote of the holders of a majority of the stock
having voting power present in person or represented by proxy unless otherwise
provided in the certificate of incorporation. ProAssurance's certificate of
incorporation requires the affirmative vote of the holders of not less than 80%
of the votes entitled to be cast by the holders of all outstanding shares of
voting stock in order to amend or adopt any provisions inconsistent with the
following certificate of incorporation provisions:
 
     - Article Sixth, which describes the size of the board of directors, the
       manner by which directors are elected and the powers of the board of
       directors;
 
     - Article Eighth, which describes ProAssurance's director indemnification
       policy;
 
     - Article Ninth, which provides that ProAssurance will be governed by the
       provisions of Section 203, the anti-takeover provisions, of the Delaware
       General Corporation Law;
 
     - Article Tenth, which provides that the board of directors, when
       considering a merger, consolidation, business combination or similar
       transaction, may consider the effects of the transaction upon
       ProAssurance's employees, customers and suppliers, and upon communities
       in which offices of ProAssurance and its subsidiaries are located, in
       considering the best interests of ProAssurance and its stockholders; and
 
     - Article Eleventh, which describes the means for amending ProAssurance's
       bylaws.
 
     NCRIC's certificate of incorporation does not contain a similar provision
requiring 80% approval by stockholders of the matters listed above.
 
REMOVAL OF DIRECTORS
 
     NCRIC's certificate of incorporation provides that directors may be removed
only for cause by an affirmative vote of the holders of at least 80% of the
voting power of the outstanding common stock. ProAssurance's directors can be
removed only for cause and by an affirmative vote of the majority of the holders
of voting power of the outstanding common stock.
 
                                        75

 
ANTI-TAKEOVER PROVISIONS
 

     ProAssurance is subject to Section 203 of the Delaware General Corporation
Law. For a discussion of the applicable anti-takeover provision, see
"DESCRIPTION OF PROASSURANCE CAPITAL STOCK," page 73. The certificate of
incorporation of ProAssurance does not contain any other provision regarding
transactions with interested stockholders.

 
     NCRIC's certificate of incorporation contains provisions regarding
interested stockholder transactions. An interested stockholder is generally
defined as any person who beneficially owns 10% of the outstanding voting stock
of NCRIC, or any affiliate or transferee of such stockholder. The certificate of
incorporation provides that at least 80% of the holders of the voting power of
outstanding common stock must approve the following transactions:
 
     - any merger or consolidation with any interested stockholder or any other
       corporation which is (or after such merger or consolidation would be) an
       affiliate of an interested stockholder;
 
     - any sale, lease, transfer or other disposition to or with any interested
       stockholder (or its affiliate) of any assets of NCRIC or any subsidiary
       having an aggregate fair market value that is 25% or more of the combined
       assets of NCRIC and its subsidiaries;
 
     - the issuance or transfer by NCRIC or any subsidiary of any of its or the
       subsidiary's securities to any interested stockholder (or its affiliate)
       in exchange for any consideration having an aggregate fair market value
       that is 25% or more of the combined fair market value of the outstanding
       common stock of NCRIC and its subsidiaries (except pursuant to an
       employee benefit plan);
 
     - the adoption of any plan or proposal for liquidation or dissolution of
       NCRIC proposed by or on behalf of an interested stockholder (or its
       affiliate); or
 
     - any reclassification or combination of securities, or recapitalization of
       NCRIC, or any merger or consolidation of NCRIC with any of its
       subsidiaries, or any other transaction which has the effect, directly or
       indirectly, of increasing the proportional share of the outstanding
       shares of any class of equity or convertible securities of NCRIC or any
       subsidiary which is directly or indirectly owned by an interested
       stockholder (or its affiliate).
 
     If any of the above transactions is approved by two-thirds of disinterested
directors of NCRIC, then only a majority vote of stockholders is required to
approve such transaction. In the event that a two-thirds vote of disinterested
directors cannot be obtained, then, except in the case of a transaction
involving cash or other consideration being received by NCRIC stockholders
solely in their capacity as stockholders, only a majority vote of the
stockholders would be required if the following conditions are met:
 
     - requirements that the valuation of the consideration to be received by
       the stockholders is at least equal to the higher of fair market value or
       the highest per share price within the time period as set forth in the
       certificate of incorporation;
 
     - requirements limiting the reduction of the annual rate of dividends paid
       on common stock; and
 
     - requirements that the interested stockholder cannot receive benefits of
       any loans, guarantees, or other financial assistance or tax advantages
       provided by NCRIC.
 
     After completion of the merger, holders of NCRIC common stock who receive
ProAssurance common stock will be subject to Section 203 of the DGCL and
ProAssurance's certificate of incorporation, which does not contain any of the
interested stockholder provisions in NCRIC's certificate of incorporation as set
forth above.
 
                 PROPOSAL 2: ADJOURNMENT OF THE SPECIAL MEETING
 
     Pursuant to Delaware law, the holders of a majority of the outstanding
shares of common stock of NCRIC are required to approve the Merger Agreement. It
is rare for a company to achieve 100% stockholder participation at a special
meeting of stockholders, and only a majority of the holders of the
 
                                        76

 
outstanding shares of common stock of NCRIC are required to be represented at a
meeting, in person or by proxy, for a quorum to be present. In the event that
there are not sufficient votes to constitute a quorum or to approve the adoption
of the Merger Agreement at the special meeting, NCRIC would like the flexibility
to adjourn the special meeting in order to attempt to secure broader stockholder
participation in the decision to approve the Merger Agreement.
 
     NCRIC has requested that you appoint your proxy to vote on a proposal to
adjourn the special meeting if there are an insufficient number of shares
present in person or by proxy to constitute a quorum or to approve the Merger
Agreement. The proposal to adjourn the special meeting will not be submitted to
the stockholders for a vote at the special meeting if a majority of the
outstanding shares of NCRIC common stock vote in favor of the proposal to
approve the Merger Agreement.
 
     The adjournment of the special meeting will require the affirmative vote of
a majority of the shares voting on the matter in person or by proxy at the
special meeting without regard to broker non-votes or abstentions. The time and
place of the adjourned meeting will be announced at the special meeting if it is
adjourned. No further notice will be provided to the NCRIC stockholders unless
required by Delaware law.
 
     The NCRIC board of directors recommends that you vote "FOR" this proposal.
 
                                    OPINIONS
 
     The validity of the ProAssurance common stock to be issued in connection
with the merger will be passed upon for ProAssurance by Burr & Forman LLP,
Birmingham, Alabama. In addition, Burr & Forman LLP will deliver an opinion to
ProAssurance concerning material federal income tax consequences of the merger
to ProAssurance. Attorneys participating in Burr & Forman's representation of
ProAssurance beneficially own approximately 9,100 shares of ProAssurance common
stock.
 
     Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., will deliver an
opinion to NCRIC concerning the material federal income tax consequences of the
merger.
 
                                    EXPERTS
 

     The consolidated financial statements of ProAssurance Corporation appearing
in ProAssurance Corporation's Annual Report (Form 10-K/A) for the year ended
December 31, 2004 (including schedules appearing therein), and ProAssurance
Corporation management's assessment of the effectiveness of internal control
over financial reporting as of December 31, 2004 included therein, have been
audited by Ernst & Young LLP, independent registered public accounting firm, as
set forth in their reports thereon, included therein, and incorporated herein by
reference. Such consolidated financial statements and management's assessment
are incorporated herein by reference in reliance upon such reports given on the
authority of such firm as experts in accounting and auditing.

 

     The consolidated financial statements and the related financial statement
schedules of NCRIC Group, Inc., incorporated in this proxy statement-prospectus
by reference from Amendment 1 to NCRIC Group, Inc.'s Annual Report on Form
10-K/A for the year ended December 31, 2004, have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

 
                             STOCKHOLDER PROPOSALS
 
NCRIC
 

     If the merger occurs, NCRIC will not hold an annual meeting of stockholders
in 2006. In case the merger is not completed, in order to be eligible for
inclusion in NCRIC's proxy material for its 2006

 
                                        77

 
Annual Meeting of Stockholders, any stockholder proposal to take action at such
meeting must be received at NCRIC's office, 1115 30th Street, N.W., Washington,
D.C. 20007, no later than December 27, 2005. Nothing in this paragraph shall be
deemed to require NCRIC to include in its proxy statement and proxy relating to
an annual meeting any stockholder proposal that does not meet all of the
requirements for inclusion established by the SEC.
 
     The bylaws of NCRIC provide an advance notice procedure for certain
business, or nominations to the board of directors, to be brought before an
annual meeting. In order for a stockholder to properly bring business before an
annual meeting, including to propose a nominee to the board, the stockholder
must give written notice to the Secretary of NCRIC not less than ninety (90)
days before the date of the proxy statement relating to the prior year's annual
meeting. The notice must include the stockholder's name, record address and
number of shares owned by the stockholder, describe briefly the proposed
business, the reasons for bringing the business before the annual meeting, and
any material interest of the stockholder in the proposed business. In the case
of nominations to the board of directors, certain information regarding the
nominee must be provided. Nothing in this paragraph shall be deemed to require
NCRIC to include in its proxy statement and proxy relating to an annual meeting
any stockholder proposal which does not meet all of the requirements for
inclusion established by the SEC in effect at the time such proposal is
received. In accordance with the foregoing, advance written notice of business
or nominations to the board of directors to be brought before the 2006 Annual
Meeting of Stockholders must be given to NCRIC no later than January 26, 2006.
If notice is received after January 26, 2006, it will be considered untimely,
and NCRIC will not be required to present the matter at the stockholders
meeting.
 
PROASSURANCE
 
     If the merger is completed, NCRIC stockholders will become stockholders of
ProAssurance. Stockholder proposals intended to be included in ProAssurance's
proxy statement and voted on at ProAssurance's regularly scheduled 2006 Annual
Meeting of Stockholders must be received at ProAssurance's offices at 100
Brookwood Place, Birmingham, Alabama 35209, Attention: Corporate Secretary, on
or before December 17, 2005. Applicable SEC rules and regulations govern the
submission of stockholder proposals and our consideration of them for inclusion
in next year's proxy statement and form of proxy.
 
     ProAssurance's Bylaws require any stockholder who desires to propose any
business at the annual meeting of stockholders (other than the election of
directors) to give ProAssurance written notice not later than December 1 in the
year preceding the annual meeting at which the proposal is to be considered or
such other date as may be established by the Board for a particular annual
meeting by written notice to the stockholders. The stockholder's notice must set
forth (a) a brief description of the business desired to be brought before the
meeting and the reasons for considering such matter or matters at the meeting;
(b) the name and address of the stockholder who intends to propose such matter
or matters; (c) a representation that the stockholder has been a holder of
record of stock of the Company entitled to vote at such meeting for a period of
one year and intends to hold such shares through the date of the meeting and
appear in person or by proxy at such meeting to propose such matter or matters;
and (d) any material interest of the stockholder in such matter or matters; and
(e) a description of all understandings or relationships between the stockholder
and any other person(s) (naming such persons) with respect to the capital stock
of ProAssurance as to the matter specified in the notice. The proposal and any
accompanying statement may not exceed 500 words. Stockholders are not permitted
to submit proposals for consideration at special meetings.
 
                                 OTHER MATTERS
 
     As of the date of this proxy statement-prospectus, NCRIC's board knows of
no matters that will be presented for consideration at the special meeting other
than as described in this proxy statement-prospectus. NCRIC could use any
adjournment or postponement of the special meeting for the purpose, among
others, of allowing more time to solicit votes to approve the Merger Agreement.
If any other
 
                                        78

 

matters properly come before the NCRIC special meeting, or any adjournments or
postponements of the meeting, and are voted upon, the enclosed proxies will be
deemed to confer discretionary authority on the individuals that they name as
proxies to vote the shares represented by these proxies as to any of these
matters. The individuals named as proxies intend to vote or not to vote in
accordance with the recommendation of the board of directors of NCRIC. However,
proxies that indicate a vote against approval of the Merger Agreement will not
be voted in favor of any adjournment or postponement of the special meeting to
solicit additional proxies to approve the Merger Agreement unless otherwise
specified on the proxies.

 
                      WHERE YOU CAN FIND MORE INFORMATION
 
     ProAssurance has filed a registration statement with the SEC under the
Securities Act that registers the distribution to NCRIC stockholders of the
shares of common stock of ProAssurance to be issued in the merger. This proxy
statement-prospectus is part of the registration statement. The registration
statement, including the attached exhibits and schedules, contains additional
relevant information about ProAssurance, NCRIC and the combined company and the
common stock of these companies. The rules and regulations of the SEC allow us
to omit some information included in the registration statement from this proxy
statement-prospectus.
 

     In addition, ProAssurance (File No. 001-16533) and NCRIC (File No.
000-25505) file annual, quarterly and current reports, proxy statements and
other information with the SEC under the Exchange Act. You may read and copy
this information at the Public Reference Room of the SEC, 100 F. Street, N.E.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.

 
     The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like ProAssurance
and NCRIC, that file electronically with the SEC. The address of that site is
http://www.sec.gov. ProAssurance's address on the world wide web is
http://www.ProAssurance.com, and NCRIC's address is http://www.NCRIC.com. The
information on our web sites is not a part of this proxy statement-prospectus.
 
     You can also inspect reports, proxy statements and other information about
ProAssurance at the offices of the NYSE, 20 Broad Street, New York, New York
10005. You can also inspect reports, proxy statements and other information that
NCRIC has filed with the SEC at the National Association of Securities Dealers,
Inc., 1735 K Street, Washington D.C. 20096.
 
     The SEC allows ProAssurance and NCRIC to "incorporate by reference"
information into this proxy statement-prospectus. This means that the companies
can disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
considered to be a part of this proxy statement-prospectus, except for any
information that is superseded by information that is included directly in this
proxy statement-prospectus.
 
     All of the documents filed with the SEC by ProAssurance pursuant to the
Exchange Act are incorporated by reference in this proxy statement-prospectus.
These documents include the following:
 

     - ProAssurance's Annual Report on Form 10-K for the year ended December 31,
       2004 as amended on June 10, 2005;

 

     - ProAssurance's Quarterly Report on Form 10-Q for the three month period
       ended March 31, 2005; and

 
     - All other reports filed by ProAssurance pursuant to Section 13(a) or
       Section 15(d) of the Exchange Act since December 31, 2004.
 
                                        79

 
     All of the documents filed with the SEC by NCRIC pursuant to the Exchange
Act since the end of its fiscal year ended December 31, 2004, are incorporated
by reference in this proxy statement-prospectus. These documents include the
following:
 

     - NCRIC's Annual Report on Form 10-K for the year ended December 31, 2004,
       as amended on April 19, 2005, which is appended to this proxy
       statement-prospectus as Appendix C;

 

     - NCRIC's Quarterly Report on Form 10-Q for the three month period ended
       March 31, 2005, which is appended to this proxy statement-prospectus as
       Appendix D; and

 
     - All other reports filed by NCRIC pursuant to Section 13(a) or Section
       15(d) of the Exchange Act since December 31, 2004.
 
     ProAssurance and NCRIC incorporate by reference additional documents that
either company may file with the SEC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act between the date of this proxy statement-prospectus
and the dates of the special meeting (other than the portions of those documents
not deemed to be filed). These documents include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
 
     ProAssurance has supplied all information contained or incorporated by
reference in this proxy statement-prospectus relating to ProAssurance, and NCRIC
has supplied all such information relating to NCRIC.
 
     You can obtain any of the documents incorporated by reference in this proxy
statement-prospectus through ProAssurance or NCRIC, as the case may be, or from
the SEC through the SEC's Internet world wide web site at the address described
above. Documents incorporated by reference are available from the companies
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this proxy
statement-prospectus. You can obtain documents incorporated by reference in this
proxy statement-prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses:
 

                                            
           PROASSURANCE CORPORATION                          NCRIC GROUP, INC.
 
          Attention: Frank B. O'Neil                    Attention: Eric R. Anderson
             100 Brookwood Place                            1115 30th St., N.W.
          Birmingham, Alabama 35209                        Washington, D.C. 20007
                (205) 877-4400                                 (202) 969-1866

 

     IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JULY 25, 2005, TO
RECEIVE THEM BEFORE THE NCRIC SPECIAL MEETING. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.

 
     We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this proxy statement-prospectus or in any of the
materials that we have incorporated into this proxy statement-prospectus.
Therefore, if anyone does give you information of this sort, you should not rely
on it. If you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities offered by this
proxy statement-prospectus or the solicitation of proxies is unlawful, or if you
are a person to whom it is unlawful to direct these types of activities, then
the offer presented in this proxy statement-prospectus does not extend to you.
The information contained in this proxy statement-prospectus speaks only as of
the date of this proxy statement-prospectus unless the information specifically
indicates that another date applies.
 
                           FORWARD-LOOKING STATEMENTS
 
     Any written or oral statements made by us or on our behalf may include
forward-looking statements that reflect our current views with respect to future
events and financial performance. Forward-looking statements are identified by
words such as, but not limited to, "believe," "expect," "intend," "anticipate,"
 
                                        80

 
"estimate," "project" and other analogous expressions. Forward-looking
statements relating to our businesses include among other things, statements
concerning: liquidity and capital requirements, return on equity, financial
ratios, net income, premiums, losses and loss reserves, premium rates and
retention of current business, competition and market conditions, the expansion
of product lines, the development or acquisition of business in new geographical
areas, the availability of acceptable reinsurance, actions by regulators and
rating agencies, payment or performance of our obligations under our
indebtedness, payment of dividends, and other matters. In addition,
forward-looking statements relate to the proposed merger between ProAssurance
and NCRIC, as well as the goals, plans, objectives, intentions, expectations,
financial condition, results of operations, future performance and business of
the combined company including, without limitation, statements relating to the
benefits of the merger, such as future financial and operating results, cost
savings, enhanced revenues and the accretion to reported earnings that may be
realized from the merger and statements regarding certain of ProAssurance's
and/or NCRIC's goals and expectations with respect to earnings, earnings per
share, revenue, expenses and the growth rate in such items, as well as other
measures of economic performance.
 
     Risks that could adversely affect our operations or cause actual results to
differ materially from anticipated results include, but are not limited to, the
following:
 
     - underwriting losses on the risks we insure are higher or lower than
       expected,
 
     - unexpected changes in loss trends and reserving assumptions which might
       require the reevaluation of the liability for loss and loss adjustment
       expenses, thus resulting in an increase or decrease in the liability and
       a corresponding adjustment to earnings,
 
     - our ability to retain current business, acquire new business, expand
       product lines and a variety of other factors affecting daily operations
       such as, but not limited to, economic, legal, competitive and market
       conditions which may be beyond our control and are thus difficult or
       impossible to predict,
 
     - changes in the interest rate environment and/or the securities markets
       that adversely impact the fair value of our investments or our income,
 
     - inability on our part to achieve continued growth through expansion into
       other states or through acquisitions or business combinations,
 
     - general economic conditions that are worse than anticipated,
 
     - inability on our part to obtain regulatory approval of, or to implement,
       premium rate increases,
 
     - the effects of weather-related events,
 
     - changes in the legal system, including retroactively applied decisions
       that affect the frequency and severity of claims,
 
     - significantly increased competition among insurance providers and related
       pricing weaknesses in some markets,
 
     - changes in the availability, cost, quality or collectibility of
       reinsurance,
 
     - changes to our ratings by rating agencies,
 
     - regulatory and legislative actions or decisions that adversely affect us,
       and
 
     - our ability to utilize loss carryforwards and other deferred tax assets.
 
     Risks that could adversely affect the proposed merger of ProAssurance and
NCRIC include but are not limited to the following:
 
     - the business of ProAssurance and NCRIC may not be combined successfully,
       or such combination may take longer to accomplish than expected;
 
     - the cost savings from the merger may not be fully realized or may take
       longer to realize than expected;
 
     - operating costs, customer loss and business disruption following the
       merger, including adverse effects on relationships with employees, may be
       greater than expected;
 
                                        81

 
     - governmental approvals of the merger may not be obtained, or adverse
       regulatory conditions may be imposed in connection with governmental
       approvals of the merger;
 
     - there may be restrictions on our ability to achieve continued growth
       through expansion into other states or through acquisitions or business
       combinations; and
 
     - the stockholders of NCRIC may fail to approve the merger.
 
     Because these forward-looking statements are subject to assumptions and
uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements, and the factors that will determine
these results are beyond our ability to control or predict.
 
     We caution you not to place undue reliance on the forward-looking
statements, which speak only as of the date of this proxy statement-prospectus,
in the case of forward-looking statements contained in this proxy
statement-prospectus, or the dates of the documents incorporated by reference in
this proxy statement-prospectus, in the case of forward-looking statements made
in those incorporated documents.
 
     Except to the extent required by applicable law or regulation, ProAssurance
and NCRIC undertake no obligation to update these forward-looking statements to
reflect events or circumstances after the date of this proxy
statement-prospectus or to reflect the occurrence of unanticipated events.
 

     For additional information about factors that could cause actual results to
differ materially from those described in the forward-looking statements, please
see "RISK FACTORS" beginning on page 17.

 
     ALL SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS CONCERNING THE
MERGER OR OTHER MATTERS ADDRESSED IN THIS PROXY STATEMENT-PROSPECTUS AND
ATTRIBUTABLE TO PROASSURANCE OR NCRIC OR ANY PERSON ACTING ON THEIR BEHALF ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR
REFERRED TO IN THIS SECTION.
 
                                        82

 
                                                                      APPENDIX A
 
                          AGREEMENT AND PLAN OF MERGER
 
     THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of February
28, 2005, by and among PROASSURANCE CORPORATION, a Delaware corporation ("PRA"),
NCP MERGER CORPORATION, a Delaware corporation and a wholly-owned subsidiary of
PRA ("NEWCO"), and NCRIC GROUP, INC., a Delaware corporation ("NCRIC").
 
                                  WITNESSETH:
 
     WHEREAS, PRA is an insurance holding company which provides, through its
insurance subsidiaries, medical professional liability insurance and personal
lines insurance; and
 
     WHEREAS, NCRIC is an insurance holding company which provides, through its
subsidiaries, medical professional liability insurance and practice management
and financial services to physicians and other health care providers; and
 
     WHEREAS, the Boards of Directors of PRA, NEWCO and NCRIC have determined
that it is in the best interests of their respective companies and stockholders
for PRA to acquire NCRIC through the consummation of the business combination
transaction provided for in this Agreement.
 
     NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained in this Agreement, and intending to be
legally bound by this Agreement, the parties to this Agreement agree as follows:
 
                                   ARTICLE 1
 
                                   THE MERGER
 
     1.1  Merger.  Subject to the terms and conditions of this Agreement and in
accordance with the Delaware General Corporation Law, as amended (the "DGCL"),
at the Effective Time (as defined in Section 1.2 of this Agreement), NCRIC shall
merge with and into NEWCO (the "MERGER"). NEWCO shall be the surviving
corporation in the Merger, and shall continue its corporate existence under the
laws of the State of Delaware. Upon consummation of the Merger, the separate
corporate existence of NCRIC shall terminate.
 
     1.2  Effective Time.  Subject to the provisions of this Agreement, and in
connection with the Closing, a certificate of merger (the "CERTIFICATE OF
MERGER") will be filed with the Secretary of State of Delaware pursuant to
Section 252 of the DGCL. The parties will make all other filings or recordings
as may be required under the DGCL, and the Merger will become effective when the
Certificate of Merger is filed in the office of the Secretary of State of
Delaware, or at such later date or time as PRA and NCRIC agree and specify in
the Certificate of Merger (the time the Merger comes effective being the
"EFFECTIVE TIME").
 
     1.3  Effects of Merger.  At and after the Effective Time, the Merger shall
have the effects set forth in this Agreement, the Certificate of Merger and the
DGCL. At the Effective Time, (i) all rights, franchises, licenses and interests
of NCRIC in and to every type of property, real, personal and mixed, and all
choses in action of NCRIC shall continue unaffected and uninterrupted by the
Merger and shall accrue to NEWCO; (ii) all rights, franchises, licenses and
interests of NEWCO in and to every type of property, real, personal and mixed,
and all choses in action of NEWCO shall continue unaffected and uninterrupted by
the Merger and shall accrue to NEWCO; (iii) all obligations and liabilities of
NEWCO then outstanding shall remain obligations of NEWCO; (iv) all obligations
and liabilities of NCRIC then outstanding shall become and be obligations of
NEWCO; and (v) no action or proceeding then pending and to which NCRIC or NEWCO
is a party shall be abated or discontinued but may be prosecuted to final
judgment by NEWCO.
                                       A-1

 
     1.4  NEWCO Shares.  At the Effective Time, all of the shares of NEWCO
Common Stock (as defined in Section 4.3(b) of this Agreement) issued and
outstanding prior to the Effective Time shall remain an issued and outstanding
share of common stock of NEWCO and shall not be affected by the Merger. It is
the intention of the parties that, immediately after the Effective Time, PRA
shall own all of the issued and outstanding shares of Common Stock of NEWCO as
the surviving corporation of the Merger.
 
     1.5  Conversion of NCRIC Common Stock.
 
     (a) Except as otherwise provided in this Agreement, and subject to the
Market Adjustment pursuant to Section 1.5(b) hereof, each holder of record of
the shares of the common stock, $0.01 par value per share, of NCRIC ("NCRIC
COMMON STOCK") as of the Effective Time shall have the right to receive 0.25
(the "EXCHANGE RATIO") of a share of common stock of PRA, par value $0.01 per
share ("PRA COMMON STOCK") for each share of NCRIC Common Stock (the "MERGER
CONSIDERATION").
 
     (b) The Exchange Ratio shall be subject to adjustment if the MARKET VALUE
(herein defined) of a share of PRA Common Stock is greater than $44.00 or less
than $36.00. In each event, the Exchange Ratio shall be adjusted (the "MARKET
ADJUSTMENT") so that each holder of the shares of NCRIC Common Stock as of the
Effective Time shall have the right to receive such number of shares or fraction
of a share (in ten thousandths; i.e., four decimal places) of PRA Common Stock
in accordance with the following (references to the Exchange Ratio shall include
the Exchange Ratio calculated to reflect the Market Adjustment, if any):
 
          (i) If the Market Value is greater than $44.00, the Exchange Ratio
     shall be such fraction of a share of PRA Common Stock as shall equal $11.00
     divided by the Market Value; or
 
          (ii) If the Market Value is less than $36.00, the Exchange Ratio shall
     be such number of shares or fraction of a share as shall equal $9.00
     divided by the Market Value.
 
          (iii) The term "MARKET VALUE" shall refer to an amount equal to the
     arithmetic average of the last reported sale prices of one share of PRA
     Common Stock as reported on the New York Stock Exchange the ten (10)
     trading days ending on the date preceding the Effective Time.
 
     (c) Each share of NCRIC Common Stock that is owned by NCRIC or any NCRIC
Subsidiary shall automatically be cancelled and retired and shall cease to
exist, and no Merger Consideration shall be delivered in exchange therefore.
 
     1.6  No Fractional Shares.  No certificates or scrip representing a
fractional share of PRA Common Stock shall be issued upon the surrender of NCRIC
Common Stock certificates for exchange; no dividend or distribution with respect
to PRA Common Stock shall be payable on or with respect to any fractional share;
and such fractional share interests shall not entitle the owner thereof to vote
or to any other rights of a stockholder of PRA. In lieu of any such fractional
share, PRA shall pay to each former holder of NCRIC Common Stock who otherwise
would be entitled to receive a fractional share of PRA Common Stock an amount in
cash determined by multiplying the fractional share of PRA Common Stock to which
such holder would otherwise be entitled by whichever of the following is
applicable: (i) $40.00 if there is no Market Adjustment; or (ii) the Market
Value if there is a Market Adjustment to the Exchange Ratio.
 
     1.7  Stock Options.
 
     (a) Section 1.7 of the NCRIC Disclosure Schedule (as defined in Article 3
of this Agreement) lists (i) all stock options to purchase NCRIC Common Stock
issued by NCRIC pursuant to the Stock Option Plan and the 2003 Stock Option Plan
(the "NCRIC OPTION PLANS") that are outstanding on the date of this Agreement
(collectively, the "NCRIC STOCK OPTIONS"), and (ii) all awards of shares of
NCRIC Common Stock that are to be issued by NCRIC pursuant to its 2003 Stock
Award Plan (the "NCRIC AWARD PLAN") that are outstanding on the date hereof
("NCRIC STOCK AWARDS"). Section 1.7 of the NCRIC Disclosure Schedule also sets
forth, with respect to each NCRIC Stock Option, the option exercise price, the
number of shares subject to the option, the date granted, vesting, and
expiration of the option and indicates whether the option is either an incentive
or a nonqualified stock option. Section 1.7 of
                                       A-2

 
the NCRIC Disclosure Schedule also sets forth with respect to each NCRIC Stock
Award the number of shares subject to the Stock Awards and the date granted and
the vesting schedule of the award. All NCRIC Stock Options are exercisable as of
the date of this Agreement.
 
     (b) Each unexercised NCRIC Stock Option that is issued and outstanding at
the Effective Time (a "CONTINUING NCRIC STOCK OPTION") shall be assumed by PRA
and, except as provided in this Section 1.7(b), shall be continued in accordance
with its terms and conditions as in effect immediately prior to the Effective
Time. The holder of each Continuing NCRIC Stock Option shall have the election
to either:
 
          (i) exchange his or her Continuing Stock Option for the right to
     acquire a number of shares of PRA Common Stock at the Effective Time on the
     following terms and conditions:
 
             (A) Each share of NCRIC Common Stock subject to a Continuing NCRIC
        Stock Option so exchanged shall be converted into shares of PRA Common
        Stock using the Exchange Ratio. The number of shares subject to each
        Continuing NCRIC Stock Option so exchanged shall be multiplied by said
        Exchange Ratio to determine the number of shares of PRA Common Stock
        subject to said Continuing NCRIC Stock Option; provided, however, that
        all fractional shares resulting from such determination shall be
        eliminated;
 
             (B) The exercise price for the shares of PRA Common Stock subject
        to a Continuing NCRIC Stock Option so exchanged shall be determined by
        dividing the Exchange Ratio into the exercise price of the shares of
        NCRIC Common Stock subject to said Continuing NCRIC Stock Option
        immediately prior to the Effective Time;
 
             (C) The NCRIC Option Plans shall be amended at the Effective Time
        to reserve for issuance pursuant to the Continuing NCRIC Stock Options,
        the number of shares of PRA Common Stock subject to the NCRIC Stock
        Options after the Effective Time, and to allow former members of the
        Board of Directors of NCRIC to continue to participate under the NCRIC
        Option Plans with respect to their Continuing NCRIC Stock Options during
        the term of the Consulting Agreement executed by the directors pursuant
        to Section 1.12 hereof; or
 
          (ii) surrender his or her Continuing NCRIC Stock Option at the
     Effective Time in exchange for a cash payment equal to the greater of
     either (A) the amount by which the Adjusted NCRIC Share Value (herein
     defined) exceeds the unadjusted exercise price for each share of NCRIC
     Common Stock subject to the Continuing Stock Option so surrendered as shown
     in Section 1.7(a) of the Disclosure Schedule or (B) $1.00 for each share of
     NCRIC Common Stock subject to the Continuing NCRIC Stock Option so
     surrendered. The term "ADJUSTED NCRIC SHARE VALUE" shall mean (i) that
     amount that is equal to 0.25 times the Market Value; (ii) $11.00 if there
     is a Market Adjustment because the Market Value is greater than $44.00; or
     (iii) $9.00 if there is a Market Adjustment because the Market Value is
     less than $36.00. A holder of a Continuing NCRIC Stock Option may elect to
     receive cash for any or all of his or her Continuing NCRIC Stock Options.
     Each holder of a Continuing NCRIC Stock Option shall make his or her cash
     election on an election form to be provided by PRA at least twenty (20)
     days prior to the Effective Time. The right to make an election to receive
     a cash payment for the shares of NCRIC Common Stock subject to a Continuing
     NCRIC Stock Option shall terminate on the Effective Time.
 
     (c) Each NCRIC Stock Award that is outstanding at the Effective Time
("CONTINUING NCRIC STOCK AWARD") shall be assumed by PRA and shall be continued
in accordance with its terms as in effect immediately prior to the Effective
Time. Each Continuing NCRIC Stock Award shall give the holder thereto the right
to acquire a number of shares of PRA Common Stock to be determined by
multiplying the Exchange Ratio by the number of shares of NCRIC Common Stock
subject to a Continuing NCRIC Stock Award; provided that all fractional shares
resulting therefrom shall be eliminated.
 
     1.8  Merger Tax Consequences.  It is intended (i) that the Merger shall
constitute a reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the
 
                                       A-3

 
"CODE"), and (ii) that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code.
 
     1.9  NEWCO Certificate of Incorporation.  Subject to the terms and
conditions of this Agreement, at the Effective Time, the Certificate of
Incorporation of NEWCO then in effect shall be, and shall continue in effect as,
the Certificate of Incorporation of NEWCO, as the surviving corporation in the
Merger, until amended in accordance with applicable law; provided, however, that
in connection with and as a result of the consummation of the Merger, the
Certificate of Incorporation of NEWCO then in effect shall be amended so as to
change the name of NEWCO to "NCRIC Corporation."
 
     1.10  NEWCO Bylaws.  Subject to the terms and conditions of this Agreement,
at the Effective Time, the Bylaws of NEWCO then in effect shall be, and shall
continue in effect as, the Bylaws of NEWCO, as the surviving corporation in the
Merger, until amended in accordance with applicable law.
 
     1.11  NEWCO Management and Officers.  At the Effective Time, the directors
and officers of NEWCO, as the surviving corporation in the Merger, shall
continue as the Board of Directors and Officers of NEWCO until their successors
are elected and qualified.
 
     1.12  Advisory Committees.
 
     (a) PRA shall offer to each Person who, as of the date of this Agreement,
is a member of the Board of Directors of NCRIC a Consulting and Noncompetition
Agreement in form and substance reasonably acceptable to PRA (each a "CONSULTING
AGREEMENT"), substantially in the form attached hereto as Exhibit A. Pursuant to
his or her Consulting Agreement, each such Person shall be paid a monthly
consulting fee of $2,500 through December 31, 2006; provided, however, that no
fees of any type shall be paid to such Person unless he or she shall have
executed a Consulting Agreement. PRA shall cause each Person who executes a
Consulting Agreement to be appointed to an advisory committee maintained by PRA
or its Subsidiaries. The Advisory Committee shall provide advice as to the
transition of NCRIC's business after the Merger.
 
     (b) It is the intention of the parties, subject to operating constraints,
to maintain the NCRIC physician underwriting/claims committee that NCRIC has in
the District of Columbia, Delaware, and Virginia (collectively, the "NCRIC
ADVISORY COMMITTEES"). The members of the NCRIC Advisory Committees shall
consist of those persons who are members thereof at the Effective Time and such
other persons who are appointed to the NCRIC Advisory Committees thereafter. The
NCRIC Advisory Committees shall provide advice as to underwriting and claims
matters regarding medical professional liability insurance. Except for
compensation pursuant to consulting agreements described in subparagraph (a)
above, PRA shall fix the compensation of, and may change the membership of, the
NCRIC Advisory Committees.
 
     1.13  PRA Common Stock.  At and after the Effective Time, each share of PRA
Common Stock issued and outstanding immediately prior thereto shall remain an
issued and outstanding share of common stock of PRA and shall not be affected by
the Merger.
 
     1.14  PRA Stock Options.  At and after the Effective Time, each stock
option granted by PRA to purchase shares of PRA Common Stock which is
outstanding and unexercised immediately prior thereto shall continue to
represent a right to acquire shares of PRA Common Stock and shall remain an
issued and outstanding option to purchase from PRA shares of PRA Common Stock in
the same amount and at the same exercise price subject to the terms of the PRA
stock option plans under which they were issued and the agreements evidencing
grants thereunder, and shall not be affected by the Merger.
 
     1.15  PRA Certificate of Incorporation.  Subject to the terms and
conditions of this Agreement, at the Effective Time, the Certificate of
Incorporation of PRA then in effect shall be, and shall continue in effect as,
the Certificate of Incorporation of PRA until thereafter amended in accordance
with applicable law.
 
                                       A-4

 
     1.16  PRA Bylaws.  Subject to the terms and conditions of this Agreement,
at the Effective Time, the Bylaws of PRA then in effect shall be, and shall
continue in effect as, the Bylaws of PRA until thereafter amended in accordance
with applicable law.
 
     1.17  PRA Management.  The directors and officers of PRA shall be the Board
of Directors and officers of PRA to serve until their successors are duly
elected and qualified.
 
     1.18  Insurance Operations.  It is the intention of the parties, subject to
operating constraints, to maintain the NCRIC home office as a PRA regional
office with a substantial number of staff positions for the conduct of insurance
operations in the mid-Atlantic states after the Merger. PRA may, after the
Closing Date, modify or change the operating structure in the exercise of its
business judgment.
 
     1.19  Anti-Dilution Provisions.  In the event PRA changes (or establishes a
record date for changing) the number of, or provides for the exchange of, shares
of PRA Common Stock issued and outstanding prior to the Effective Time as a
result of a stock split, stock dividend, recapitalization, reclassification, or
similar transaction with respect to the outstanding PRA Common Stock and the
record date therefore shall be on or prior to the Effective Time, the Exchange
Ratio (and the related collars of the Market Adjustment) shall be
proportionately and appropriately adjusted, to reflect the economic substance of
the event, in a manner that is mutually acceptable; provided, however, that no
such adjustment shall be made with regard to PRA Common Stock if PRA issues
additional shares of Common Stock and receives fair market value consideration
for such shares.
 
                                   ARTICLE 2
 
                              EXCHANGE PROCEDURES
 
     2.1  Exchange Agent.  Prior to the mailing of the Proxy Statement (as
defined in Section 3.5(c) of this Agreement), PRA shall appoint a bank or trust
company to act as an exchange agent who shall be reasonably acceptable to NCRIC
(the "EXCHANGE AGENT") for the payment of the Merger Consideration. PRA shall
pay the charges and expenses of the Exchange Agent.
 
     2.2  Exchange Procedures.
 
     (a) Prior to the Effective Time, PRA shall deposit with the Exchange Agent
(or otherwise make available to the reasonable satisfaction of NCRIC and the
Exchange Agent), for the benefit of the holders of shares of NCRIC Common Stock,
for exchange through the Exchange Agent, the certificates representing shares of
PRA Common Stock for the Merger Consideration (such shares of PRA Common Stock
together with any dividends or distributions with respect to such shares with a
record date after the Effective Time and any cash payable in lieu of any
fractional shares pursuant to this Agreement being hereinafter referred to as
the "EXCHANGE FUND") issuable pursuant to this Agreement in exchange for
outstanding shares of NCRIC Common Stock.
 
     (b) Promptly after the Effective Time, but no later than five (5) business
days following the Effective Time, PRA will send or cause to be sent to each
person who was a record holder of NCRIC Common Stock immediately before the
Effective Time transmittal materials for exchanging the certificates
representing NCRIC Common Stock ("OLD CERTIFICATES") for certificates
representing PRA Common Stock ("NEW CERTIFICATES"). Upon surrender of the Old
Certificate for cancellation to the Exchange Agent, together with the duly
executed transmittal materials, and such other documents as the Exchange Agent
may reasonably require, the holder of such Old Certificate shall be entitled to
receive in exchange therefore a certificate representing that number of New
Certificates which such holder has the right to receive in respect of the Old
Certificates surrendered pursuant to the provisions of this Section 2.2 (after
taking into account all shares of NCRIC Common Stock then held by such holder)
and any check in respect of dividends or distributions or for fractional shares
that the holder will be entitled to receive (without interest), and the Old
Certificates so surrendered shall forthwith be cancelled. Neither PRA nor the
surviving corporation of the Merger shall be obligated to deliver the Merger
Consideration to which any former record holder of NCRIC Common Stock is
entitled as a result of the Merger until such record
 
                                       A-5

 
holder surrenders his or her certificate or certificates representing the shares
of NCRIC Common Stock for exchange as provided in this Section 2.2.
 
     (c) At the Effective Time, the stock transfer books of NCRIC shall be
closed as to holders of NCRIC Common Stock immediately prior to the Effective
Time, and no transfer of NCRIC Common Stock by any such record holder shall
thereafter be made or recognized. Until surrendered for exchange in accordance
with the provisions of this Section 2.2, each certificate theretofore
representing shares of NCRIC Common Stock shall from and after the Effective
Time represent for all purposes only the right to receive the Merger
Consideration provided in this Agreement in exchange therefore. To the extent
permitted by law, former stockholders of record of NCRIC Common Stock shall be
entitled to vote after the Effective Time at any meeting of the PRA stockholders
the number of shares of PRA Common Stock into which their respective shares of
NCRIC Common Stock are converted, regardless of whether such holders have
exchanged their certificates for NCRIC Common Stock for certificates
representing the PRA Common Stock.
 
     (d) Any other provision of this Agreement notwithstanding, none of PRA, the
surviving corporation of the Merger, and the Exchange Agent shall be liable to a
holder of NCRIC Common Stock for any amounts paid or property delivered in good
faith to a public official pursuant to any applicable abandoned property law.
 
     2.3  Lost or Stolen Certificates.  If any holder of NCRIC Common Stock
convertible into the right to receive shares of the PRA Common Stock is unable
to deliver the certificate which represents such shares, the Exchange Agent, in
the absence of actual notice that any such shares have been acquired by a bona
fide purchaser, shall deliver to such holder the Merger Consideration to which
the holder is entitled for such shares upon presentation of the following: (i)
evidence to the reasonable satisfaction of the Exchange Agent and PRA that any
such certificate has been lost, wrongfully taken or destroyed; (ii) such
security or indemnity as may be reasonably requested by the Exchange Agent or
PRA to indemnify and hold PRA and the Exchange Agent harmless; and (iii)
evidence satisfactory to the Exchange Agent and PRA that such person is the
owner of the shares theretofore represented by each certificate claimed by the
holder to be lost, wrongfully taken or destroyed and that the holder is the
person who would be entitled to present such certificate for exchange pursuant
to this Agreement.
 
     2.4  Dividends and other Distributions.  Whenever a dividend or other
distribution is declared on the PRA Common Stock, the record date for which is
at or after the Effective Time, the declaration shall include dividends or other
distributions on all shares of the PRA Common Stock issuable to holders of NCRIC
Common Stock under this Agreement. Notwithstanding the preceding sentence, any
person holding any certificate for NCRIC Common Stock after the Effective Time
shall not be entitled to receive any dividend or other distribution payable
after the Effective Time to holders of the PRA Common Stock, which dividend or
other distribution is attributable to such person's NCRIC Common Stock until
such person surrenders said certificate for NCRIC Common Stock for exchange as
provided in Section 2.2 of this Agreement. However, upon surrender of such
certificate, the PRA Common Stock certificate (together with all such
undelivered dividends or other distributions, without interest) shall be
delivered and paid (without interest) with respect to each share represented by
such certificate for NCRIC Common Stock.
 
     2.5  Exchange Fund.  Any portion of the Exchange Fund that remains
undistributed to the holders of NCRIC Common Stock for six months after the
Effective Time shall be delivered to PRA, upon demand, and any holders of NCRIC
Common Stock who have not theretofore complied with this Agreement shall
thereafter look only to PRA for payment of their claim for any shares of PRA
Common Stock, any cash in lieu of fractional shares and any dividends or
distributions with respect to PRA Common Stock.
 
     2.6  Withholding.  PRA or the Exchange Agent will be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement or
the transactions contemplated thereby to any holder of NCRIC Common Stock such
amounts as PRA (or any Affiliate thereof) or the Exchange Agent are required to
deduct and withhold with respect to the making of such payment under the Code,
or
                                       A-6

 
any applicable provision of U.S. federal, state, local or non-U.S. tax law. To
the extent that such amounts are properly withheld by PRA or the Exchange Agent,
such withheld amounts will be treated for all purposes of this Agreement as
having been paid to the holder of the NCRIC Common Stock in respect of whom such
deduction and withholding were made by PRA or the Exchange Agent.
 
                                   ARTICLE 3
 
                    REPRESENTATIONS AND WARRANTIES OF NCRIC
 
     NCRIC represents and warrants to PRA that the statements contained in this
Article 3 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date was substituted for the date of this Agreement throughout this
Article), except (i) as set forth in the disclosure schedule delivered by NCRIC
to PRA on the date hereof and initialed by the parties (the "NCRIC DISCLOSURE
SCHEDULE"), or (ii) for any changes to the NCRIC Disclosure Schedule that are
disclosed by NCRIC to PRA in accordance with Section 6.9(b) of this Agreement,
or (iii) to the extent such representations and warranties speak as of an
earlier date. Nothing in the NCRIC Disclosure Schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein unless the
NCRIC Disclosure Schedule identifies the exception with reasonable
particularity. The NCRIC Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Article;
provided, however, (i) that each exception set forth in the NCRIC Disclosure
Schedule shall be deemed disclosed for purposes of all representations and
warranties if such exception is contained in a section of the NCRIC Disclosure
Schedule corresponding to a Section in this Article 3, and (ii) the mere
inclusion of an exception in the NCRIC Disclosure Schedule shall not be deemed
an admission by NCRIC that such exception represents a material fact, event or
circumstance or would result in a material adverse effect or material adverse
change.
 
     3.1  Corporate Organization.  NCRIC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
NCRIC has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect (as defined in Section 9.18(a) of this
Agreement) on NCRIC.
 
     3.2  Subsidiaries.
 
     (a) Section 3.2(a) of the NCRIC Disclosure Schedule sets forth the name and
state of incorporation or organization of each Subsidiary (as defined in Section
9.18(a) of this Agreement) of NCRIC (the "NCRIC SUBSIDIARIES"). Each NCRIC
Subsidiary (i) is duly organized and validly existing as a corporation under the
laws of its jurisdiction of organization, (ii) is duly qualified to do business
and in good standing in all jurisdictions (whether federal, state, local or
foreign) where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and in which the failure to be so
qualified would have a Material Adverse Effect on NCRIC, and (iii) has all
requisite corporate power and authority to own or lease its properties and
assets and to carry on its business as now conducted.
 
     (b) Section 3.2(b) of the NCRIC Disclosure Schedule identifies the NCRIC
Subsidiaries that offer insurance and the states or other jurisdictions in which
they are authorized or licensed to conduct business, and the type of insurance
products that they are authorized or licensed to offer in each such state (the
"NCRIC INSURANCE SUBSIDIARIES"). No NCRIC Insurance Subsidiary offers any
insurance products in any jurisdiction where it is neither authorized nor
licensed to offer such insurance products. The business of each NCRIC Insurance
Subsidiary has been and is being conducted in compliance with all of its
licenses in all material respects. All of such licenses are in full force and
effect and there is no proceeding or investigation pending or, to the knowledge
of NCRIC, threatened which would reasonably be expected to lead to the
revocation, amendment, failure to renew, limitation, suspension or restriction
of such license.
 
                                       A-7

 
     (c) Except as set forth in Section 3.2(c) of the NCRIC Disclosure Schedule,
NCRIC is, directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock of each of the NCRIC Subsidiaries. There are
no irrevocable proxies granted by NCRIC or any NCRIC Subsidiary with respect to
such shares. There are no equity securities of any of the NCRIC Subsidiaries
that are or may become required to be issued by reason of any option, warrants,
scrip, rights, to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any capital stock of any of the NCRIC Subsidiaries except shares of
the NCRIC Subsidiaries issued to other wholly owned NCRIC Subsidiaries. There
are no contracts, commitments, understandings or arrangements by which any of
the NCRIC Subsidiaries is bound to issue additional shares of its capital stock
or options, warrants or rights to purchase or acquire any additional shares of
its capital stock or securities convertible into or exchangeable for such
shares. All of the shares of the NCRIC Subsidiaries described in the first
sentence of this Section 3.2(c) are validly issued, fully paid and nonassessable
and free of preemptive rights, and are owned by NCRIC or a NCRIC Subsidiary free
and clear of any and all Liens (as defined in Section 9.18(a) of this Agreement)
and free and clear of any claim, right or option to acquire any such shares.
 
     (d) No NCRIC Subsidiary is the record or beneficial owner of any shares of
NCRIC Common Stock.
 
     3.3  Corporate Affairs.
 
     (a) NCRIC has made available to PRA correct and complete copies of the
Certificate of Incorporation and Bylaws of NCRIC and each of the NCRIC
Subsidiaries (as amended to date). NCRIC has made available to PRA all of the
minute books containing the records of the meetings of the stockholders, the
board of directors and any committee of the board of directors of NCRIC and each
of the NCRIC Subsidiaries (except for confidential portions of such minutes
relating to the Merger, but provided that the availability of such information
is subject to Section 6.3 of this Agreement). The minute books of NCRIC and the
NCRIC Subsidiaries reflect all of the material actions taken by each of their
respective Boards of Directors (including each committee thereof) and
stockholders. NCRIC has made available to PRA all of the stock ledgers of NCRIC
and the NCRIC Subsidiaries.
 
     (b) The books and records of NCRIC and each of the NCRIC Subsidiaries (i)
are and have been properly prepared and maintained in form and substance
adequate for preparing audited consolidated financial statements, in accordance
with generally accepted accounting principles in the United States consistently
applied ("GAAP") and any other applicable legal and accounting requirements,
(ii) reflect only actual transactions, and (iii) fairly and accurately reflect
all assets and liabilities of NCRIC and each of the NCRIC Subsidiaries and all
contracts and other transactions to which NCRIC or any of the NCRIC Subsidiaries
is or was a party or by which NCRIC or any of the NCRIC Subsidiaries or any of
their respective businesses or assets is or was affected.
 
     (c) The minute books and stock ledgers of NCRIC accurately and completely
list and describe all issuances, transfers and cancellations of shares of
capital stock of NCRIC. The minute books and stock ledgers of each NCRIC
Subsidiary accurately and completely list and describe all issuances, transfers
and cancellations of shares of capital stock of such NCRIC Subsidiary.
 
     3.4  Capitalization.
 
     (a) The authorized capital stock of NCRIC consists of 13,000,000 shares,
with said shares divided into two classes. One class of said shares consists of
1,000,000 shares of preferred stock and the other class of said shares consists
of 12,000,000 shares of NCRIC Common Stock. As of December 31, 2004, no shares
of such preferred stock and 6,892,517 shares of NCRIC Common Stock were issued
and outstanding and no shares of such preferred stock and 56,134 shares of NCRIC
Common Stock were held in treasury. All of the issued and outstanding shares of
NCRIC Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, and except
pursuant to the terms of this Agreement, the NCRIC Options Plans and the 2003
NCRIC Award Plan, NCRIC does not have and
 
                                       A-8

 
is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of NCRIC Common Stock or any other equity securities of NCRIC or
any securities representing the right to purchase or otherwise receive any
shares of NCRIC Common Stock or any other equity securities of NCRIC. As of
December 31, 2004 no shares of NCRIC Common Stock were reserved for issuance,
except for 427,838 shares reserved for issuance upon the exercise of NCRIC Stock
Options outstanding under the NCRIC Option Plans. Since January 1, 2005, NCRIC
has not issued any shares of NCRIC Common Stock or other equity securities of
NCRIC, or any securities convertible into or exercisable for any shares of NCRIC
Common Stock or other equity securities of NCRIC, other than as contemplated by
this Agreement or pursuant to the exercise of stock options issued under the
NCRIC Option Plans granted prior to such date.
 
     (b) Section 3.4(b) of the NCRIC Disclosure Schedule sets forth a complete
list of (i) the officers and directors of NCRIC and each NCRIC Subsidiary, (ii)
the percentage of the outstanding voting stock of such NCRIC Subsidiary owned or
controlled, directly or indirectly, by NCRIC, and (iii) the percentage of the
outstanding voting stock of such NCRIC Subsidiary owned or controlled, directly
or indirectly, by one or more of the other Subsidiaries of NCRIC. Except as set
forth in Section 3.4(b) of the NCRIC Disclosure Schedule, NCRIC does not have
any direct or indirect equity or ownership interest in any other business or
entity and does not have any direct or indirect obligation or any commitment to
invest any funds in any corporation or other business or entity, other than for
investment purposes in the ordinary course of business in accordance with past
practices.
 
     3.5  Authority; No Violation; Consents and Approvals.
 

     (a) NCRIC has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly and validly
approved by the Board of Directors of NCRIC. The Board of Directors of NCRIC has
directed that this Agreement and the transactions contemplated by this Agreement
be submitted to the stockholders of NCRIC for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the affirmative
vote of the holders of a majority of the outstanding shares of NCRIC Common
Stock, no other corporate proceedings on the part of NCRIC are necessary to
approve this Agreement and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly and validly executed and delivered by
NCRIC and (assuming due authorization, execution and delivery by NEWCO and PRA
and the receipt of all Requisite Regulatory Approvals (as defined in Section
7.1(d) of this Agreement)) constitutes a valid and binding obligation of NCRIC,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity. On or prior to the date of this Agreement, the Board of
Directors of NCRIC received the oral opinion of Sandler, O'Neill & Partners,
L.P. that the Merger Consideration is fair to the stockholders of NCRIC from a
financial point of view.

 
     (b) Neither the execution and delivery of this Agreement by NCRIC nor the
consummation by NCRIC of the transactions contemplated by this Agreement, nor
compliance by NCRIC with any of the terms or provisions of this Agreement, will
(i) violate any provision of the Certificate of Incorporation or Bylaws of NCRIC
or (ii) assuming that all Requisite Regulatory Approvals and all of the consents
and approvals referred to in Section 3.5(c) of this Agreement are duly obtained,
(x) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to NCRIC or any of its properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any Lien upon any of
the properties or assets of NCRIC under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which NCRIC is a party, or
by which it or any of its properties or assets may be bound or affected, except
(in the case of clause (y) above) as set forth in Section 3.5(b)(ii)(y) of the
NCRIC Disclosure Schedule, or for such
 
                                       A-9

 
violations, conflicts, breaches or defaults which, either individually or in the
aggregate, would not have a Material Adverse Effect on NCRIC.
 
     (c) Except for (i) the filing of applications, notices and forms with, and
the obtaining of approvals from, the Insurance Regulators (as defined in Section
9.18(a) of this Agreement) pursuant to the Insurance Laws (as defined in Section
9.18(a) of this Agreement), with respect to the transactions contemplated by
this Agreement, (ii) the filing with the Securities and Exchange Commission (the
"SEC") of a proxy statement in definitive form relating to the meeting of
stockholders of NCRIC to be held in connection with this Agreement and the
transactions contemplated by this Agreement (the "PROXY STATEMENT") and the
registration statement on Form S-4 in which the Proxy Statement will be included
as a prospectus (the "S-4"), (iii) the filing of the Certificate of Merger with
the Secretary of State of Delaware pursuant to the DGCL, (iv) the filing of a
notification and report form (the "HSR ACT REPORT") with the Pre-Merger
Notification Office of the Federal Trade Commission and with the Antitrust
Division of the Department of Justice (collectively, the "PRE-MERGER
NOTIFICATION AGENCIES") pursuant to the Hart-Scott-Rodino Anti-Trust
Improvements Act, as amended, and the rules and regulations thereunder
(collectively, the "HSR ACT"), (v) any consents, authorizations, orders and
approvals required under the Securities Act of 1933, as amended, and the rules
and regulations thereunder (collectively, the "SECURITIES ACT"), the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(collectively, the "EXCHANGE ACT"), and the HSR Act, (vi) any consents,
authorizations, approvals, filings or exemptions in connection with compliance
with the applicable provisions of federal and state securities laws relating to
the regulation of broker-dealers or investment advisers, and federal commodities
laws relating to the regulation of futures commission merchants and the rules
and regulations thereunder and of any applicable industry self-regulatory
organization (including, without limitation, the National Association of
Insurance Regulators (the "NAIC"), the New York Stock Exchange, the National
Association of Securities Dealers, Inc. (the "NASD") and the Nasdaq National
Market) (each, an "SRO"), or which are required under the Insurance Laws and
other similar laws, (vii) such filings and approvals as are required to be made
or obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of the shares of PRA Common Stock pursuant to this
Agreement, and (viii) the approval of this Agreement by the requisite votes of
the stockholders of NCRIC and the stockholder of NEWCO, no consents or approvals
of or filings or registrations with any Governmental Authority (as defined in
Section 9.18(a) of this Agreement), or with any other Person (as defined in
Section 9.18(a) of this Agreement) are necessary in connection with the
execution and delivery by NCRIC of this Agreement or the consummation by NCRIC
of the transactions contemplated by this Agreement.
 
     (d) No stockholder of NCRIC or any NCRIC Subsidiary shall have any
pre-emptive rights under applicable law with respect to, or as a result of, the
transactions contemplated by this Agreement (including the Merger).
 
     3.6  Insurance Reports.
 
     (a) "NCRIC SAP STATEMENTS" means (i) the annual statutory statements of
each of the NCRIC Insurance Subsidiaries filed with any Insurance Regulator for
each of the years ended December 31, 2003, 2002 and 2001 and each calendar year
ending after December 31, 2003, (ii) the quarterly statutory statements of each
of the NCRIC Insurance Subsidiaries filed with any Insurance Regulator for each
quarterly period in 2004 and for each quarterly period ending after the date of
this Agreement, and (iii) all exhibits, interrogatories, notes, schedules and
any actuarial opinions, affirmations or certifications or other supporting
documents filed in connection with such annual statutory statements and
quarterly statutory statements.
 
     (b) All such NCRIC SAP Statements were and will be prepared (i) in
conformity with statutory accounting practices prescribed or permitted by the
Insurance Regulators consistently applied ("SAP") and (ii) in accordance with
the books and records of NCRIC and the NCRIC Insurance Subsidiaries. The NCRIC
SAP Statements, when read in conjunction with the notes thereto and any
statutory audit reports relating thereto, present, and will present, fairly in
all material respects the statutory financial
 
                                       A-10

 
condition and results of operations of the NCRIC Insurance Subsidiaries for the
dates and periods indicated and are consistent with the books and records of the
NCRIC Insurance Subsidiaries (which books and records are correct and complete
in all material respects). The annual statutory balance sheets and income
statements included in the NCRIC SAP Statements have been, and will be, where
required by Insurance Laws, audited by an independent accounting firm of
recognized national reputation. In accordance with Section 3.6(b) of the NCRIC
Disclosure Schedule, NCRIC has made available to PRA true and complete copies of
all of the NCRIC SAP Statements and all audit opinions related thereto.
 
     (c) Since December 31, 2000 NCRIC and each NCRIC Subsidiary (i) have filed
or submitted with all applicable Insurance Regulators, all registration
statements, notices and reports, together with all exhibits and amendments
thereto under the Insurance Laws applicable to insurance holding companies (the
"NCRIC HOLDING COMPANY ACT REPORTS"), (ii) have filed all NCRIC SAP Statements,
(iii) have filed all other reports and statements, together with all amendments
and supplements thereto, required to be filed with any Insurance Regulator under
the Insurance Laws, and (iv) have paid all fees and assessments due and payable
by them under the Insurance Laws. Section 3.6(c) to the NCRIC Disclosure
Schedule sets forth a list of, and NCRIC has made available to PRA, accurate and
complete copies of, all NCRIC SAP Statements, NCRIC Holding Company Act Reports
and all other reports and statements filed by NCRIC or any of the NCRIC
Subsidiaries with any Insurance Regulator for periods ending and events
occurring, after December 31, 2000 and prior to the Closing Date (as defined in
Section 9.1 of this Agreement), and the latest requests for approval of a rate
increase in each state or other jurisdiction that a NCRIC subsidiary writes
insurance. All such NCRIC SAP Statements, NCRIC Holding Company Act Reports and
other reports and statements complied with the Insurance Laws when filed and, as
of their respective dates, contained all information required under the
Insurance Laws and did not contain any false statements or material
misstatements of fact or omit to state any material facts necessary to make the
statements set forth therein not materially misleading in light of the
circumstances in which such statements were made. No deficiencies have been
asserted by any Governmental Authority with respect to such NCRIC SAP
Statements, NCRIC Holding Company Act Reports and other reports and statements.
 
     (d) Except for normal examinations conducted by a Governmental Authority in
the regular course of the business of NCRIC and its Subsidiaries, and except as
set forth in Section 3.6(d) of the NCRIC Disclosure Schedule, no Governmental
Authority has initiated any proceeding or investigation into the business or
operations of NCRIC, any NCRIC Subsidiary, or any director or officer of NCRIC
or any NCRIC Subsidiary, since December 31, 2000. There is no unresolved
violation, criticism, or exception by any Governmental Authority with respect to
any examinations of NCRIC or any of its Subsidiaries.
 
     (e) Section 3.6(e) of the NCRIC Disclosure Schedule lists all financial
examinations that any Insurance Regulator has conducted with respect to NCRIC or
any of the NCRIC Insurance Subsidiaries since December 31, 2000. NCRIC has made
available to PRA correct and complete reports issued by the applicable Insurance
Regulator with respect to such financial examinations. There are no regulatory
examinations of NCRIC or any of the NCRIC Insurance Subsidiaries currently in
process.
 
     (f) Neither NCRIC nor any NCRIC Subsidiary has received from any Person any
Notice on Form A or such other form as may be prescribed under applicable law
indicating that such Person intends to make or has made a tender offer for or a
request or invitation for tenders of, or intends to enter into or has entered
into any agreement to exchange securities for, or intends to acquire or has
acquired (in the open market or otherwise), any voting security of NCRIC, if
after the consummation thereof such Person would directly or indirectly be in
control of NCRIC.
 
     3.7  SEC Reports; Financial Statements.
 
     (a) NCRIC has on a timely basis filed all forms, reports and documents
required to be filed by it with the SEC since January 1, 2001. Section 3.7(a) of
the NCRIC Disclosure Schedule lists, and NCRIC has delivered to PRA (except to
the extent available in full without redaction on the SEC's web site through the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR") two days
prior to the date of this Agreement) copies in the form filed with the SEC of
(i) NCRIC's Regulation Statement on Form S-1 effective May 14, 2003 (SEC File
No. 333-104023); (ii) NCRIC's Annual Reports on
                                       A-11

 
Form 10-K for each fiscal year of NCRIC commencing after December 31, 2000,
(iii) its Quarterly Reports on Form 10-Q for each of the first three fiscal
quarters in each of the fiscal years of NCRIC commencing after January 1, 2001,
(iv) all proxy statements relating to NCRIC's meetings of stockholders (whether
annual or special) held, and all information statements relating to stockholder
consents, since January 1, 2001, (v) all certifications and statements required
by (x) the SEC's Order dated June 27, 2002 pursuant to Section 21(a)(1) of the
Exchange Act (File No. 4-460), and (y) Rule 13a-14 or 15d-14 under the Exchange
Act or (z) 18 U.S.C. sec.1350 (Section 906 of the Sarbanes-Oxley Act of 2002
("SOX")) with respect to any report referred to in clause (i) or (ii) of this
sentence, (vi) all other forms, reports, registration statements and other
documents (other than preliminary materials if the corresponding definitive
materials have been provided to PRA pursuant to this Section 3.7(a)) filed by
NCRIC with the SEC since January 1, 2001 (the forms, reports, registration
statements and other documents referred to in causes (i), (ii), (iii), (iv) and
(v) of this sentence are, collectively, the "NCRIC SEC REPORTS" and, to the
extent available in full without redaction on the SEC's web site through EDGAR
two days prior to the date of this Agreement, are, collectively, the "NCRIC
FILED SEC REPORTS"), and (vi) all comment letters received by NCRIC from the
Staff of the SEC since January 1, 2001 and all responses to such comment letters
by or on behalf of NCRIC.
 
     (b) Except as set forth in Section 3.7(b) of the NCRIC Disclosure Schedule,
the NCRIC SEC Reports (i) were or will be prepared in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be, in
all material respects, and (ii) did not at the time they were filed with the
SEC, or will not at the time they are filed with the SEC, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary of NCRIC is or has been required to file any form, report,
registration statement or other document with the SEC. As used in this Section
3.7, the term "file" shall be broadly construed to include any manner in which a
document or information is furnished, supplied or otherwise made available to
the SEC.
 
     (c) NCRIC has established and maintains disclosure controls and procedures
(as such term is defined in Section 13(b)(2)(B) and Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Such disclosure controls and procedures: (i)
are designed to ensure that material information relating to NCRIC and its
Subsidiaries is made known to NCRIC's chief executive officer and its chief
financial officer by others within those entities, particularly during the
periods in which NCRIC's reports and filings under the Exchange Act are being
prepared, (ii) have been evaluated for effectiveness as of the end of the most
recent annual period reported to the SEC, and (iii) are effective to perform the
functions for which they were established. Neither the auditors of NCRIC nor the
Audit Committee of the Board of Directors of NCRIC have been advised of: (x) any
significant deficiencies or material weaknesses in the design or operation of
the internal controls over financial reporting (as such term is defined in
Section 13(b)(2)(B) and Rules 13d-15(d) and 15d-15(d) of the Exchange Act) of
NCRIC and its Subsidiaries which could adversely affect NCRIC's ability to
record, process, summarize and report financial data, and (y) any fraud, whether
or not material, that involves management or other employees who have a role in
the internal controls over financial reporting of NCRIC and its Subsidiaries.
Since the date of the most recent evaluation of such internal controls over
financial reporting and procedures, there have been no significant changes in
internal controls over financial reporting or in other factors that could
significantly affect such internal controls over financial reporting, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
 
     (d) The financial statements of NCRIC and its Subsidiaries included in the
NCRIC SEC Reports (including the related notes) (i) did or will comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto (including, without limitation,
Regulation S-X), (ii) were or will be prepared in accordance with GAAP (except,
in the case of unaudited statements, to the extent permitted by Regulation S-X
for Quarterly Reports on Form 10-Q) applied on a consistent basis during the
periods and at the dates involved (except as may be indicated in the notes
thereto), and (iii) did or
 
                                       A-12

 
will fairly present the consolidated financial condition of NCRIC and its
Subsidiaries at the dates thereof and the consolidated results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to notes and normal year-end audit adjustments that were not, or
with respect to any such financial statements contained in any NCRIC SEC Reports
to be filed subsequent to the date hereof are not reasonably expected to be,
material in amount or effect). Except (x) as reflected in NCRIC's unaudited
balance sheet at September 30, 2004, or liabilities described in any notes
thereto (or liabilities for which neither accrual nor footnote disclosure is
required pursuant to GAAP), (y) as reflected in NCRIC's unaudited draft of the
consolidated balance sheet at December 31, 2004 included in Section 3.7(d) of
the Disclosure Schedule (the "2004 NCRIC BALANCE SHEET"), or (z) for liabilities
incurred in the ordinary course of business since December 31, 2004 consistent
with past practice or in connection with this Agreement or the transactions
contemplated hereby, neither NCRIC nor any NCRIC Subsidiary has any material
liabilities or obligations of any nature.
 
     (e) Since July 31, 2002, each NCRIC Filed SEC Report which included
financial statements was accompanied by the certifications of NCRIC's chief
executive officer and chief financial officer as required under Sections 302 and
906 of SOX.
 
     (f) Section 3.7(f) of the NCRIC Disclosure Statement lists, and NCRIC has
delivered to PRA copies of the documentation creating or governing, all
securitization transactions and "off-balance sheet arrangements" (as defined in
Item 303(c) of Regulation S-K of the SEC) effected by NCRIC or its Subsidiaries
since December 31, 1999.
 
     (g) Deloitte & Touche LLP, which has expressed its opinion with respect to
the financial statements of NCRIC and its subsidiaries included in NCRIC SEC
Reports (including the related notes), is and has been throughout the periods
covered by such financial statements (with respect to (i) and (ii) below, for
the periods required by SOX) (i) a registered public accounting firm (as defined
in Section 2(a)(12) of SOX), (ii) "independent" with respect to NCRIC within the
meaning of Regulation S-X, and (iii) in compliance with subsections (g) through
(l) of Section 10A of the Exchange Act and the Public Company Accounting
Oversight Board. Section 3.7(g) of the NCRIC Disclosure Schedule lists all non-
audit services performed by Deloitte & Touche LLP for NCRIC and each NCRIC
Subsidiary for each year commencing after December 31, 2002.
 
     (h) NCRIC and each NCRIC Subsidiary maintains accurate books and records
reflecting its assets and liabilities and maintains proper and adequate internal
accounting controls over financial reporting which provide assurance that (i)
transactions are executed with management's authorization; (ii) transactions are
recorded as necessary to permit preparation of the consolidated financial
statements of NCRIC and to maintain accountability for the consolidated assets
of NCRIC; (iii) access to assets is permitted only in accordance with
management's authorization; (iv) the reporting of assets is compared with
existing assets at regular intervals; and (v) accounts, notes and other
receivables and inventory are recorded accurately, and proper and adequate
procedures are implemented to effect the collection thereof on a current and
timely basis.
 
     3.8  Accounts Receivable.  All accounts receivable of NCRIC and each NCRIC
Subsidiary are reflected properly on their respective books and records, are
valid receivables subject to no set offs or counterclaims, are presently current
and collectible, and will be collected in accordance with their terms at the
recorded amounts, subject only to a reasonable reserve for bad debts.
 
     3.9  Broker's Fees.  Except as set forth in Section 3.9 of the NCRIC
Disclosure Schedule, none of NCRIC, the NCRIC Subsidiaries and their respective
officers and directors, has employed any broker or finder or incurred any
liability for any broker's fees or commissions, or investment banker fees or
commissions, or finder's fees in connection with the transactions contemplated
by this Agreement.
 
     3.10  Absence of Certain Changes or Events.
 
     (a) Except for (i) those liabilities and obligations that are fully
reflected or reserved against on the 2004 NCRIC Balance Sheet, (ii) those
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since December 31, 2004, and (iii) coverage and
other claims (other
                                       A-13

 
than bad faith claims) made with respect to insurance policies issued by any
NCRIC Insurance Subsidiary for which adequate claims reserves have been
established, or otherwise disclosed in Section 3.10(a) of the NCRIC Disclosure
Schedule, neither NCRIC nor any of its Subsidiaries has incurred any liability
or obligation of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due), that, either individually or in the
aggregate, would have a Material Adverse Effect on NCRIC, and, there is no
existing condition, situation or set of circumstances that would be reasonably
expected to result in such a liability or obligation. Except as disclosed in the
NCRIC SEC Reports filed prior to the date of this Agreement, since December 31,
2004, NCRIC and its Subsidiaries have carried on their respective businesses in
all material respects in the ordinary and usual course theretofore conducted.
 
     (b) Since December 31, 2004, and except as set forth in Section 3.10(b) of
the NCRIC Disclosure Schedule, neither NCRIC nor any of its Subsidiaries has
(except as required by applicable law): (i) increased the wages, salaries,
compensation, pension, or other fringe benefits or perquisites payable to any
executive officer, employee, or director from the amount thereof in effect as of
December 31, 2004, (ii) granted any stock options or severance or termination
pay, entered into any contract to make or grant any stock options or severance
or termination pay, or paid any bonuses, or (iii) suffered any strike, work
stoppage, slowdown, or other labor disturbance.
 
     (c) Since September 30, 2004, and except as set forth in Section 3.10(c) of
the NCRIC Disclosure Schedule, there has not been: (i) any change in the
financial condition, assets, liabilities, prospects (financial and otherwise) or
business of NCRIC or any NCRIC Subsidiary, which, either individually or in the
aggregate, has had or would have a Material Adverse Effect on NCRIC; (ii) any
material change in any method of accounting or accounting principals or practice
by NCRIC or any NCRIC Subsidiary, except as required by GAAP or SAP and
disclosed in the notes to the unaudited financial statements of NCRIC and the
NCRIC Subsidiaries; (iii) any material change in the actuarial, investment,
reserving, underwriting or claims administration policies, practices,
procedures, methods, assumptions or principles of NCRIC or any NCRIC Insurance
Subsidiary; (iv) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of
NCRIC or any NCRIC Subsidiary; (v) any declaration or payment of any dividends
or distribution of any kind in respect of any of the capital stock of NCRIC or
any NCRIC Subsidiary; (vi) any direct or indirect redemption, purchase or other
acquisition by NCRIC or any NCRIC Subsidiary of any of the capital stock of
NCRIC or any NCRIC Subsidiary; (vii) any discharge or cancellation, whether in
part or in whole, of any indebtedness owed by NCRIC or any NCRIC Subsidiary to
any Person, except reimbursement to employees of ordinary business expenses or
other debts arising in the ordinary course of business; (viii) any sale or
transfer or cancellation of any of the assets, properties, or claims of NCRIC or
any NCRIC Subsidiary, except in the ordinary course of business; (ix) any sale,
assignment or transfer of any trademarks, trade names, or other intangible
assets of NCRIC or any NCRIC Subsidiary; (x) except as set forth in Section
3.10(c) of the NCRIC Disclosure Schedule, any material amendment to or
termination of any material contract, agreement, instrument or license to which
NCRIC or any NCRIC Subsidiary is a party; or (xi) any other event or condition
of any character materially and adversely affecting the business or properties
of NCRIC or any NCRIC Subsidiary.
 
     3.11  Legal Proceedings and Judgments.
 
     (a) Except as set forth in Section 3.11(a) of the NCRIC Disclosure
Schedule, neither NCRIC nor any NCRIC Subsidiary is a party to any, and there
are no pending or, to the knowledge of NCRIC, threatened, legal, administrative,
arbitral or other inquiries, proceedings, claims (whether asserted or
unasserted), actions or governmental or regulatory or SRO investigations of any
nature (including noncontractual claims, bad faith claims and claims against any
directors or officers of NCRIC or any NCRIC Subsidiary, but excluding coverage
and other claims made with respect to insurance policies issued by any NCRIC
Insurance Subsidiary for which adequate claims reserves have been established)
against NCRIC, any NCRIC Subsidiary, any of their respective businesses or
assets, any assets of any other Person which are used in any of the business or
operations of NCRIC or any NCRIC Subsidiary, any directors or officers of NCRIC
or any NCRIC Subsidiary, or the transactions contemplated by this
                                       A-14

 
Agreement, or challenging the validity or propriety of the transactions
contemplated by this Agreement, and to the knowledge of NCRIC Subsidiaries there
is no basis for any such proceedings, claims, actions or investigations.
 
     (b) Except for the 2004 Judgment and as set forth in Section 3.11(b) of the
NCRIC Disclosure Schedule, there is no injunction, order, judgment, decree, or
regulatory restriction (including noncontractual claims, bad faith claims and
claims against any directors or officers of NCRIC or any NCRIC Subsidiary, but
excluding coverage and other claims made with respect to insurance policies
issued by any NCRIC Insurance Subsidiary for which adequate claims reserves have
been established) imposed upon NCRIC, any NCRIC Subsidiary or the assets of
NCRIC or any NCRIC Subsidiary.
 
     (c) Except as set forth in Section 3.11(c) of the NCRIC Disclosure
Schedule, no breach of contract, breach of fiduciary duties under ERISA, bad
faith, breach of warranty, tort, negligence, infringement, fraud,
discrimination, wrongful discharge or other claim of any nature has been
asserted or, to the knowledge of NCRIC, threatened against NCRIC or any NCRIC
Subsidiary, nor is there any basis for any such claim.
 
     (d) As to each matter (if any) described on Section 3.11(c) of the NCRIC
Disclosure Schedule, accurate and complete copies of all relevant pleadings,
judgments, orders and correspondence have been made available to PRA.
 
     (e) Except for each matter (if any) described on Section 3.11(d) of the
NCRIC Disclosure Schedule, no legal, administrative, arbitral or other
inquiries, proceedings, claims, actions or governmental or regulatory or SRO
investigations alleging violations of Federal securities laws (including the
Securities Act and the Exchange Act) have been filed against NCRIC, any NCRIC
Subsidiary or any director or officer of NCRIC or any NCRIC Subsidiary and not
dismissed with prejudice.
 
     3.12  Insurance.
 
     (a) Except as set forth in Section 3.12(a) of the NCRIC Disclosure
Schedule, NCRIC and the NCRIC Subsidiaries maintain policies of general
liability, fire and casualty, automobile, directors and officers, errors and
omissions, fiduciary, and other forms of insurance (the "NCRIC INSURANCE
POLICIES") in such amounts, with such deductibles and against such risks and
losses as are reasonable for the business and assets of NCRIC and the NCRIC
Subsidiaries. All such policies are in full force and effect, all premiums due
and payable thereon have been paid (other than retroactive or retrospective
premium adjustments that are not yet, but may be, required to be paid with
respect to any period ending prior to the Closing Date under comprehensive
general liability and workmen's compensation insurance policies), and no notice
of cancellation or termination has been received with respect to any such policy
which has not been replaced on substantially similar terms prior to the date of
such cancellation. To the knowledge of NCRIC, the activities and operations of
NCRIC and the NCRIC Subsidiaries have been conducted in a manner so as to
conform in all material respects to all applicable provisions of such insurance
policies.
 
     (b) No issuer of the NCRIC Insurance Policies has issued a
reservation-of-rights letter, or entered into a nonwaiver agreement, or
otherwise denied or limited coverage (in whole or in part), under any of the
NCRIC Insurance Policies, and no declaratory judgment has been sought by any
Person or entered by any court of competent jurisdiction that denies or limits
coverage (in whole or in part) under any of the NCRIC Insurance Policies.
 
     3.13  Taxes and Tax Returns.
 
     (a) As used in this Agreement: "TAX" or "TAXES" means all federal, state,
county, local, and foreign income, excise, gross receipts, gross income,
profits, franchise, license, ad valorem, profits, gains, capital, sales,
transfer, use, payroll, employment, severance, withholding, duties, intangibles,
franchise, backup withholding, stamp, occupation, premium, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, registration, alternative or add on minimum, estimated, and other taxes,
charges, levies or like assessments together with all penalties and additions to
tax and interest thereon). "TAX RETURN" or "TAX RETURNS" means any and all
returns, declarations, claims for refunds,
 
                                       A-15

 
reports, information returns and information statements (including, without
limitation, Form 1099, Form W-2 and W-3, Form 5500, and Form 990) with respect
to Taxes filed, or required to be filed, by any Person or any Subsidiary of such
Person with the IRS or any other Governmental Authority or tax authority or
agency, whether domestic or foreign (including consolidated, combined and
unitary tax returns).
 
     (b) NCRIC and the NCRIC Subsidiaries have duly filed all Tax Returns
required to be filed by them on or prior to the date of this Agreement (all such
Tax Returns being accurate and complete in all material respects) and has duly
paid or made sufficient provisions for the payment of all Taxes shown thereon as
owing on or prior to the date of this Agreement (including, if and to the extent
applicable, those due in respect of their properties, income, business, capital
stock, premiums, franchises, licenses, sales and payrolls) other than Taxes
which are not yet delinquent or are being contested in good faith and have not
been finally determined for which adequate reserves have been made on the
financial statements described in Section 3.6(a) of this Agreement. Neither
NCRIC nor any NCRIC Subsidiary has waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax Return or tax
assessment or deficiency other than extensions that are automatically granted by
the taxing authorities upon filing on application therefore. The unpaid Taxes of
NCRIC and the NCRIC Subsidiaries do not exceed the reserve for tax liability set
forth on the 2004 NCRIC Balance Sheet as adjusted for the passage of time
through the Closing Date in accordance with past custom and practice of NCRIC in
filing its returns. No claim has been made since December 31, 1999 by an
authority in a jurisdiction where NCRIC or any NCRIC Subsidiary does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
 
     (c) There is no claim, audit, action, suit, proceeding or investigation now
pending or, to the knowledge of NCRIC, threatened against or with respect to
NCRIC or any NCRIC Subsidiary in respect of any material Tax. NCRIC and each
NCRIC Subsidiary in connection with amounts paid or owed to any employee,
independent contractor, creditor, stockholder or other third party have complied
with applicable tax withholding in all material respects. NCRIC and each NCRIC
Subsidiary have reported such withheld amounts to the appropriate taxing
authority and to each such employee, independent contractor, creditor,
stockholder or other third party as required by applicable law.
 
     (d) There are no Tax Liens upon any property or assets of NCRIC or its
Subsidiaries except Liens for current Taxes not yet due. Neither NCRIC nor any
NCRIC Subsidiary has been required to include in income any adjustment pursuant
to Section 481 of the Code by reason of a voluntary change in accounting method
initiated by NCRIC or any NCRIC Subsidiary, and the IRS has not initiated or
proposed any such adjustment or change in accounting method. Except as set forth
in the financial statements described in Section 3.7(a) of this Agreement,
neither NCRIC nor any NCRIC Subsidiary has entered into a transaction which is
being accounted for as an installment obligation under Section 453 of the Code.
Neither NCRIC nor any NCRIC Subsidiary is a party to or bound by any tax
indemnity, tax sharing or tax allocation agreement (other than such agreements
as exist by and among themselves). Neither NCRIC nor any NCRIC Subsidiary has
ever been a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code other than as a common parent corporation. Neither
NCRIC nor any NCRIC Subsidiary is liable for the Taxes of any person under
Section 1.1502-6 of the Treasury Regulations (or any similar provision of state,
local or foreign Tax law) or by contract, as a successor or otherwise. During
the five (5) year period ending on the date hereof, neither NCRIC nor any NCRIC
Subsidiary was a distributing corporation or a controlled corporation in a
transaction intended to be governed by Section 355 of the Code. Neither NCRIC
nor any NCRIC Subsidiary is a party to any joint venture, partnership or other
arrangement or contract that could be treated as a partnership for federal
income tax purposes. NCRIC's basis and excess loss account, if any, in each
NCRIC Subsidiary is set forth in Section 3.13(d) of the NCRIC Disclosure
Schedule.
 
     (e) Except as set forth in Section 3.13(e) of the NCRIC Disclosure
Schedule, any amount that is reasonably likely to be received (whether in cash
or property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of NCRIC or
any of its affiliates who is a "Disqualified Individual" (as such term is
defined in proposed Treasury
                                       A-16

 
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or NCRIC Benefit Plan (as defined in
Section 3.14 of this Agreement) currently in effect will not be characterized as
an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of
the Code).
 
     (f) There has been no disallowance of a deduction under Section 162(m) of
the Code for employee remuneration of any amount paid or payable by NCRIC or any
NCRIC Subsidiary under any contract, plan, program, arrangement or
understanding.
 
     (g) To the knowledge of NCRIC, there is no dispute or claim concerning any
tax liability of NCRIC or any NCRIC Subsidiary except as disclosed in Section
3.13(g) of the NCRIC Disclosure Schedule. Section 3.13(g) of the NCRIC
Disclosure Schedule identifies the last Tax Returns that have been audited by
the taxing authority with whom they were filed, and indicates those Tax Returns
that currently are the subject of an audit procedure or that NCRIC or any NCRIC
Subsidiary has received notice will be subject to an audit procedure. NCRIC has
made available to PRA correct and complete copies of all federal income tax
returns (including amendments thereto) of, all examination reports of, and
statements of deficiencies assessed against or agreed to by, NCRIC or any NCRIC
Subsidiary since December 31, 1999.
 
     3.14  Employee Plans; Labor Matters.
 
     (a) Section 3.14(a) of the NCRIC Disclosure Schedule sets forth a true and
complete list of all of the Employee Plans (as defined in Section 9.18) for
employees of NCRIC and any NCRIC Subsidiary ("NCRIC EMPLOYEE PLANS"). Except
with respect to the NCRIC Employee Plans, neither NCRIC nor any NCRIC Subsidiary
sponsors, maintains or contributes to, or has any ongoing obligation or
liability whatsoever with respect to: (i) any employee benefit plan as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or (ii) any other program, plan, trust agreement or
arrangement for any bonus, severance, hospitalization, vacation, sick pay,
deferred compensation, pension, profit sharing, post-employment, retirement,
payroll savings, stock option, stock purchase, group insurance, self insurance,
death benefit, fringe benefit, welfare or any other employee benefit plan or
fringe benefit arrangement of any nature whatsoever including those for the
benefit of former employees. Neither NCRIC nor any NCRIC Subsidiary has any
agreement, arrangement, commitment, or understanding, whether legally binding or
not, to create any additional NCRIC Employee Plan or to continue, modify,
change, or terminate, in any material respect, any NCRIC Employee Plan. PRA may
modify, amend and/or terminate any NCRIC Employee Plan after the Effective Time,
subject to applicable law and the terms of such NCRIC Employee Plan.
 
     (b) NCRIC has heretofore delivered or made available to PRA true and
complete copies of each NCRIC Employee Plan and certain related documents,
including: (i) the plan document and the related trust agreement or annuity
contract for such NCRIC Employee Plan; (ii) the summary plan description and
material employee communication document for such NCRIC Employee Plan; (iii) the
actuarial report for such NCRIC Employee Plan (if applicable) for each of the
last two years; (iv) all determination letters from the IRS (if applicable) for
such NCRIC Employee Plan; (v) all insurance policies relating thereto and any
written materials used by NCRIC to describe employee benefits to employees of
NCRIC and the NCRIC Subsidiaries; (vi) the most recent annual return on Form
5500 (including all schedules thereto along with the accompanying auditor's
opinion, if applicable) and tax return (Form 990) for such NCRIC Employee Plan;
(vii) the most current actuarial, valuation, and trustee's reports (as
applicable) for such NCRIC Employee Plan; and (viii) all material communications
with any governmental entity or agency (including the Department of Labor, the
Internal Revenue Service, the Pension Benefit Guaranty Corporation, and the
Securities and Exchange Commission) with respect to such NCRIC Employee Plan.
Each such actuarial or valuation report correctly shows the value of the assets
of such NCRIC Employee Plan as of the date thereof, the total accrued and vested
liabilities, all contributions by NCRIC and the NCRIC Subsidiaries, and the
assumptions on which the calculations are based.
 
                                       A-17

 
     (c) Except as set forth in Section 3.14(c) of the NCRIC Disclosure
Schedule, each of the NCRIC Employee Plans has been operated and administered in
all material respects in compliance with applicable laws, including, but not
limited to, ERISA and the Code. To the knowledge of NCRIC, there has not been
any material violation of the reporting and disclosure provisions of the Code
and ERISA. There has not been any termination or partial termination (including
any termination or partial termination attributable to the transactions
contemplated by this Agreement) of such plans. Neither NCRIC nor any NCRIC
Subsidiary nor any of their respective ERISA affiliates, nor any predecessor
thereof, contributes to, or has within the past six years contributed to, any
multiemployer plans, as defined in Section 3(37) of ERISA, or any multiple
employer welfare arrangements, as defined in Section 3(40) of ERISA. Neither
NCRIC nor any NCRIC Subsidiary nor any of their respective ERISA affiliates, nor
any predecessor thereof, sponsors, participates in, or contributes to, or has at
any time in the past sponsored, participated in, or contributed to (i) any plan
which is subject to the funding standards or requirements described in Section
412 of the Code, or (ii) any plan which is subject to any of the requirements,
obligations, and liabilities imposed by Title IV of ERISA.
 
     (d) Each NCRIC Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has received a favorable
determination letter or has pending or has time remaining in which to file, an
application for such determination from the IRS, and NCRIC is not aware of any
reason why any such determination letter should be revoked or not be reissued,
and any related trust is exempt from taxation under Section 501(a) of the Code.
NCRIC has made available to PRA copies of the most recent Internal Revenue
Service determination letters with respect to each such NCRIC Employee Plan (if
applicable). Except as set forth in Section 3.14(d) of the NCRIC Disclosure
Schedule, each NCRIC Employee Plan has been maintained in material compliance
with its terms and with the requirements prescribed by any and all applicable
laws and regulations, including but not limited to ERISA and the Code. No
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code, or breach of fiduciary duty under Title I of ERISA has
occurred with respect to any NCRIC Employee Plan or with respect to NCRIC or any
NCRIC Subsidiary. No events have occurred with respect to any NCRIC Employee
Plan that could result in payment or assessment by or against Parent or any of
its Subsidiaries of any material excise taxes under Sections 4972, 4975, 4976,
4977, 4979, 4980B, 4980D, 4980E or 5000 of the Code.
 
     (e) There has been no amendment to, written interpretation or announcement
(whether or not written) by NCRIC or any of its affiliates relating to, or
change in employee participation or coverage under, any NCRIC Employee Plan
which would increase materially the expense of maintaining NCRIC Employee Plans
above the level of the expense incurred in respect thereof for the fiscal year
ended December 31, 2003. No event has occurred or circumstances exist that could
result in a material increase in the premium costs of NCRIC Employee Plans that
are insured, or a material increase in benefit costs of the NCRIC Employee Plans
that are self-insured.
 
     (f) Except as set forth in Section 3.14(f) of the NCRIC Disclosure
Schedule, there is no action, suit, investigation, audit or proceeding pending
against or involving or, to the knowledge of NCRIC, threatened against or
involving any NCRIC Employee Plan before any court or arbitrator or any state,
federal or local governmental body, agency or official, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on NCRIC. Other than claims for benefits submitted by
participants or beneficiaries, no claim against, or legal proceeding involving,
any NCRIC Employee Plan is pending or threatened.
 
     (g) Except as described in Section 3.14(g) of the NCRIC Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement will (i) result
in any material payment (including severance, unemployment compensation, golden
parachute or otherwise) becoming due to any director or employee of NCRIC or any
of its Subsidiaries from NCRIC or any of its Subsidiaries under any NCRIC
Employee Plan or otherwise; (ii) materially increase any benefits otherwise
payable under any NCRIC Employee Plan; (iii) result in any acceleration of the
time of payment or vesting of any such benefits to any material extent (in each
case under clauses (i), (ii) or (iii) whether or not such payment or benefit
would constitute a parachute
                                       A-18

 
payment within the meaning of Section 280G of the Code); or (iv) constitute a
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code, or breach of fiduciary duty under Title I of ERISA.
 
     (h) Neither NCRIC nor any NCRIC Subsidiary has any direct or indirect
material liability or obligation under any NCRIC Employee Plan other than as
described in the terms of such NCRIC Employee Plans. There are no circumstances
arising out of the sponsorship of any NCRIC Employee Plan which will result in
any direct or indirect material liability to NCRIC or any NCRIC Subsidiary,
other than liability for contributions, benefit payments, administrative costs
and liabilities incurred in accordance with the terms of the NCRIC Employee
Plans consistent with past practice.
 
     (i) NCRIC and each NCRIC Subsidiary have made all payments and
contributions due from them to each NCRIC Employee Plan. There are no funded
benefit obligations under any NCRIC Employee Plan for which contributions have
not been made or properly accrued, and there are no unfunded benefit obligations
that have not been accounted for by reserves, or otherwise properly footnoted in
accordance with generally accepted accounting principles on the financial
statements of NCRIC and each NCRIC Subsidiary.
 
     (j) Each NCRIC Employee Plan which is an "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA that is not qualified under Section
401(a) or 403(a) of the Code is exempt from Parts 2, 3, and 4 of Title I of
ERISA as an unfunded plan that is maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees, pursuant to Sections 201(2), 301(a)(3), and 401(a)(1) of
ERISA. Except as set forth in Section 3.14(j) of the NCRIC Disclosure Schedule,
no assets of NCRIC or any NCRIC Subsidiary are allocated to or held in a "rabbi
trust" or similar funding vehicle.
 
     (k) Each NCRIC Employee Plan that is a "group health plan" (as defined in
Section 607(1) of ERISA or Section 5001(b)(1) of the Code) has been operated at
all times in compliance with the provisions of Section 4980B of the Code and
Part 6 of Subtitle B of Title I of ERISA ("COBRA"), with the provisions of the
Code and ERISA enacted by the Health Insurance Portability and Accountability
Act of 1996 ("HIPAA"), and with the provisions of any applicable similar state
law.
 
     (l) Except as set forth in Section 3.14(l) of the NCRIC Disclosure
Schedule, no NCRIC Employee Plan provides benefits to current or former
employees beyond their retirement or other termination of service (other than
coverage mandated by COBRA, the cost of which is fully paid by the current or
former employee or his or her dependents).
 
     3.15  Employees.
 
     (a) NCRIC has made available to PRA a true and correct list of the names of
the employees of NCRIC and the NCRIC Subsidiaries, their birth dates, hire
dates, compensation rates, name of employer and capacity in which employed, and
accrued vacation and sick leave, if any, all as of December 31, 2004. Except as
limited by any employment agreements and severance agreements listed on Section
3.15(a) of the NCRIC Disclosure Schedule, and except for any limitations of
general application which may be imposed under applicable employment laws, NCRIC
and the NCRIC Subsidiaries have the right to terminate the employment of any of
their respective employees at will and without payment to such employees.
 
     (b) NCRIC and the NCRIC Subsidiaries are in compliance, in all material
respects, with all applicable ordinances or other laws, orders, and regulations
regarding labor and employment and the compensation therefore, labor and
employment matters, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health, and employment
practices, whether state or federal (including, without limitation, wage and
hour laws; workplace safety laws; workers' compensation laws; equal employment
opportunity laws; equal pay laws; civil rights laws; the Occupational Safety and
Health Act of 1970, as amended; the Equal Employment Opportunity Act, as
amended; the Americans With Disabilities Act, 42 U.S.C. sec. 12101 et seq., as
amended; the Fair Labor Standards Act, 29 U.S.C. sec. 201 et seq., as amended;
the Equal Pay Act, 29 U.S.C. sec. 206d, as amended,
                                       A-19

 
the Portal-to-Portal Pay Act of 1947, 29 U.S.C. sec. 255 et seq., as amended;
Title VII of the Civil Rights Act of 1964, 42 U.S.C. sec. 2000e, as amended and
42 U.S.C. sec. 1981, as amended; Rehabilitation Act of 1973, as amended; the
Vietnam-Era Veterans' Readjustment Assistance Act of 1974, as amended; the
Immigration Reform and Control Act, 8 U.S.C. sec. 1324A et seq., as amended; the
Employee Polygraph Protection Act of 1988, as amended; the Veterans
Re-employment Act -- Handicap Bias, 38 U.S.C. sec. 2027 et seq., as amended; the
Civil Rights Act of 1991, as amended; the Family and Medical Leave Act of 1993,
as amended; the Religious Freedom Restoration Act of 1993, as amended; and the
Age Discrimination and Employment Act of 1967, as amended). No action or
investigation has been instituted or, to the knowledge of NCRIC, is threatened
to be conducted by any state or federal agency regarding any potential violation
by NCRIC or any NCRIC Subsidiary of any laws, orders, ordinances and regulations
regarding labor and employment or the compensation therefore (including, without
limitation, any of the aforementioned statutes) during the past five (5) years.
 
     (c) Neither NCRIC nor any NCRIC Subsidiary has ever been a party to or
bound by any union or collective bargaining contract, nor is any such contract
currently in effect or being negotiated by NCRIC or any NCRIC Subsidiary. NCRIC
does not know of any activities or proceedings of any labor union to organize
any employees of NCRIC or any NCRIC Subsidiary. Since December 31, 2004, no
executive officer of NCRIC or any NCRIC Subsidiary has indicated to the Chief
Executive Officer of NCRIC an intention to terminate his or her employment.
 
     (d) NCRIC and each NCRIC Subsidiary have complied with all applicable
notice provisions of and have no material obligations under the Consolidated
Omnibus Budget Reconciliation Act of 1985 with respect to any former employees
or qualifying beneficiaries thereunder. There is no action, claim, cause of
action, suit or proceeding pending or, to the knowledge of NCRIC, threatened, on
the part of any employee, independent contractor or applicant for employment,
including any such action, claim, cause of action, suit or proceeding based on
allegations of wrongful termination or discrimination on the basis of age, race,
religion, sex, sexual preference, or mental or physical handicap or disability.
All sums due from NCRIC or any NCRIC Subsidiary for employee compensation
(including, without limitation, wages, salaries, bonuses, relocation benefits,
stock options and other incentives) have been paid, accrued or otherwise
provided for, and all employer contributions for employee benefits, including
deferred compensation obligations, and all benefits under any NCRIC Employee
Plan have been duly and adequately paid or provided for in accordance with plan
documents. To the knowledge of NCRIC, no person treated as an independent
contractor by NCRIC or any NCRIC Subsidiary is an employee as defined in Section
3401(c) of the Code, nor has any employee been otherwise improperly classified,
as exempt, nonexempt or otherwise, for purposes of federal or state income tax
withholding or overtime laws, rules, or regulations.
 
     (e) Since September 30, 2004, neither NCRIC nor any NCRIC Subsidiary has
effectuated (i) a "plant closing" (as defined in the Worker Adjustment and
Retraining Notification Act (the "WARN ACT")) affecting any site of employment
or one or more facilities or operating units within any site of employment or
facility of NCRIC or any NCRIC Subsidiary; (ii) a "mass layoff" (as defined in
the WARN Act); or (iii) such other transaction, layoff, reduction in force or
employment terminations sufficient in number to trigger application of any
similar foreign, state or local law.
 
     3.16  Compliance with Applicable Law.
 
     (a) NCRIC and the NCRIC Subsidiaries hold all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to, and have complied in all material respects
with, and are not in default in any respect under any, and have maintained and
conducted their respective businesses in all respects in compliance with, all
applicable laws, statutes, orders, rules, regulations, policies and/or
guidelines.
 
     (b) Neither NCRIC nor any NCRIC Subsidiary is subject to any
cease-and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or has been a recipient of any supervisory letter from, or
since that date, has adopted any
                                       A-20

 
board resolutions at the request of any Governmental Authority that: (i) limits
the ability of NCRIC or any NCRIC Insurance Subsidiary to conduct any line of
business, (ii) require any investments of NCRIC or any NCRIC Insurance
Subsidiary to be treated as non-admitted assets, (iii) require divestiture of
any investments of NCRIC or any NCRIC Insurance Subsidiary, (iv) in any manner
imposes any requirements on NCRIC or any NCRIC Insurance Subsidiary in respect
of risk based capital requirements that add to or otherwise modify the risk
based capital requirements imposed under the Insurance Laws, (v) in any manner
relate to the ability of NCRIC or any NCRIC Insurance Subsidiary to pay or
declare dividends or distributions, or (vi) restricts in any material respect
the conduct of the business, credit policies or management of NCRIC or any NCRIC
Subsidiary (each, whether or not set forth in the NCRIC Disclosure Schedule, a
"NCRIC REGULATORY AGREEMENT"), nor has NCRIC or any of its Subsidiaries been
advised by any Governmental Authority that it is considering issuing or
requesting any such NCRIC Regulatory Agreement. Neither NCRIC nor any NCRIC
Insurance Subsidiary, directly or indirectly, engages in any activity prohibited
by applicable law.
 
     (c) Except as set forth in Section 3.16(c) of the NCRIC Disclosure
Schedule, there is no pending or, to the knowledge of NCRIC, threatened charge
by any Governmental Authority that NCRIC or any NCRIC Insurance Subsidiary has
violated any applicable laws, rules or regulations (including any Insurance
Laws), nor any pending or, to the knowledge of NCRIC, threatened investigation
by any Governmental Authority with respect to possible violations of any
applicable laws, rules or regulations (including any Insurance Laws).
 
     (d) There are no contracts (other than contracts relating to employment),
real estate leases, loans, guarantees or other arrangements or transactions of
any nature between NCRIC or any NCRIC Subsidiary, on the one hand, and any of
their respective officers, directors, or affiliates (as such term is defined in
Rule 405 of the SEC), on the other hand. NCRIC has not, since July 30, 2002,
extended or maintained credit, arranged for the extension of credit, or renewed
an extension of credit, in the form of a personal loan to or for any director or
executive officer (or equivalent thereof) of NCRIC or any NCRIC Subsidiary.
Section 3.16(d) of the NCRIC Disclosure Schedule identifies each loan or
extension of credit maintained by NCRIC or any NCRIC Subsidiary to which the
second sentence of Section 13(k)(1) of the Exchange Act applies.
 
     (e) NCRIC is, or will timely be, in all material respects, in compliance
with all current and proposed listing and corporate governance requirements of
the NASD and the Nasdaq National Market.
 
     (f) Each of NCRIC, its directors and its executive officers has consulted
with NCRIC's independent auditors and outside counsel with respect to, and (to
the extent applicable to NCRIC) is familiar in all material respects with all of
the requirements of SOX. NCRIC is in compliance with the provisions of SOX
applicable to it as of the date hereof and has implemented such programs and has
taken reasonable steps, upon the advice of NCRIC's independent auditors and
outside counsel, respectively, to ensure NCRIC's future compliance (not later
than the relevant statutory and regulatory deadlines therefore) with all
provisions of SOX which shall become applicable to NCRIC after the date of this
Agreement.
 
     (g) None of NCRIC, the NCRIC Subsidiaries, any of their respective current
directors or officers, and, to the knowledge of NCRIC, any of their respective
former officers or directors or current or former employees, agents or
representatives have: (i) used any corporate funds for any illegal
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) used any corporate funds for any direct or indirect
unlawful payments to any foreign or domestic government officials or employees,
(iii) violated any provision of the Foreign Corrupt Practices Act of 1977, (iv)
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets, (v) made any false or fictitious entries on the books and records
of NCRIC or any NCRIC Subsidiary, (vi) made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment of any nature, or (vi) made any
material favor or gift which is not deductible for federal income tax purposes.
To the knowledge of NCRIC: (x) no director or officer of NCRIC or any NCRIC
Subsidiary has engaged in any "insider trading" in violation of applicable law
with respect to any security issued by NCRIC or any NCRIC Subsidiary; and (y) no
such director or officer has made any false certifications or statements under
(i) the SEC's Order dated
 
                                       A-21

 
June 27, 2002 pursuant to Section 21(a)(1) of the Exchange Act (File No. 4-460),
(ii) Rule 13a-14 or 15d-14 under the Exchange Act or (iii) 18 U.S.C. sec.1350
(Section 906 of SOX) with respect to any NCRIC SEC Report.
 
     3.17  Certain Contracts.
 
     (a) The documents listed in Item 15(c) in NCRIC's Annual Report on Form
10-K for the year ended December 31, 2003 and the documents listed on Section
3.17(a) of the NCRIC Disclosure Schedule set forth all contracts, agreements,
arrangements, commitments, or understandings (whether written or oral) to which
NCRIC or a NCRIC Subsidiary is a party to or bound by: (i) with respect to the
employment of any directors, officers or employees; (ii) which, upon the
consummation of the transactions contemplated by this Agreement will (either
alone or upon the occurrence of any additional acts or events) result in any
payment (whether of severance pay or otherwise) becoming due from NCRIC, PRA,
NEWCO, or any of their respective Subsidiaries to any director, officer or
employee thereof; (iii) which is a "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date
of this Agreement that has not been filed or incorporated by reference in the
NCRIC SEC Reports; (iv) that concerns a partnership or joint venture that is not
consolidated with NCRIC for financial reporting purposes; (v) the purpose of
which is to limit the ability of NCRIC or any NCRIC Subsidiary to compete with
respect to any product, service or territory; (vi) that is in the nature of a
collective bargaining agreement, employment agreement, consulting agreement or
severance agreement that is not cancelable by NCRIC or any NCRIC Subsidiary
without penalty or compensation on thirty (30) days notice or less; (vii) that
provides for the payment to an employee of NCRIC or any NCRIC Subsidiary any
incentive or bonus compensation based on the productivity or performance of such
employee or of NCRIC or any NCRIC Subsidiary; (viii) that is with any Insurance
Regulator and restricts (A) distributions or other payments to the stockholders
of NCRIC or any NCRIC Subsidiary, (B) the continued operation of NCRIC or any
NCRIC Subsidiary, or (C) any other matter relating to NCRIC or any NCRIC
Subsidiary and its affairs; or (ix) (including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan) any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. NCRIC has previously made available to PRA true and correct copies of
all employment and deferred compensation agreements which are in writing and to
which NCRIC or any NCRIC Subsidiary is a party. Each contract, agreement,
arrangement, commitment, or understanding (whether written or oral) of the type
described in Sections 3.17(a), (b) and (c) of this Agreement, whether or not set
forth in the NCRIC Disclosure Schedule, is referred to in this Agreement as a
"NCRIC CONTRACT", and neither NCRIC nor any NCRIC Subsidiary knows of, or has
received notice of, any violation of any NCRIC Contract by any of the other
parties thereto.
 
     (b) Section 3.17(b) of the NCRIC Disclosure Schedule sets forth a list of,
and NCRIC has made available to PRA correct and complete copies of, all written
arrangements (or group of related written arrangements) from or to third
parties, for the furnishing of services to, or receipt of services by, NCRIC or
any NCRIC Subsidiary (including without limitation, legal and accounting
services, risk management services, agency agreements, managing general agent
agreements, reinsurance intermediary agreements and other distribution
agreements, and agreements relating to the sale or servicing of medical
professional liability insurance products offered by NCRIC or any NCRIC
Subsidiary) under which payments were made during any calendar year since
December 31, 2001 in excess of $250,000 or that has a non-cancelable term in
excess of one year (as to the latter, which is still in effect).
 
     (c) With respect to each NCRIC Contract: Such NCRIC Contract is in full
force and effect (except for contracts that have expired pursuant to the terms
thereof) and is legally valid, binding and enforceable in accordance with its
terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies). There are no material defaults by NCRIC
or any NCRIC Subsidiary, or, to the knowledge of NCRIC, any other party, under
such NCRIC Contract. Neither NCRIC nor any NCRIC Subsidiary has
                                       A-22

 
received notice of any default, offset, counterclaim or defense under such NCRIC
Contract. No condition or event has occurred which with the passage of time or
the giving of notice or both would constitute a default or breach by NCRIC or
any NCRIC Subsidiary, or, to the knowledge of NCRIC, any other party under the
terms of such NCRIC Contract. All security deposits, reserve funds, and other
sums and charges that have become due and payable under such NCRIC Contract have
been paid in full. No party has repudiated any provision of such NCRIC Contract.
 
     3.18  Investments and Interest Rate Risk Management Instruments.
 
     (a) Except as set forth in Section 3.18(a) of the NCRIC Disclosure
Schedule, NCRIC and each NCRIC Subsidiary have good and marketable title to all
securities held by it (except securities sold under repurchase agreements or
held in any fiduciary or agency capacity), free and clear of any Lien, except to
the extent such securities are pledged in the ordinary course of business
consistent with prudent business practices to secure obligations of NCRIC or any
NCRIC Subsidiary. Such securities are permissible investments under all
applicable laws and are valued on the books of NCRIC in accordance with GAAP and
SAP. None of the securities are in default in the payment of principal, interest
or dividends or is impaired to any extent. NCRIC has provided to PRA a copy of
the investment policies of NCRIC and the NCRIC Subsidiaries as of December 31,
2004. There has been no material change in investment policy of NCRIC and the
NCRIC Subsidiaries or in the composition of the investments of NCRIC and the
NCRIC Subsidiaries since December 31, 2004.
 
     (b) All interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements entered into for the account of NCRIC
or its Subsidiaries were entered into in the ordinary course of business and, to
the best knowledge of NCRIC, in accordance with prudent business practice and
applicable rules, regulations and policies of any Governmental Authority and
with counterparties believed to be financially responsible at the time. All of
such interest rate swaps, caps, floors and option agreements and other interest
rate risk management arrangements are legal, valid and binding obligations of
NCRIC or its Subsidiaries enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies), and are in full force and effect. NCRIC and each NCRIC
Subsidiary have duly performed in all material respects all of their material
obligations thereunder to the extent that such obligations to perform have
accrued; and, to the best knowledge of NCRIC, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
 
     3.19  Intellectual Property.
 
     (a) NCRIC or a NCRIC Subsidiary owns or has the right to use, pursuant to
license, sublicense, agreement or permission, all Intellectual Property
necessary for the operation of the businesses of NCRIC and the NCRIC
Subsidiaries as presently conducted and as presently proposed to be conducted.
As used in this Agreement, "INTELLECTUAL PROPERTY" means all trademarks, service
marks, logos, domains and domain names, trade names and corporate names and
registrations and applications for registration thereof, copyrights and
registrations and applications for registration thereof, computer software
(including computer software used in insurance operations or for accounting
operations), data and documentation, trade secrets and confidential business
information (including financial, marketing and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information), other proprietary rights, and copies and tangible embodiments
thereof (in whatever form or medium). Section 3.19(a) of the NCRIC Disclosure
Schedule lists all trademarks, service marks, logos, domains and domain names,
trade names and corporate names owned by NCRIC and each NCRIC Subsidiary.
 
     (b) To the knowledge of NCRIC: Neither NCRIC nor any NCRIC Subsidiary has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property of third parties. None of NCRIC, the NCRIC
Subsidiaries, and any of the directors, officers or employees with
responsibility for intellectual property matters of NCRIC or any NCRIC
Subsidiary has ever received any charge, complaint, claim or notice alleging any
such interference, infringement, misappropriation or
                                       A-23

 
violation. No third party has interfered with, infringed upon, misappropriated
or otherwise come into conflict with any intellectual property rights of NCRIC
or any NCRIC Subsidiary.
 
     (c) Section 3.19(c) of the NCRIC Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that NCRIC or any NCRIC
Subsidiary uses, or intends to use, pursuant to license, sublicense, agreement,
or permission. NCRIC has made correct and complete copies of all such licenses,
sublicenses, agreements and permissions (as amended to date) available to PRA.
With respect to each such item of such Intellectual Property: (i) the license,
sublicense, agreement or permission covering the item is legal, valid, binding,
enforceable and in full force and effect; (ii) except as set forth in Section
3.5(b)(ii)(y) of the NCRIC Disclosure Schedule, the license, sublicense,
agreement or permission will continue to be legal, valid, binding and
enforceable and in full force and effect on identical terms on and after the
Merger and the Closing Date; (iii) no party to the license, sublicense,
agreement or permission is in breach or default, and no event of default has
occurred which with notice or lapse of time, or both, would constitute a breach
or default or permit termination, modification or acceleration thereunder; (iv)
no party to the license, sublicense, agreement or permission has repudiated any
provision thereof; (v) with respect to any sublicense, the representations and
warranties set forth in (i) through (iv) above are true and correct with respect
to the underlying license; and (vi) neither NCRIC nor any NCRIC Subsidiary has
granted any sublicense or similar right with respect to the license, sublicense,
agreement or permission.
 
     3.20  Real Property; Environmental Liability.
 
     (a) Neither NCRIC nor any NCRIC Subsidiary owns any right, title or
interest in any real property except as described on Section 3.20(a) of the
NCRIC Disclosure Schedule (collectively, the "NCRIC REAL PROPERTY"). Section
3.20(a) of the NCRIC Disclosure Schedule sets forth a complete and accurate list
and general description of all material leases for real property ("NCRIC REAL
PROPERTY LEASES") to which NCRIC or any NCRIC Subsidiary is a party or by which
any of them are bound. NCRIC or any NCRIC Subsidiary owns all right, title and
interest in, and has good and marketable title to, the NCRIC Real Property, and
NCRIC or any NCRIC Subsidiary has a valid leasehold interest in each NCRIC Real
Property Leases, in each case free and clear of all Liens except for (i) rights
of lessors, co-lessees or sublessees that are reflected in each NCRIC Real
Property Lease; (ii) current taxes not yet due and payable; (iii) Liens of
public record; and (iv) such nonmonetary imperfections of title and
encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of the subject property. To the
knowledge of NCRIC, the activities of NCRIC and its Subsidiaries with respect to
all NCRIC Real Property and NCRIC Real Property Leases used in connection with
their operations are in all material respects permitted and authorized by
applicable zoning laws, ordinances and regulations.
 
     (b) NCRIC and its Subsidiaries enjoy peaceful and undisturbed possession
under all NCRIC Real Property Leases. NCRIC has made available to PRA complete
and correct copies of all of the NCRIC Real Property Leases. Each NCRIC Real
Property Lease is in full force and effect and is legally valid, binding and
enforceable in accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
rights of creditors generally and the availability of equitable remedies). There
are no monetary defaults and no material nonmonetary defaults by NCRIC or any
NCRIC Subsidiary, or, to the knowledge of NCRIC, any other party, under any
NCRIC Real Property Lease. Neither NCRIC nor any NCRIC Subsidiary has received
notice of any default, offset, counterclaim or defense under any NCRIC Real
Property Lease. Except as set forth in Section 3.5(b)(ii)(y) of the NCRIC
Disclosure Schedule, no condition or event has occurred which with the passage
of time or the giving of notice or both would constitute a default or breach by
NCRIC or any NCRIC Subsidiary, or, to the knowledge of NCRIC, any other party,
under of the terms of any NCRIC Real Property Lease. All rent, security
deposits, reserve funds, and other sums and charges that have become due and
payable under the NCRIC Real Property Leases have been paid in full. To the
knowledge of NCRIC, there are no purchase contracts, options or other agreements
of any kind whereby any Person has acquired or will have any basis to assert any
right, title or interest in, or right to the possession, use, enjoyment or
proceeds of, any part or all of the interests in the real property subject to
the NCRIC Real Property Leases.
                                       A-24

 
     (c) NCRIC and its Subsidiaries are and have been in compliance with all
Environmental Laws (as defined in Section 9.18(a) of this Agreement) and all
Environmental Permits (as defined in Section 9.18(a) of this Agreement). There
are no legal, administrative, arbitral or other proceedings, claims, actions,
causes of action, private environmental investigations or remediation activities
or governmental investigations of any nature seeking to impose on NCRIC or any
NCRIC Subsidiary, or that could reasonably be expected to result in the
imposition on NCRIC or any NCRIC Subsidiary of, any liability or obligation
arising under any Environmental Law which would have a Material Adverse Effect
on NCRIC. To the knowledge of NCRIC, there is no reasonable basis for any such
proceeding, claim, action, investigation or remediation activity. Neither NCRIC
nor any NCRIC Subsidiary is subject to any agreement, order, judgment, decree,
letter or memorandum by or with any Governmental Authority or private Person
imposing any liability or obligation under any Environmental Law that would have
a Material Adverse Effect on NCRIC. For purposes of this Section 3.20, the terms
"NCRIC" and "Subsidiaries" include any Person that is, in whole or in part, a
predecessor of NCRIC or any of its Subsidiaries.
 
     3.21  Personal Property.
 
     (a) None of the personal property owned by NCRIC or any NCRIC Subsidiary is
subject to, or as of the Closing Date will be subject to, any Lien.
 
     (b) Section 3.21(b) of the NCRIC Disclosure Schedule lists each personal
property lease to which NCRIC or any NCRIC Subsidiary is a party that is not
cancelable upon ninety (90) days notice without penalty and has monthly rent
that exceeds $1,500 (collectively, the "NCRIC PERSONAL PROPERTY LEASES"). NCRIC
has made available to PRA complete and correct copies of all of the NCRIC
Personal Property Leases. Each NCRIC Personal Property Leases is in full force
and effect and is legally valid, binding and enforceable in accordance with its
terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies). There are no material defaults by NCRIC
or any NCRIC Subsidiary, or, to the knowledge of NCRIC, any other party, under
any NCRIC Personal Property Lease. Neither NCRIC nor any NCRIC Subsidiary has
received notice of any material default, offset, counterclaim or defense under
any NCRIC Personal Property Lease. No condition or event has occurred which with
the passage of time or the giving of notice or both would constitute a material
default or breach by NCRIC or any NCRIC Subsidiary, or, to the knowledge of
NCRIC, any other party under of the terms of any NCRIC Personal Property Lease.
All rent, security deposits, reserve funds, and other sums and charges that have
become due and payable under the NCRIC Personal Property Leases have been paid
in full. To the knowledge of NCRIC, there are no purchase contracts, options or
other agreements of any kind whereby any Person has acquired or will have any
basis to assert any right, title or interest in, or right to the possession,
use, enjoyment or proceeds of, any part or all of the interests in the real
property subject to the NCRIC Personal Property Leases.
 
     3.22  State Takeover Laws.  The Board of Directors of NCRIC has approved
the transactions contemplated by this Agreement and taken such action such that
the provisions of the DGCL and any other provisions of any state or local
"takeover" law applicable to NCRIC will not apply to this Agreement or any of
the transactions contemplated by this Agreement. PRA understands and
acknowledges that the Insurance Laws applicable to NCRIC regulate and apply to
the change in the ownership of NCRIC, Inc. as contemplated by this Agreement.
 
     3.23  Insurance Matters.
 
     (a) Except as set forth in Section 3.23(a) of the NCRIC Disclosure
Schedule, all policies, binders, slips, certificates and other agreements of
insurance in effect as of the date hereof (including all applications,
endorsements, supplements, endorsements, riders and ancillary agreements in
connection therewith) issued by the NCRIC Insurance Subsidiaries, and any and
all marketing materials, agents agreements, brokers agreements, service
contracts, and managing general agents agreements to which NCRIC or any NCRIC
Subsidiary is a party, are, to the extent required under applicable law, on
forms approved by the Insurance Regulators or have been filed with and not
objected to by such Insurance
                                       A-25

 
Regulators within the period provided for objection, and all of such forms
comply with the Insurance Laws in all material respects. As to premium rates
established by NCRIC or any NCRIC Insurance Subsidiary which are required to be
filed with or approved by any Insurance Regulators, the rates have been so filed
or approved, the premiums charged conform thereto, and such premiums comply with
the Insurance Laws. Section 3.23(a) of the NCRIC Disclosure Schedule sets forth
all increases in premium rates for medical professional liability insurance
submitted by the NCRIC Insurance Subsidiaries which have been disapproved by any
Insurance Regulators since December 31, 1999. Section 3.23(a) of the NCRIC
Disclosure Schedule lists all correspondence or communications from any
Insurance Regulator received by NCRIC or any NCRIC Insurance Subsidiary after
December 31, 1999, that requests or suggests that its premium rates, if
applicable, for professional liability insurance should be reduced below the
current approved premium levels.
 
     (b) Except as set forth in Section 3.23(b) of the NCRIC Disclosure
Schedule, neither NCRIC nor any NCRIC Insurance Subsidiary has issued any
participating policies or any retrospectively rated policies of insurance.
 
     (c) All reinsurance treaties or agreements, including retrocessional
agreements, to which NCRIC or any NCRIC Insurance Subsidiary is a party or under
which NCRIC or any NCRIC Insurance Subsidiary has any existing rights,
obligations or liabilities are listed on Section 3.23(c) of the Disclosure
Schedule (the "NCRIC REINSURANCE TREATIES"). NCRIC has provided PRA with correct
and complete copies of all of such NCRIC Reinsurance Treaties and all such NCRIC
Reinsurance Treaties are in full force and effect, and the consummation of the
transactions contemplated by this Agreement will not result in the termination
of any NCRIC Reinsurance Treaties. The NCRIC Reserves (as defined in Section
3.23(d) of this Agreement) at each of December 31, 2004 and December 31, 2003,
and December 31, 2002, as reflected in the NCRIC SAP Statements, are stated net
of reinsurance ceded amounts. The NCRIC SAP Statements accurately reflect the
extent to which, pursuant to Insurance Laws, NCRIC and/or the NCRIC Insurance
Subsidiaries are entitled to take credit for reinsurance under the NCRIC
Reinsurance Treaties. All reinsurance recoverable amounts reflected in said
balance sheets are collectible, and NCRIC is unaware of any material adverse
change in the financial condition of its reinsurers that might raise concern
regarding their ability to honor their reinsurance commitments, except as set
forth in Section 3.23(c) of the NCRIC Disclosure Schedule. No party to any of
the NCRIC Reinsurance Treaties has given notice to NCRIC or any NCRIC Insurance
Subsidiary that such party intends to terminate or cancel any of the NCRIC
Reinsurance Treaties as a result of or following consummation of the Merger.
Each NCRIC Reinsurance Treaty is valid and binding on each party thereto, and
none of NCRIC, any NCRIC Insurance Subsidiary, and, to the knowledge of NCRIC,
any other party thereto, is in default in any material respect with respect to
any such reinsurance agreement or treaty. No NCRIC Reinsurance Treaty contains
any provision providing that the other party thereto may terminate the same by
reason of the transactions contemplated by this Agreement, or contains any other
provision which would be altered or otherwise become applicable by reason of
such transactions. Since January 1, 2004 no NCRIC Reinsurance Treaty has been
canceled and there has not been any change in the retention level under any of
such reinsurance agreements or treaties.
 
     (d) Each NCRIC Insurance Subsidiary has assets that qualify as admitted
assets under the Insurance Laws in an amount at least equal to the sum of all
its reserves and liability amounts and its minimum statutory capital and surplus
as required by such Insurance Laws. Each of the NCRIC SAP Statements, as of the
date thereof, sets forth all of the reserves of the NCRIC Insurance Subsidiaries
as of such date (collectively, the "NCRIC RESERVES"). The NCRIC Reserves, gross
and net of the reinsurance thereof, were prepared in accordance with the
requirements for reserves established by the Insurance Regulators, were
determined in accordance with SAP and generally accepted actuarial principles
consistently applied, were computed on the basis of methodologies consistent in
all material respects with those used in prior periods, were fairly stated in
all material respects in accordance with sound actuarial and statutory
accounting principles, and were established in accordance with prudent insurance
practices generally followed in the insurance industry. The NCRIC Reserves make
good and sufficient provisions for all insurance obligations of the NCRIC
Insurance Subsidiaries. The NCRIC Reserves set forth in any
 
                                       A-26

 
NCRIC SAP Statement are adequate to provide for the estimated ultimate net costs
of all reported and unreported losses incurred through the date of such NCRIC
SAP Statement. NCRIC has provided or made available to PRA copies of all work
papers used as the basis for establishing the NCRIC Reserves. Except for regular
periodic assessments based on developments that are publicly known within the
insurance industry, to the knowledge of NCRIC, no claim or assessment is pending
or threatened against NCRIC or any NCRIC Insurance Subsidiary which is peculiar
or unique to NCRIC or such NCRIC Insurance Subsidiary by any state insurance
guaranty association in connection with such association's fund relating to
insolvent insurers.
 
     (e) Section 3.23(e) of the NCRIC Disclosure Schedule lists each actuary,
independent or otherwise, that has reviewed, on behalf of NCRIC or any NCRIC
Subsidiary, the reserves for losses and loss adjustment expenses of NCRIC or any
of the NCRIC Insurance Subsidiaries and their premium rates for liability
insurance in each of the years commencing after December 31, 2000 (collectively
the "NCRIC ACTUARIES" and separately an "NCRIC ACTUARY"). Section 3.23(e) of the
NCRIC Disclosure Schedule lists each and every actuarial report, and all
attachments, supplements, addenda and modifications thereto prepared for or on
behalf of NCRIC or any NCRIC Subsidiary by the NCRIC Actuaries, or delivered by
the NCRIC Actuaries to NCRIC or any NCRIC Subsidiary, since December 31, 2000,
in which a NCRIC Actuary has (i) either expressed an opinion on the adequacy of
such reserves for losses and loss adjustment expenses loss reserves or made
recommendations as to either the amount of reserves for losses and loss
adjustment expenses that should be maintained by NCRIC or any NCRIC Insurance
Subsidiary, or (ii) expressed an opinion as to the adequacy of such premiums or
made a recommendation as to the premiums that should be charged by NCRIC or any
NCRIC Insurance Subsidiary for liability insurance (collectively, the "NCRIC
ACTUARIAL ANALYSES"). To the knowledge of NCRIC the information and data
furnished by NCRIC or any NCRIC Subsidiary to the NCRIC Actuaries in connection
with the NCRIC Actuarial Analyses were accurate in all material respects. To the
knowledge of NCRIC, each NCRIC Actuarial Analysis was based upon an accurate
inventory of policies in force for NCRIC and the NCRIC Insurance Subsidiaries,
as the case may be, at the relevant time of preparation, was prepared using
appropriate modeling procedures accurately applied and in conformity with
generally accepted actuarial principles consistently applied, and the
projections contained therein were properly prepared in accordance with the
assumptions stated therein. NCRIC has made available to PRA a true and correct
copy of each of the NCRIC Actuarial Analyses.
 
     3.24  No Investment Company.  Neither NCRIC nor any NCRIC Subsidiary is an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
 
     3.25  Accuracy of Information Supplied.
 
     (a) All of the representations and warranties made by NCRIC in this
Agreement, taken together and with the NCRIC Disclosure Schedule, do not contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements set forth herein and therein, in light
of the circumstances in which such statements were made, not misleading. The
copies of documents attached to the NCRIC Disclosure Schedule or otherwise made
available to NCRIC in connection with the transactions contemplated hereby are
accurate and complete in all respects.
 
     (b) The S-4 and the Proxy Statement used for the registration and
qualification of shares of PRA Common Stock to be issued upon consummation of
the Merger and used to solicit approval of the Merger by the stockholders of
NCRIC, and all other documents to be filed with the SEC or any applicable state
securities law regulatory authorities relating to this Agreement or the
transactions contemplated by this Agreement (including the Merger), at the
respective times such documents are filed or become effective, and with respect
to the Proxy Statement, from the time of mailing to the stockholders of NCRIC
through the date of the meeting of NCRIC stockholders held to approve this
Agreement, shall, as to all information provided by NCRIC: (i) comply with the
Securities Act, the Exchange Act and all other applicable laws and regulations;
and (ii) not contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact and not omit
 
                                       A-27

 
to state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting
or subject matter which have become false or misleading.
 
     3.26  Effective Time of Representations, Warranties, Covenants and
Agreements.  Each representation, warranty, covenant and agreement of NCRIC set
forth in this Agreement, as updated by any written disclosure schedule delivered
pursuant to Section 6.9(b) of this Agreement, shall be deemed to be made on and
as of the date of this Agreement, and as of the Closing Date, and as of the
Effective Time.
 
                                   ARTICLE 4
 
                     REPRESENTATIONS AND WARRANTIES OF PRA
 
     PRA represents and warrants to NCRIC that the statements contained in this
Article 4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date was substituted for the date of this Agreement throughout this
Article), except (i) as set forth in the disclosure schedule delivered by PRA to
NCRIC on the date hereof and initialed by the parties (the "PRA DISCLOSURE
SCHEDULE"), or (ii) for any changes to the PRA Disclosure Schedule that are
disclosed by PRA to NCRIC in accordance with Section 6.9(b) of this Agreement,
or (iii) to the extent such representations and warranties speak as of an
earlier date. Nothing in the PRA Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the PRA
Disclosure Schedule identifies the exception with reasonable particularity. The
PRA Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Article; provided, however,
(i) that each exception set forth in the PRA Disclosure Schedule shall be deemed
disclosed for purposes of all representations and warranties if such exception
is contained in a section of the PRA Disclosure Schedule corresponding to a
Section in this Article 4, and (ii) the mere inclusion of an exception in the
PRA Disclosure Schedule shall not be deemed an admission by PRA that such
exception represents a material fact, event or circumstance or would result in a
material adverse effect or material adverse change.
 
     4.1  Corporate Organization.
 
     (a) PRA is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. PRA has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed or qualified would not have a Material Adverse Effect (as
defined in Section 9.18) on PRA. NEWCO is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
 
     (b) PRA has made available to NCRIC correct and complete copies of the
Certificate of Incorporation and Bylaws of PRA and each of the PRA Subsidiaries
(as amended to date). PRA has made available to NCRIC all of the minute books
containing the records of the meetings of the stockholders, the board of
directors and any committee of the board of directors of PRA, except for
information subject to confidentiality agreements with third parties in which
case, such information has been redacted. The minute books of PRA reflect all of
the material actions taken by each of its Boards of Directors (including each
committee thereof) and stockholders.
 
     (c) The books and records of PRA and each of the PRA Subsidiaries (i) are
and have been properly prepared and maintained in form and substance adequate
for preparing audited consolidated financial statements, in accordance with GAAP
and any other applicable legal and accounting requirements, (ii) reflect only
actual transactions, and (iii) fairly and accurately reflect all assets and
liabilities of PRA and each of the PRA Subsidiaries and all contracts and other
transactions to which PRA or any of the PRA Subsidiaries is or was a party or by
which PRA or any of the PRA Subsidiaries or any of their respective businesses
or assets is or was affected.
                                       A-28

 
     4.2  Subsidiaries.
 
     (a) Section 4.2(a) of the PRA Disclosure Schedule sets forth the name and
state of incorporation or organization of each Subsidiary of PRA (the "PRA
SUBSIDIARIES"). Each PRA Subsidiary (i) is duly organized and validly existing
as a corporation under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on PRA, and
(iii) has all requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now conducted.
 
     (b) Section 4.2(b) of the PRA Disclosure Schedule identifies the PRA
Subsidiaries that offer insurance and the states in which they are authorized or
licensed to conduct business, and the type of insurance products that they are
authorized or licensed to offer in each such state (the "PRA INSURANCE
SUBSIDIARIES"). No PRA Insurance Subsidiary offers any insurance products in any
jurisdiction where it is neither authorized nor licensed to offer such insurance
products. The business of each of the PRA Insurance Subsidiaries has been and is
being conducted in compliance with all of its licenses in all material respects.
All of such licenses are in full force and effect and there is no proceeding or
investigation pending or, to the knowledge of PRA, threatened which would
reasonably be expected to lead to the revocation, amendment, failure to renew,
limitation, suspension or restriction of such license.
 
     (c) PRA is, directly or indirectly, the record and beneficial owner of all
of the outstanding shares of capital stock of each of the PRA Subsidiaries,
including, without limitation, NEWCO. There are no irrevocable proxies granted
by PRA or any PRA Subsidiary with respect to such shares. There are no equity
securities of any of the PRA Subsidiaries that are or may become required to be
issued by reason of any option, warrants, scrip, rights, to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any capital stock of any of the
PRA Subsidiaries except shares of the PRA Subsidiaries issued to other wholly
owned PRA Subsidiaries. There are no contracts, commitments, understandings or
arrangements by which any of the PRA Subsidiaries is bound to issue additional
shares of its capital stock or options, warrants or rights to purchase or
acquire any additional shares of its capital stock or securities convertible
into or exchangeable for such shares. All of the shares of the PRA Subsidiaries
described in the first sentence of this Section 4.2(c) are validly issued, fully
paid and nonassessable and free of preemptive rights, and are owned by PRA or a
PRA Subsidiary free and clear of any and all Liens and free and clear of any
claim, right or option to acquire any such shares. PRA does not directly or
indirectly own any interest in any other corporation, partnership, joint venture
or other business association or entity which is material to PRA and the PRA
Subsidiaries taken as a whole.
 
     (d) No PRA Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to purchase
or otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
 
     4.3  Capitalization.
 
     (a) The authorized capital stock of PRA consists of 150,000,000 shares,
with said shares divided into two classes. One class of said shares consists of
50,000,000 shares of preferred stock and the other class of said shares consists
of 100,000,000 shares of common stock, $0.01 par value per share, of PRA ("PRA
Common Stock"). As of December 31, 2004, no shares of such preferred stock and
29,204,463 shares of PRA Common Stock were issued and outstanding and no shares
of either such preferred stock or PRA Common Stock were held in treasury. All of
the issued and outstanding shares of PRA Common Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights with no personal liability attaching to the ownership thereof. As of the
date of this Agreement, and except pursuant to the terms of this Agreement, the
PRA Stock Options, and the PRA 3.9% Convertible Senior Debentures due 2023 ( the
"PRA DEBENTURES"), PRA does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for
                                       A-29

 
the purchase or issuance of any shares of PRA Common Stock or any other equity
securities of PRA or any securities representing the right to purchase or
otherwise receive any shares of PRA Common Stock or any other equity securities
of PRA. As of December 31, 2004, no shares of PRA Common Stock were reserved for
issuance, except for (i) 1,105,373 shares reserved for issuance upon the
exercise of outstanding stock options under the PRA Incentive Compensation Stock
Plan (excluding reload options) and the Professionals Group 1996 Long-Term Stock
Incentive Plan (the PRA Stock Options"), (ii) 2,500,000 shares reserved for
issuance pursuant to awards under the PRA 2004 Equity Incentive Plan of which
there are 10,000 shares subject to outstanding options as of the date of this
Agreement, and (iii) 3,230,000 shares reserved for issuance upon conversion of
the PRA Debentures. Since September 30, 2004, PRA has not issued any shares of
PRA Common Stock or other equity securities of PRA, or any securities
convertible into or exercisable for any shares of PRA Common Stock or other
equity securities of PRA, other than pursuant to the exercise of stock options
issued under the PRA Stock Option Plans granted prior to such date.
 
     (b) The authorized capital stock of NEWCO consists of 1,000 shares, no par
value per share, of common stock ("NEWCO COMMON STOCK"). As of the date of this
Agreement, 1,000 shares of NEWCO Common Stock were issued and outstanding and no
shares of NEWCO Common Stock were held in treasury. As of the date of this
Agreement, no shares of NEWCO Common Stock were reserved for issuance. NEWCO has
not issued any shares of NEWCO Common Stock or other equity securities of NEWCO,
or any securities convertible into or exercisable for any shares of NEWCO Common
Stock or other equity securities of NEWCO to any Person other than PRA.
 
     4.4  Authority; No Violation; Consents and Approvals.
 
     (a) PRA has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly and validly approved
by the Board of Directors of PRA, and no other corporate proceedings on the part
of PRA are necessary to approve this Agreement and to consummate the
transactions contemplated by this Agreement. This Agreement has been duly and
validly executed and delivered by PRA and (assuming due authorization, execution
and delivery by NEWCO and NCRIC and the receipt of all Requisite Regulatory
Approvals constitutes a valid and binding obligation of PRA, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally, and subject, as to enforceability, to general principles of equity.
 
     (b) Neither the execution and delivery of this Agreement by PRA nor the
consummation by PRA of the transactions contemplated by this Agreement, nor
compliance by PRA with any of the terms or provisions of this Agreement, will
(i) violate any provision of the Certificate of Incorporation or Bylaws of PRA
or (ii) assuming that all Requisite Regulatory Approvals and all of the consents
and approvals referred to in Section 4.5(c) of this Agreement are duly obtained,
(x) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to PRA or any of its properties or assets,
or (y) violate, conflict with, result in a breach of any provision of or the
loss of any benefit under, constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any Lien upon any of the
properties or assets of PRA under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which PRA is a party, or by which it or any of
its properties or assets may be bound or affected, except (in the case of clause
(y) above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, would not have a Material Adverse Effect on
PRA.
 
     (c) Except for (i) the filing of applications, notices and forms with, and
the obtaining of approvals from, the Insurance Regulators pursuant to the
Insurance Laws, with respect to the transactions contemplated by this Agreement,
(ii) the filing with the SEC of the Proxy Statement and the S-4, (iii) the
filing of the Certificate of Merger with the Delaware Secretary of State
pursuant to the DGCL,
 
                                       A-30

 
(iv) the filing of the HSR Act Report with the Pre-Merger Notification Agencies
pursuant to the HSR Act, (v) any consents, authorizations, orders and approvals
required under the Securities Act, the Exchange Act, and the HSR Act, (vi) any
consents, authorizations, approvals, filings or exemptions in connection with
compliance with the applicable provisions of federal and state securities laws
relating to the regulation of broker-dealers or investment advisers, and federal
commodities laws relating to the regulation of futures commission merchants and
the rules and regulations thereunder and of any SRO (including, without
limitation, the NAIC, the New York Stock Exchange, the NASD and the Nasdaq
National Market, or which are required under the Insurance Laws and other
similar laws, (vii) such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various states in connection
with the issuance of the shares of PRA Common Stock pursuant to this Agreement,
and (viii) the approval of this Agreement by the requisite votes of the
stockholders of NEWCO and the stockholders of NCRIC, no consents or approvals
of, or filings or registrations with any Governmental Authority or with any
other Person are necessary in connection with the execution and delivery by PRA
of this Agreement or the consummation by PRA or any PRA Subsidiary of the
transactions contemplated by this Agreement.
 
     (d) NEWCO has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly and validly
approved by the Board of Directors of NEWCO. The Board of Directors of NEWCO has
directed that this Agreement and the transactions contemplated by this Agreement
be submitted to the sole stockholder of NEWCO. The execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement have been duly and validly approved by PRA, acting through its Board
of Directors, as the sole stockholder of NEWCO, and no further corporate
proceedings on the part of NEWCO are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by NEWCO and (assuming due authorization,
execution and delivery by PRA and NCRIC and the receipt of all Requisite
Regulatory Approvals) constitutes a valid and binding obligation of NEWCO,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity.
 
     (e) Neither the execution and delivery of this Agreement by NEWCO nor the
consummation by NEWCO of the transactions contemplated by this Agreement, nor
compliance by NEWCO with any of the terms or provisions of this Agreement, will
(i) violate any provision of the Certificate of Incorporation or Bylaws of NEWCO
or (ii) assuming that all Requisite Regulatory Approvals and all of the consents
and approvals referred to in Section 4.5(c) of this Agreement are duly obtained,
(x) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to NEWCO or any of its properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any Lien upon any of
the respective properties or assets of NEWCO under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which NEWCO is a party, or
by which it or any of its properties or assets may be bound or affected, except
(in the case of clause (y) above) for such violations, conflicts, breaches or
defaults which, either individually or in the aggregate, will not have or be
reasonably likely to have a Material Adverse Effect on NEWCO.
 
     4.5  Insurance Reports.
 
     (a) "PRA SAP STATEMENTS" means (i) the annual statutory statements of each
of the PRA Insurance Subsidiaries filed with any Insurance Regulator for each of
the years ended December 31, 2004, 2003, 2002 and 2001 and each calendar year
ending after the date of this Agreement, (ii) the quarterly statutory statements
of each of the PRA Insurance Subsidiaries filed with any Insurance Regulator for
each quarterly period in 2004 and for each quarterly period ending after the
date of this Agreement, and (iii) all exhibits, interrogatories, notes,
schedules and any actuarial opinions, affirmations or certifications
                                       A-31

 
or other supporting documents filed in connection with such annual statutory
statements and quarterly statutory statements.
 
     (b) All such PRA SAP Statements were and will be prepared (i) in conformity
with SAP and (ii) in accordance with the books and records of PRA and the PRA
Insurance Subsidiaries. The PRA SAP Statements, when read in conjunction with
the notes thereto and any statutory audit reports relating thereto, present, and
will present, fairly in all material respects the statutory financial condition
and results of operations of the PRA Insurance Subsidiaries for the dates and
periods indicated and are consistent with the books and records of the PRA
Insurance Subsidiaries (which books and records are correct and complete in all
material respects). The annual statutory balance sheets and income statements
included in the PRA SAP Statements have been, and will be, where required by
Insurance Laws, audited by an independent accounting firm of recognized national
reputation. PRA has made available to PRA true and complete copies of all of the
PRA SAP Statements and all audit opinions related thereto.
 
     (c) Since January 1, 2001, PRA and each PRA Insurance Subsidiary (i) have
filed or submitted with all applicable Insurance Regulators, all registration
statements, notices and reports, together with all supplements and amendments
thereto, required under the Insurance Laws applicable to insurance holding
companies (the "PRA HOLDING COMPANY ACT REPORTS"); (ii) have filed all PRA SAP
Statements, (iii) have filed all other reports and statements together with all
amendments and supplements thereto, required to be filed with any Insurance
Regulator under the Insurance Laws; and (iv) have paid all fees and assessments
due and payable by them under the Insurance Laws. Section 4.5(c) of the PRA
Disclosure Schedule sets forth a list of, and PRA has made available to NCRIC,
accurate and complete copies of, all PRA SAP Statements, PRA Holding Company Act
Reports and all other reports and statements filed by PRA or any PRA Subsidiary
with any Insurance Regulator for periods ending and events occurring, after
January 1, 2001 and prior to the Closing Date and the latest requests for
approval of rate increase in each state in which an PRA Subsidiary writes
insurance. All such PRA SAP Statements, PRA Holding Company Act Reports and
other reports and statements complied with the Insurance Laws when filed and, as
of their respective dates, contained all information required under the
Insurance Laws and did not contain any false statements or material
misstatements of fact or omit to state any material facts necessary to make the
statements set forth therein not materially misleading in light of the
circumstances in which such statements were made. No deficiencies have been
asserted by any Governmental Authority with respect to such PRA SAP Statements,
PRA Holding Company Act Reports and other reports and statements.
 
     (d) Except for normal examinations conducted by a Governmental Authority in
the regular course of the business of PRA and its Subsidiaries, no Governmental
Authority has initiated any proceeding or investigation into the business or
operations of PRA, any PRA Subsidiary, or any director or officer of PRA or any
PRA Subsidiary, since January 1, 2002. There is no unresolved violation,
criticism, or exception by any Governmental Authority with respect to any
examinations of PRA or any of its Subsidiaries.
 
     (e) Section 4.5(e) of the PRA Disclosure Schedule lists all financial
examinations that any Insurance Regulator has conducted with respect to PRA or
any of the PRA Insurance Subsidiaries since December 31, 2001. PRA has made
available to NCRIC correct and complete reports issued by the applicable
Insurance Regulator with respect to such financial examinations except for those
indicated as currently in process.
 
     (f) Neither PRA nor any PRA Subsidiary has received from any Person any
Notice on Form A or such other form as may be prescribed under applicable law
indicating that such Person intends to make or has made a tender offer for or a
request or invitation for tenders of, or intends to enter into, or has entered
into any agreement to exchange securities for, or intends to acquire or has
acquired (in the open market or otherwise), any voting security of PRA, if after
the consummation thereof such Person would directly or indirectly be in control
of PRA.
 
                                       A-32

 
     4.6  SEC Reports; Financial Statements.
 
     (a) PRA has on a timely basis filed all forms, reports and documents
required to be filed by it with the SEC since January 1, 2001. Section 4.6(a) of
the PRA Disclosure Schedule lists, and PRA has delivered to NCRIC (except to the
extent available in full without redaction on the SEC's web site through EDGAR
two days prior to the date of this Agreement) copies in the form filed with the
SEC of (i) PRA's Annual Reports on Form 10-K for each fiscal year of PRA
commencing after December 31, 2000, (ii) its Quarterly Reports on Form 10-Q for
each of the first three fiscal quarters in each of the fiscal years of PRA
commencing after December 31, 2000, (iii) all proxy statements relating to PRA's
meetings of stockholders (whether annual or special) held, and all information
statements relating to stockholder consents, since December 31, 2000, (iv) all
certifications and statements required by (x) the SEC's Order dated June 27,
2002 pursuant to Section 21(a)(1) of the Exchange Act (File No. 4-460), (y) Rule
13a-14 or 15d-14 under the Exchange Act or (z) 18 U.S.C. sec.1350 (Section 906
of SOX) with respect to any report referred to in clause (i) or (ii) of this
sentence, (v) all other forms, reports, registration statements and other
documents (other than preliminary materials if the corresponding definitive
materials have been provided to NCRIC pursuant to this Section 4.6(a) filed by
PRA with the SEC since January 1, 2001 (the forms, reports, registration
statements and other documents referred to in clauses (i), (ii), (iii), (iv) and
(v) of this sentence together with any and all amendments thereto are,
collectively, the "PRA SEC REPORTS" and, to the extent available in full without
redaction on the SEC's web site through EDGAR two days prior to the date of this
Agreement, are, collectively, the "PRA FILED SEC REPORTS"), and (vi) all comment
letters received by PRA from the Staff of the SEC since January 1, 2001 and all
responses to such comment letters by or on behalf of PRA.
 
     (b) The PRA SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be, in
all material respects, and (ii) did not at the time they were filed with the
SEC, or if thereafter amended, at the time of such amendment, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary of PRA is or has been required to file any form, report, registration
statement or other document with the SEC. As used in this Section 4.6, the term
"file" shall be broadly construed to include any manner in which a document or
information is furnished, supplied otherwise made available to the SEC.
 
     (c) PRA has established and maintains disclosure controls and procedures
(as such term is defined in Section 13(b)(2)(B) and Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Such disclosure controls and procedures: (i)
are designed to ensure that material information relating to PRA and its
Subsidiaries is made known to PRA's chief executive officer and its chief
financial officer by others within those entities, particularly during the
periods in which PRA's reports and filings under the Exchange Act are being
prepared, (ii) have been evaluated for effectiveness as of the end of the annual
or quarterly period reported to the SEC, and (iii) are effective to perform the
functions for which they were established. Neither the auditors of PRA nor the
Audit Committee of the Board of Directors of PRA have been advised of: (x) any
significant deficiencies or material weaknesses in the design or operation of
the internal controls over financial reporting (as such term is defined in
Section 13(b)(2)(B) and Rules 13d-15(d) and 15d-15(d) of the Exchange Act) of
PRA and its Subsidiaries which could adversely affect PRA's ability to record,
process, summarize and report financial data, or (y) any fraud, whether or not
material, that involves management or other employees who have a role in the
internal controls over financial reporting of PRA and its Subsidiaries. Since
the date of the most recent evaluation of such internal controls over financial
reporting and procedures, there have been no significant changes in internal
controls over financial reporting or in other factors that could significantly
affect such internal controls over financial reporting, including any corrective
actions with regard to significant deficiencies and material weaknesses.
 
     (d) Since July 31, 2002, each PRA Filed SEC Report which included financial
statements was accompanied by the certifications of PRA's chief executive
officer and chief financial officer as required under Sections 302 and 906 of
SOX, and
                                       A-33

 
     (e) The financial statements of PRA and its Subsidiaries included in the
PRA SEC Reports (including the related notes) complied or will comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto (including, without limitation,
Regulation S-X), were or will be prepared in accordance with GAAP during the
periods and at the dates involved (except as may be indicated in the notes
thereto and except, in the case of unaudited statements, to the extent permitted
by Regulation S-X for Quarterly Reports on Form 10-Q), and fairly present the
consolidated financial condition of PRA and its Subsidiaries at the dates
thereof and the consolidated results of operations and cash flows for the
periods then ended. Except (x) as reflected in PRA's unaudited balance sheet at
September 30, 2004, or liabilities described in any notes thereto (or
liabilities for which neither accrual nor footnote disclosure is required
pursuant to GAAP), (y) as reflected in the unaudited draft of the consolidated
balance sheet at December 31, 2004 of PRA and the PRA Subsidiaries included in
Section 4.6(e) of the Disclosure Schedule (the "2004 PRA BALANCE SHEET"), or (z)
for liabilities incurred in the ordinary course of business since December 31,
2004 consistent with past practice or in connection with this Agreement or the
transactions contemplated hereby, neither PRA nor any PRA Subsidiary has any
material liabilities or obligations of any nature.
 
     (f) Section 4.6(f) of the PRA Disclosure Schedule lists, and PRA has
delivered to NCRIC copies of the documentation creating or governing, all
securitization transactions and "off-balance sheet arrangements" (as defined in
Item 303(c) of Regulation S-K of the SEC) effected by PRA or its subsidiaries
since December 31, 2002.
 
     (g) Ernst & Young LLP, which has expressed its opinion with respect to the
financial statements of PRA and its subsidiaries included in PRA SEC Reports
(including the related notes), is and has been throughout the periods covered by
such financial statements (with respect to (i) and (ii) for periods required by
SOX) (i) a registered public accounting firm (as defined in Section 2(a)(12) of
SOX), (ii) "independent" with respect to PRA within the meaning of Regulation
S-X, and (iii) in compliance with subsections (g) through (l) of Section 10A of
the Exchange Act and the Public Company Accounting Oversight Board. Section
4.6(f) of the PRA Disclosure Schedule lists all non-audit services performed by
Ernst & Young LLP for PRA and each PRA Subsidiary for each year commencing after
December 31, 2002.
 
     (h) PRA and each PRA Subsidiary maintains accurate books and records
reflecting its assets and liabilities and maintains proper and adequate internal
accounting controls over financial reporting which provide assurance that (i)
transactions are executed with management's authorization; (ii) transactions are
recorded as necessary to permit preparation of the consolidated financial
statements of PRA and to maintain accountability for the consolidated assets of
PRA; (iii) access to assets is permitted only in accordance with management's
authorization; (iv) the reporting of assets is compared with existing assets at
regular intervals; and (v) accounts, notes and other receivables and inventory
are recorded accurately, and proper and adequate procedures are implemented to
effect the collection thereof on a current and timely basis.
 
     4.7  Broker's Fees.  Except as set forth in Section 4.7 of the PRA
Disclosure Schedule, none of PRA, the PRA Subsidiaries and their respective
officers and directors, has employed any broker or finder or incurred any
liability for any broker's fees or commissions, or investment banker fees or
commissions, or finder's fees in connection with the transactions contemplated
by this Agreement.
 
     4.8  Absence of Certain Changes or Events.
 
     (a) Except for (i) those liabilities and obligations that are fully
reflected or reserved against on the 2004 PRA Balance Sheet, (ii) those
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since December 31, 2004, and (iii) coverage and
other claims (other than bad faith claims) made with respect to insurance
policies issued by any PRA Insurance Subsidiary for which adequate claims
reserves have been established, neither PRA nor any of its Subsidiaries has
incurred any liability or obligation of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether due or to become due) that, either
individually or in the aggregate, would have a
                                       A-34

 
Material Adverse Effect on PRA, and, there is no existing condition, situation
or set of circumstances that would be reasonably expected to result in such a
liability or obligation. Except as disclosed in the PRA SEC Reports filed prior
to the date of this Agreement, since September 30, 2004, PRA and its
Subsidiaries have carried on their respective businesses in all material
respects in the ordinary and usual course theretofore conducted.
 
     (b) Since September 30, 2004, there has not been: (i) any change in the
financial condition, assets, liabilities, prospects (financial and otherwise) or
business of PRA or any PRA Subsidiary which, either individually or in the
aggregate, has had or would have a Material Adverse Effect on PRA; (ii) any
material change in any method of accounting or accounting principals or practice
by PRA or any PRA Subsidiary, except as required by GAAP or SAP and disclosed in
the notes to the consolidated financial statements of PRA and PRA Subsidiaries;
or (iii) any material change in the actuarial, investment, reserving,
underwriting or claims administration policies, practices, procedures, methods,
assumptions or principles of PRA or any PRA Insurance Subsidiary.
 
     4.9  Compliance with Applicable Law.
 
     (a) PRA and the PRA Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to, and have complied in all material respects with, and are
not in default in any respect under any, and have maintained and conducted their
respective businesses in all material respects in compliance with, all
applicable laws, statutes, orders, rules, regulations, policies and/or
guidelines, except where the failure to hold such license, franchise, permit or
authorization, or such noncompliance or default, would not, either individually
or in the aggregate, have a Material Adverse Effect on PRA.
 
     (b) There is no pending or, to the knowledge of PRA, threatened charge by
any Governmental Authority that PRA or any PRA Insurance Subsidiary has violated
any Insurance Laws, nor any pending or, to the knowledge of PRA threatened
investigation by any Governmental Authority with respect to possible violations
of any Insurance Laws, that would, individually or in the aggregate, be expected
to have a Material Adverse Effect on PRA.
 
     (c) There are no contracts (other than contracts relating to employment),
real estate leases, loans, guarantees or other arrangements or transactions of
any nature between PRA or any PRA Subsidiary, on the one hand, and any of their
respective officers, directors, or affiliates (as such term is defined in Rule
405 of the SEC), on the other hand. PRA has not, since July 30, 2002, extended
or maintained credit, arranged for the extension of credit, or renewed an
extension of credit, in the form of a personal loan to or for any director or
executive officer (or equivalent thereof) of PRA or any PRA Subsidiary. Section
4.9(c) of the PRA Disclosure Schedule identifies any loan or extension of credit
maintained by PRA or any PRA Subsidiary to which the second sentence of Section
13(k)(1) of the Exchange Act applies.
 
     (d) PRA is, or will timely be in all material respects, in compliance with
all current and proposed listing and corporate governance requirements of the
New York Stock Exchange.
 
     (e) Each of PRA, its directors and its senior financial officers has
consulted with PRA's independent auditors and outside counsel with respect to,
and (to the extent applicable to PRA) is familiar in all material respects with
all of the requirements of, SOX PRA is in compliance with the provisions of SOX
applicable to it as of the date hereof and has implemented such programs and has
taken reasonable steps, upon the advice of PRA's independent auditors and
outside counsel, respectively, to ensure PRA's future compliance (not later than
the relevant statutory and regulatory deadlines therefore) with all provisions
of SOX which shall become applicable to PRA after the date of this Agreement.
 
     (f) None of PRA, the PRA Subsidiaries, any of their respective current
directors or officers, and, to the knowledge of PRA, any of their respective
former officers or directors or current or former employees, agents or
representatives have: (i) used any corporate funds for any illegal
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) used any corporate funds for any direct or indirect
unlawful payments to any foreign or domestic government officials or employees,
                                       A-35

 
(iii) violated any provision of the Foreign Corrupt Practices Act of 1977, (iv)
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets, (v) made any false or fictitious entries on the books and records
of PRA or any PRA Subsidiary, (vi) made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment of any nature, or (vi) made any
material favor or gift which is not deductible for federal income tax purposes.
To the knowledge of PRA: (x) no director or officer of PRA or any PRA Subsidiary
has engaged in any "insider trading" in violation of applicable law with respect
to any security issued by PRA or any PRA Subsidiary; and (y) no such director or
officer has made any false certifications or statements under (i) the SEC's
Order dated June 27, 2002 pursuant to Section 21(a)(1) of the Exchange Act (File
No. 4-460), (ii) Rule 13a-14 or 15d-14 under the Exchange Act or (iii) 18 U.S.C.
sec.1350 (Section 906 of the Sarbanes-Oxley Act of 2002) with respect to any PRA
SEC Report.
 
     (g) Neither PRA nor any PRA Subsidiary is subject to any cease and desist
or other order issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by, or
has been a recipient of any supervisory letter from, or since that date, has
adopted any board resolutions at the request of any Governmental Authority that:
(i) limits the ability of PRA or any PRA Insurance Subsidiary to conduct any
line of business, (ii) require any investments of PRA or any PRA Insurance
Subsidiary to be treated as non-admitted assets, (iii) require divestiture of
any investments of PRA or any PRA Insurance Subsidiary, (iv) in any manner
imposes any requirements on PRA or any PRA Insurance Subsidiary in respect of
risk based capital requirements that add to or otherwise modify the risk based
capital requirements imposed under the Insurance Laws, (v) in any manner relate
to the ability of PRA or any PRA Insurance Subsidiary to pay or declare
dividends or distributions, or (vi) restricts in any material respect the
conduct of the business, credit policies or management of PRA or any PRA
Subsidiary (each, whether or not set forth in the PRA Disclosure Schedule, an
"PRA REGULATORY AGREEMENT"), nor has PRA or any of its Subsidiaries been advised
by any Governmental Authority that it is considering issuing or requesting any
such PRA Regulatory Agreement. Neither PRA nor any PRA Insurance Subsidiary,
directly or indirectly, engages in any activity prohibited by applicable law.
 
     4.10  State Takeover Laws.  The Board of Directors of PRA has approved the
transactions contemplated by this Agreement and taken such action such that the
provisions of Section 203 of the DGCL and any other provisions of any state or
local "takeover" law applicable to PRA will not apply to this Agreement or any
of the transactions contemplated by this Agreement.
 
     4.11  No Investment Company.  Neither PRA nor any Subsidiary of PRA is an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
 
     4.12  Insurance Matters.
 
     (a) The PRA Reserves (as defined below in Section 4.13(b)) at each of
December 31, 2004 and December 31, 2003, and December 31, 2002, as reflected in
the PRA SAP Statements, are stated net of reinsurance ceded amounts. The PRA SAP
Statements accurately reflect the extent to which, pursuant to Insurance Laws,
PRA and/or the PRA Insurance Subsidiaries are entitled to take credit for
reinsurance under reinsurance treaties of the PRA Insurance Subsidiaries ("PRA
REINSURANCE TREATIES"). All reinsurance recoverable amounts reflected in said
balance sheets are collectible, and PRA is unaware of any material adverse
change in the financial condition of its reinsurers that might raise concern
regarding their ability to honor their reinsurance commitments. No party to any
of the PRA Reinsurance Treaties has given notice to PRA or any PRA Insurance
Subsidiary that such party intends to terminate or cancel any of the PRA
Reinsurance Treaties as a result of or following consummation of the Merger.
Each PRA Reinsurance Treaty is valid and binding on each party thereto, and none
of PRA, any PRA Insurance Subsidiary, and, to the knowledge of PRA, any other
party thereto, is in default in any material respect with respect to any such
reinsurance agreement or treaty. No PRA Reinsurance Treaty contains any
provision providing that the other party thereto may terminate the same by
reason of the transactions contemplated by this Agreement, or contains any other
provision which would be altered or otherwise
 
                                       A-36

 
become applicable by reason of such transactions. Since January 1, 2004 no PRA
Reinsurance Treaty has been canceled and there has not been any change in the
retention level under any of such reinsurance agreements or treaties.
 
     (b) Each PRA Insurance Subsidiary has assets that qualify as admitted
assets under the Insurance Laws in an amount at least equal to the sum of all
its reserves and liability amounts and its minimum statutory capital and surplus
as required by such Insurance Laws. Each of the PRA SAP Statements, as of the
date thereof, sets forth all of the reserves of the PRA Insurance Subsidiaries
as of such date (collectively, the "PRA RESERVES"). The PRA Reserves, gross and
net of the reinsurance thereof, were prepared in accordance with the
requirements for reserves established by the Insurance Regulators, were
determined in accordance with SAP and generally accepted actuarial principles
consistently applied, were computed on the basis of methodologies consistent in
all material respects with those used in prior periods, were fairly stated in
all material respects in accordance with sound actuarial and statutory
accounting principles, and were established in accordance with prudent insurance
practices generally followed in the insurance industry. The PRA Reserves make
good and sufficient provisions for all insurance obligations of the PRA
Insurance Subsidiaries. The PRA Reserves set forth in any PRA SAP Statement are
adequate to provide for the estimated ultimate net costs of all reported and
unreported losses incurred through the date of such PRA SAP Statement. PRA has
provided or made available to NCRIC copies of all work papers used as the basis
for establishing the PRA Reserves. Except for regular periodic assessments based
on developments that are publicly known within the insurance industry, to the
knowledge of PRA, no claim or assessment is pending or threatened against PRA or
any PRA Insurance Subsidiary which is peculiar or unique to PRA or such PRA
Insurance Subsidiary by any state insurance guaranty association in connection
with such association's fund relating to insolvent insurers.
 
     4.13  Taxes and Tax Returns.  PRA and the PRA Subsidiaries have duly filed
all Tax Returns required to be filed by them on or prior to the date of this
Agreement (all such Tax Returns being accurate and complete in all material
respects) and has duly paid or made sufficient provisions for the payment of all
Taxes shown thereon as owing on or prior to the date of this Agreement
(including, if and to the extent applicable, those due in respect of their
properties, income, business, capital stock, premiums, franchises, licenses,
sales and payrolls) other than Taxes which are not yet delinquent or are being
contested in good faith and have not been finally determined for which adequate
reserves have been made on the financial statements described in Section 4.5 of
this Agreement. The unpaid Taxes of PRA and the PRA Subsidiaries do not exceed
the reserve for tax liability set forth on the 2004 PRA Balance Sheet as
adjusted for the passage of time through the Closing Date in accordance with
past custom and practice of PRA in filing its returns. There is no claim, audit,
action, suit, proceeding or investigation now pending or, to the knowledge of
PRA, threatened against or with respect to PRA or any PRA Subsidiary in respect
of any material Tax.
 
     4.14  Environmental Liability.  PRA and its Subsidiaries are and have been
in compliance with all Environmental Laws (as defined in Section 9.18(a) of this
Agreement) and all Environmental Permits (as defined in Section 9.18(a) of this
Agreement). There are no legal, administrative, arbitral or other proceedings,
claims, actions, causes of action, private environmental investigations or
remediation activities or governmental investigations of any nature seeking to
impose on PRA or any PRA Subsidiary, or that could reasonably be expected to
result in the imposition on PRA or any PRA Subsidiary of, any liability or
obligation arising under any Environmental Law which would have a Material
Adverse Effect on PRA. To the knowledge of PRA, there is no reasonable basis for
any such proceeding, claim, action, investigation or remediation activity.
Neither PRA nor any PRA Subsidiary is subject to any agreement, order, judgment,
decree, letter or memorandum by or with any Governmental Authority or private
Person imposing any liability or obligation under any Environmental Law that
would have a Material Adverse Effect on PRA. For purposes of this Section 4.15,
the terms "PRA" and "Subsidiaries" include any Person that is, in whole or in
part, a predecessor of PRA or any of its Subsidiaries.
 
     4.15  Employee Matters.  Each employee benefit plan, program, policy or
arrangement (including, but not limited to each employee benefit plan (as
defined in Section 3(3) of ERISA) which PRA or any PRA Subsidiary maintains or
contributes to for the benefit of its current or former employees complies,
                                       A-37

 
and has been administered in form and in operation, in all material respects
with all applicable requirements of law and no notice has been issued by any
Governmental Authority questioning or challenging such compliance.
 
     4.16  Legal Proceedings.  Except as set forth in Section 4.16 of the PRA
Disclosure Schedule, neither PRA nor any PRA Subsidiary is a party to any, and
there are no pending or, to PRA's knowledge, threatened legal, administrative,
arbitration or other proceedings, claims (whether asserted or unasserted),
actions or governmental investigations or inquiries of any nature (i) against
PRA or any PRA Subsidiary, (ii) to which PRA or any PRA Subsidiary's assets are
or may be subject, (iii) challenging the validity or propriety of any of the
transactions contemplated by this Agreement, or (iv) which could adversely
affect the ability of PRA or NEWCO to perform under this Agreement, except for
(x) coverage and other claims made with respect to insurance policies issued by
any PRA Insurance Subsidiary for which adequate claims reserves have been
established, and (y) any proceeding, claim, action, investigation or inquiry
which, if adversely determined, individually or in the aggregate, would not be
reasonably expected to have a Material Adverse Effect on PRA.
 
     4.17  Accuracy of Information Supplied.
 
     (a) All of the representations and warranties made by PRA in this
Agreement, taken together and with the PRA Disclosure Schedule, do not contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements set forth herein and therein, in light
of the circumstances in which such statements were made, not misleading. The
copies of documents attached to the PRA Disclosure Schedule or otherwise made
available to PRA in connection with the transactions contemplated hereby are
accurate and complete in all respects.
 
     (b) The S-4 and the Proxy Statement used for the registration and
qualification of shares of PRA Common Stock to be issued upon consummation of
the Merger and used to solicit approval of the Merger by the stockholders of
NCRIC, and all other documents to be filed with the SEC or any applicable state
securities law regulatory authorities relating to this Agreement or the
transactions contemplated by this Agreement (including the Merger), at the
respective times such documents are filed or become effective, shall, as to all
information provided by PRA: (i) comply with the Securities Act, the Exchange
Act and all other applicable laws and regulations; and (ii) not contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact and not omit to
state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting
or subject matter which have become false or misleading.
 
     4.18  Effective Time of Representations, Warranties, Covenants and
Agreements.  Each representation, warranty, covenant and agreement of PRA set
forth in this Agreement, as updated by any written disclosure schedule delivered
pursuant to Section 6.9(b) of this Agreement, shall be deemed to be made on and
as of the date of this Agreement, and as of the Closing Date.
 
                                   ARTICLE 5
 
                   COVENANTS RELATING TO CONDUCT OF BUSINESS
 
     5.1  Conduct of Businesses of NCRIC Prior to the Effective Time.
 
     (a) During the period between the date of this Agreement and the Effective
Time, except as expressly contemplated or permitted by this Agreement, NCRIC
shall, and shall cause each NCRIC Subsidiary to: (a) conduct its business in the
usual, regular and ordinary course consistent with past practice and its current
business plan, (b) use reasonable best efforts to maintain and preserve intact
its business organization, employees, agents and advantageous business
relationships and retain the services of its key employees and agents, and (c)
take no action which would adversely affect or delay the ability of any party to
this Agreement to obtain any Requisite Regulatory Approval for the transactions
contemplated by this Agreement or to perform its covenants and agreements under
this Agreement.
 
                                       A-38

 
     (b) During the period between the date of this Agreement and the Effective
Time, NCRIC shall permit PRA's senior officers to meet with the Chief Financial
Officer and Controller of NCRIC and officers of NCRIC responsible for the
financial statements, the internal controls, and disclosure controls and
procedures of NCRIC to discuss such matters as PRA may deem reasonably necessary
or appropriate for PRA to satisfy its obligations under Sections 302, 404 and
906 of SOX and any rules and regulations relating thereto.
 
     (c) NCRIC agrees to consult with PRA with respect to reserve policies and
practices (including levels of reserves) with respect to (i) losses and loss
adjustment expenses of the NCRIC Subsidiaries, and (ii) litigation against NCRIC
and the NCRIC Subsidiaries (including, but not limited to, the 2004 Judgment).
PRA and NCRIC shall also consult with respect to the character, amount and
timing of restructuring charges to be taken by each of them in connection with
the transactions contemplated hereby.
 
     5.2  NCRIC Forbearances.  During the period from the date of this Agreement
to the Effective Time, except as set forth in the NCRIC Disclosure Schedule,
and, except as expressly contemplated or permitted by this Agreement, NCRIC
shall not, and NCRIC shall not permit any NCRIC Subsidiary to, without the prior
written consent of PRA (which consent will not be unreasonably withheld):
 
          (a) incur any indebtedness for borrowed money (other than short-term
     indebtedness incurred on commercially reasonable terms to refinance
     indebtedness of NCRIC or any of its Subsidiaries, on the one hand, to NCRIC
     or any of its Subsidiaries, on the other hand), or assume, guarantee,
     endorse or otherwise as an accommodation become responsible for the
     obligations of any other individual, corporation or other entity, or make
     any loan or advance (it being understood and agreed that incurrence of
     indebtedness in the ordinary course of business shall include entering into
     repurchase agreements and reverse repurchase agreements);
 
          (b) redeem, repay, discharge or defease any surplus note, unless such
     redemption, repayment, discharge or defeasance is an express condition of
     any Requisite Regulatory Approval;
 
          (c) (i) adjust, split, combine or reclassify any capital stock; (ii)
     make, declare or pay any dividend or make any other distribution on, any
     shares of its capital stock or any securities or obligations convertible
     into or exchangeable for any shares of its capital stock (except dividends
     paid by any NCRIC Subsidiary to NCRIC or any other NCRIC Subsidiary,
     respectively), (iii) directly or indirectly redeem, purchase or otherwise
     acquire, any shares of its capital stock or any securities or obligations
     convertible into or exchangeable for any shares of its capital stock
     (except repurchases of shares of NCRIC Common Stock by NCRIC and its
     Subsidiaries on the open market in accordance with the rules and
     regulations of the SEC); (iv) grant any stock options or stock awards or
     stock appreciation rights or right, or (v) issue any additional shares of
     capital stock except pursuant to (A) the exercise of NCRIC Stock Options or
     warrants outstanding as of the date of this Agreement, or (B) as permitted
     under clause (ii) or clause (iv) of this subsection;
 
          (d) sell, transfer, mortgage, encumber or otherwise dispose of any of
     its properties or assets to any Person other than a Subsidiary, or cancel,
     release or assign any indebtedness of any such Person or any claims held by
     any such Person, except (i) in the ordinary course of business consistent
     with past practice, or (ii) pursuant to contracts or agreements in force at
     the date of this Agreement, or (iii) in connection with the sale of the
     Practice Management Business for cash or the sale or other disposition of
     the Practice Management Business with the prior written approval of PRA;
 
          (e) except pursuant to contracts or agreements in force at the date of
     this Agreement, make any material non-portfolio investment (by purchase of
     stock or securities, contributions to capital, property transfers, or
     purchase of any property or assets) in any Person other than a Subsidiary;
 
          (f) enter into, change or terminate any material contract, lease or
     agreement, other than renewals of contracts, leases and agreements without
     material adverse changes of terms;
 
                                       A-39

 
          (g) increase in any manner the compensation of the employees of NCRIC
     and the NCRIC Subsidiaries, or pay any bonus or incentive compensation to
     such employees; provided that NCRIC and the NCRIC Subsidiaries may make
     annual increases in the salaries and wages of their employees in the
     ordinary course of business and consistent with past practice so long as
     the aggregate amount of the increase in compensation on an annualized basis
     does not exceed four percent (4%) of the aggregate amount of the
     compensation paid to the affected employees in the 12 months preceding the
     effective date of the increase in compensation;
 
          (h) except as contemplated in Section 6.7 hereof, pay any pension or
     retirement allowance not required by any existing plan or agreement to any
     of its employees or become a party to, amend (except as may be required by
     law) or commit itself to any pension, retirement, profit-sharing or welfare
     benefit plan or agreement or employment agreement with or for the benefit
     of any employee or accelerate the vesting of any stock options or other
     stock-based compensation;
 
          (i) settle any claim, action or proceeding involving money damages,
     except in the ordinary course of business consistent with past practice;
     provided, however, that prior to the settlement of any lawsuit, claim,
     action or proceeding against NCRIC or any NCRIC Subsidiary or otherwise in
     which NCRIC or any NCRIC Subsidiary is a named defendant involving a
     payment by NCRIC or any NCRIC Subsidiary in excess of $1,000,000 or the
     settlement of any ECO, XPL or bad faith claim involving any insurance
     policy of any NCRIC Subsidiary involving a payment by NCRIC or any NCRIC
     Subsidiary in excess of $1,000,000, NCRIC will notify PRA of the terms of
     the proposed settlement and will consult with PRA regarding the terms of
     the settlement, but shall not be required to obtain PRA's consent to the
     terms of the settlement; and provided further, NCRIC shall not settle the
     2004 Judgment without the prior approval of PRA;
 
          (j) take any action that would prevent or impede the Merger from
     qualifying as a reorganization within the meaning of Section 368 of the
     Code;
 
          (k) amend its Certificate or Articles of Incorporation, or its Bylaws;
 
          (l) other than in accordance with its current investment guidelines,
     restructure or materially change its investment securities portfolio
     through purchases, sales or otherwise, or the manner in which such
     portfolio is classified or reported;
 
          (m) offer or sell insurance or reinsurance of any type in any
     jurisdiction other than such lines of insurance and reinsurance that it
     offers and sells on the date of this Agreement and other than in those
     jurisdictions where it offers and sells such line of insurance and
     reinsurance on the date of this Agreement;
 
          (n) take any action that is intended or may reasonably be expected to
     result in any of its representations and warranties set forth in this
     Agreement being or becoming untrue in any material respect at any time
     prior to the Effective Time, or in any of the conditions to the Merger set
     forth in Article 7 of this Agreement not being satisfied, or in a violation
     of any provision of this Agreement, except, in every case, as may be
     required by applicable law; or
 
          (o) agree to, or make any commitment to, take any of the actions
     prohibited by this Section 5.2.
 
     5.3  PRA Forbearances.  During the period from the date of this Agreement
to the Effective Time, except as set forth in the PRA Disclosure Schedule, and,
except as expressly contemplated or permitted by this Agreement, PRA shall not,
and PRA shall not permit any PRA Subsidiary to, without the prior written
consent of NCRIC:
 
          (a) take any action that would prevent or impede the Merger from
     qualifying as a reorganization within the meaning of Section 368 of the
     Code;
 
          (b) amend its Certificate or Articles of Incorporation, or its Bylaws,
     except as provided in this Agreement;
 
                                       A-40

 
          (c) take any action that is intended or may reasonably be expected to
     result in any of its representations and warranties set forth in this
     Agreement being or becoming untrue in any material respect at any time
     prior to the Effective Time, or in any of the conditions to the Merger set
     forth in Article 7 of this Agreement not being satisfied, or in a violation
     of any provision of this Agreement, except, in every case, as may be
     required by applicable law;
 
          (d) take any action that is intended or likely to adversely affect its
     ability to perform its covenants and agreements under this Agreement; or
 
          (e) agree to, or make any commitment to, take any of the actions
     prohibited by this Section 5.3.
 
                                   ARTICLE 6
 
                             ADDITIONAL AGREEMENTS
 
     6.1  Regulatory Matters.
 
     (a) In connection with the solicitation of approval of the Merger by the
stockholders of NCRIC and the registration of the shares of PRA Common Stock to
be issued upon consummation of the Merger, the parties will prepare, and PRA
will file with the SEC, the S-4 and the Proxy Statement (both of which shall
comply as to form, in all material respects, with the provisions of the
Securities Act, the Exchange Act and other applicable law). PRA and NCRIC will
use all reasonable effects to respond to the comments of the SEC staff with
respect to the S-4 and the Proxy Statement and to have the S-4 and the Proxy
Statement declared effective by the SEC as soon as practicable. As soon as
practicable after the S-4 is declared effective, NCRIC shall mail or deliver the
Proxy Statement to its stockholders. The information provided and to be provided
by PRA and NCRIC for use in the S-4 and the Proxy Statement will not, in the
case of the S-4 on the date it becomes effective, and in the case of Proxy
Statement on such date and on the date on which approval of the Merger by the
stockholders of NCRIC is obtained, contain any untrue statement of material fact
or omit to state any material fact required to be stated in this Agreement or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. Each of PRA and NCRIC agree promptly to correct
any such information provided by it which shall have become false or misleading
in any material respect and to take all steps necessary to file with the SEC and
have declared effective or cleared by the SEC any amendment or supplement to the
S-4 or the Proxy Statement so as to correct the same and to cause the Proxy
Statement so corrected to be distributed to the stockholders of NCRIC to the
extent required by applicable law. To the extent that any opinion regarding the
tax consequences of the Merger is required with respect to the S-4 or the Proxy
Statement, PRA and NCRIC will both cause each of their respective tax counsel to
issue substantially similar opinions in the form contemplated herein. PRA shall
not be required to maintain the effectiveness of the Registration Statement for
the purpose of resale by the affiliates of PRA and NCRIC, as such term is used
in Rule 145 of the SEC.
 
     (b) The parties shall use all reasonable commercial efforts to cause their
respective independent auditors to render any consent required by the SEC to
include its report on the NCRIC consolidated financial statements or the PRA
consolidated financial statements, as the case may be, in the S-4 and to refer
to said accountants as experts in the S-4 with respect to the matters included
in said report.
 
     (c) To the extent applicable, NCRIC and PRA shall prepare and file with all
necessary Governmental Authorities (i) a Notice on Form A and related documents
and (ii) the preacquisition notification and report forms and related material
on Form E in connection with the Merger.
 
     (d) PRA will prepare and file, and NCRIC will cooperate with and assist PRA
in preparing and filing, all statements, applications, correspondence or forms
required to be filed with appropriate state securities law regulatory
authorities to register or qualify the shares of PRA Common Stock to be issued
upon consummation of the Merger or to establish an exemption from such
registration or qualification (the "BLUE SKY FILINGS").
 
                                       A-41

 
     (e) Pursuant to the HSR Act, PRA and NCRIC will promptly prepare and file,
or cause to be filed, the HSR Act Report with the Pre-Merger Notification
Agencies in respect of the transactions contemplated by this Agreement, which
filing shall comply as to form with all requirements applicable thereto and all
of the data and information reported therein shall be accurate and complete in
all material respects. Each of PRA and NCRIC will promptly comply with all
requests, if any, of the Pre-Merger Notification Agencies for additional
information or documentation in connection with the HSR Act Report forms filed
by or on behalf of each of such parties pursuant to the HSR Act, and all such
additional information or documentation shall comply as to form with all
requirements applicable thereto and shall be accurate and complete in all
material respects.
 
     (f) Each party shall provide to the other, (i) promptly after filing
thereof, copies of all statements, applications, correspondence or forms filed
by such party prior to the Closing Date with state securities law regulatory
authorities, the SEC, the Pre-Merger Notification Agencies, the Insurance
Regulators and any other Governmental Authority in connection with the
transactions contemplated by this Agreement and (ii) promptly after delivery to,
or receipt from, such regulatory authorities, all written communications,
letters, reports or other documents relating to the transactions contemplated by
this Agreement.
 
     (g) The parties hereto shall cooperate with each other and use their best
efforts to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including the
Merger), and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Authorities. PRA
and NCRIC shall have the right to review in advance, and, to the extent
practicable, each will consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
PRA or NCRIC, as the case may be, and any of their respective Subsidiaries,
which appear in any filing made with, or written materials submitted to, any
third party or any Governmental Authority in connection with the transactions
contemplated by this Agreement. The cooperation and coordination of each party
required under this Section 6.1 shall include giving timely public notice of any
public hearings regarding the transactions contemplated by this Agreement,
having its representatives attend and testify at such public hearings. In
addition, each of the parties hereto shall act reasonably and as promptly as
practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated by this Agreement.
 
     (h) PRA and NCRIC shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
stockholders/stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of PRA, NCRIC or
any of their respective Subsidiaries to any Governmental Authority in connection
with the Merger and the other transactions contemplated by this Agreement.
 
     (i) PRA and NCRIC shall promptly advise each other upon receiving any
communication from any Governmental Authority whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such party to believe that there is a reasonable likelihood that
any Requisite Regulatory Approval will not be obtained or that the receipt of
any such approval will be materially delayed.
 
     6.2  Tax Opinion.  PRA agrees to engage Burr & Forman LLP, or such other
nationally recognized firm, to render an opinion, acceptable to PRA in form and
substance, as to the material tax consequences to PRA, NCRIC and the
stockholders of PRA and the stockholders of NCRIC in connection with the Merger
and the receipt of the Merger Consideration. The opinion shall be addressed to
the Board of Directors of PRA, shall be rendered on or before the filing of the
S-4, and the person rendering the
 
                                       A-42

 
opinion shall consent to the reference to the opinion in the Proxy Statement and
to the inclusion of the opinion as an exhibit to the S-4 in accordance with the
requirements of the Securities Act. NCRIC agrees to engage Luse Gorman Pomerenk
& Schick, PC, or another nationally recognized firm, to render an opinion,
reasonably acceptable to NCRIC in form and substance, as to the material tax
consequences to PRA, NCRIC and the stockholders of PRA and the stockholders of
NCRIC in connection with the Merger and the receipt of the Merger Consideration.
The opinion shall be addressed to the Board of Directors of NCRIC, shall be
rendered on or before the filing of the S-4, and the Person rendering the
opinion shall consent to the reference to the opinion in the Proxy Statement and
to the inclusion of the opinion as an exhibit to the S-4 in accordance with the
requirements of the Securities Act.
 
     6.3  Access to Information.
 
     (a) Upon reasonable notice and subject to applicable laws relating to the
exchange of information and to the Confidentiality Agreement dated January 23,
2005 (the "CONFIDENTIALITY AGREEMENT"), each of PRA and NCRIC shall, and shall
cause each of their respective Subsidiaries to, afford to the officers,
employees, accountants, counsel and other representatives of the other party,
access, during normal business hours during the period prior to the Closing
Date, to all its properties, books, contracts, commitments and records and,
during such period, each of PRA and NCRIC shall, and shall cause their
respective Subsidiaries to, make available to the other party (i) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws or
state insurance laws (other than reports or documents which PRA or NCRIC, as the
case may be, is not permitted to disclose under applicable law or by agreement);
(ii) all other information concerning its business, properties and personnel as
such party may reasonably request; and (iii) any other information, confidential
or otherwise, relating to the Merger which has not been provided to the other
party and is necessary for disclosure in the S-4, including, but not limited to,
the confidential portions of the minutes of NCRIC and NCRIC subsidiaries that
was not provided pursuant to Section 3.3(a) of this Agreement. Neither PRA nor
NCRIC nor any of their respective Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of PRA's or NCRIC's, as the case may be,
customers, jeopardize the attorney-client and work product privileges of the
entity in possession or control of such information or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
 
     (b) Each of PRA and NCRIC agrees to keep confidential, and not divulge to
any other party or person (other than employees of, and attorneys, accountants,
financial advisors and other representatives for, any said party who agree to be
bound by the Confidentiality Agreement), all non-public documents, information,
records and financial statements received from the other and, in addition, any
and all reports, information and financial information obtained through audits
or other reviews conducted pursuant to this Agreement (unless readily
ascertainable from public or published information, or trade sources, or already
known or subsequently developed by a party independently of any investigation or
received from a third party not under an obligation to the other party to keep
such information confidential), and to use the same only in connection with the
transactions contemplated by this Agreement; and if the transactions
contemplated by this Agreement are not consummated for any reason, each party
agrees to promptly return to the other party all written materials furnished by
the other party, and all copies thereof, in connection with such investigation,
and to destroy all documents and records in its possession containing extracts
or summaries of any such non-public information.
 
     (c) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
conditions of the other set forth in this Agreement.
 
     6.4  NCRIC Stockholder Approval.  NCRIC shall call a meeting of its
stockholders to be held as soon as reasonably practicable for the purpose of
obtaining the requisite NCRIC stockholder approval required in connection with
this Agreement and the Merger. NCRIC will, through its Board of Directors,
 
                                       A-43

 
subject to its fiduciary obligations as determined by its Board of Directors,
recommend to its stockholders approval of this Agreement and the Merger.
 
     6.5  Legal Conditions to Merger.  Each of PRA and NCRIC shall, and shall
cause its Subsidiaries to, use their best efforts (i) to take, or cause to be
taken, all actions necessary, proper or advisable to comply promptly with all
legal requirements which may be imposed on such party or its Subsidiaries with
respect to the Merger and, subject to the conditions set forth in Article 7 of
this Agreement, to consummate the transactions contemplated by this Agreement,
and (ii) to obtain (and to cooperate with the other party to obtain) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Authority and any other third party which is required to be
obtained by PRA or NCRIC or any of their respective Subsidiaries in connection
with the Merger and the other transactions contemplated by this Agreement.
 
     6.6  NYSE Listing.  PRA shall cause the shares of the PRA Common Stock to
be issued in the Merger to be approved for trading and reporting on New York
Stock Exchange subject to official notice of issuance, prior to the Closing
Date.
 
     6.7  Employee Plans.
 
     (a) From and after the Effective Time, the NCRIC Employee Plans in effect
as of the date of this Agreement and at the Effective Time shall remain in
effect with respect to the current and former employees of NCRIC and its
Subsidiaries (the "NCRIC EMPLOYEES") covered by such NCRIC Employee Plans at the
Effective Time, until such time as PRA shall otherwise determine. PRA agrees
that it will honor all NCRIC Employee Plans in accordance with their terms as in
effect at the Effective Time, subject to any amendment or termination thereof
that may be required or permitted by the plans or applicable law. PRA will
review all NCRIC Employee Plans to determine whether to maintain, terminate or
continue such plans. In the event employee compensation and/or benefits as
currently provided by NCRIC or any NCRIC Subsidiary are changed or terminated by
PRA, in whole or in part, PRA shall provide any NCRIC Employees who continue in
employment with PRA ("CONTINUING EMPLOYEES") with compensation and benefits that
are, in the aggregate, substantially similar to the compensation and benefits
provided to similarly situated employees of PRA or applicable PRA Subsidiary (as
of the date any such compensation or benefit is provided). Notwithstanding
anything herein to the contrary, PRA shall pay Continuing Employees incentive
compensation for their performance in the full year ended December 31, 2005, in
accordance with the incentive compensation policies and practices for employees
of PRA and the PRA Subsidiaries consistently applied with past practice.
 
     (b) Employees of NCRIC or any NCRIC Subsidiary who become participants in a
PRA Employee Plan shall, for purposes of determining eligibility for and for any
applicable vesting periods of such employee benefits only (and not for benefit
accrual purposes unless specifically set forth herein) be given credit for
meeting eligibility and vesting requirements in such plans for service as an
employee of NCRIC or any predecessor thereto prior to the Effective Time,
provided, however, that credit for benefit accrual purposes will be given only
for purposes of PRA vacation policies or programs. In the event of any
termination or consolidation of any NCRIC health plan with any PRA health plan,
PRA shall make available to Continuing Employees and their dependents
employer-provided health coverage on substantially the same basis as it provides
such coverage to PRA employees. Unless a Continuing Employee affirmatively
terminates coverage under a NCRIC health plan prior to the time that such
Continuing Employee becomes eligible to participate in the PRA health plan, or
unless a Continuing Employee and/or a dependent of a Continuing Employee has an
event which, under the terms of the NCRIC health plan, results in a loss of
coverage (which may include a sale or other disposition of a NCRIC Subsidiary or
substantially all of the business operations thereof), no coverage of any of the
Continuing Employees or their dependents shall terminate under any of the NCRIC
health plans prior to the time such Continuing Employees and their dependents
become eligible to participate in the health plans, programs and benefits common
to all employees of PRA and their dependents. In the event of a termination or
consolidation of any NCRIC health plan, terminated NCRIC employees and qualified
beneficiaries will have the right to continued coverage under group health plans
of PRA in accordance
 
                                       A-44

 
with Code Section 4980B(f), consistent with the provisions below. In the event
of any termination of any NCRIC health plan, or consolidation of any NCRIC
health plan with any PRA health plan, any coverage limitation under the PRA
health plan due to any pre-existing condition shall be waived by the PRA health
plan to the degree that such condition was covered by the NCRIC health plan and
such condition would otherwise have been covered by the PRA health plan in the
absence of such coverage limitation. All NCRIC Employees who cease participating
in a NCRIC health plan and become participants in a comparable PRA health plan
during any plan year shall receive credit toward the applicable deductible under
the PRA health plan for any amounts paid by the employee under NCRIC's health
plan during the applicable plan year, upon substantiation, in a form
satisfactory to PRA that such payments have been made.
 
     (c) It is understood that PRA and its Subsidiaries are "at-will" employers.
Nothing in this Section 6.7 shall be interpreted as preventing PRA from
terminating the employment of any individual or from amending, modifying or
terminating any PRA Employee Plans, or any NCRIC Employee Plans, or any benefits
under any PRA Employee Plans or any NCRIC Employee Plans, or any other
contracts, arrangements, commitments or understandings, in accordance with their
terms and applicable law.
 
     (d) The NCRIC ESOP shall be terminated as of, or prior to, the Effective
Time (all shares held by the ESOP shall be converted into the right to receive
the Merger Consideration), all outstanding NCRIC ESOP indebtedness shall be
repaid, either by return to PRA or cancellation of sufficient shares received as
Merger Consideration to repay the outstanding indebtedness or by open market
sales of such shares by the NCRIC ESOP and payment of the proceeds to PRA in
cancellation of the indebtedness, and the balance of the shares and any other
assets remaining in the NCRIC ESOP suspense account (as such term is defined in
the NCRIC ESOP) shall be allocated and distributed to NCRIC ESOP participants
(subject to the receipt of a favorable determination letter from the IRS), as
provided for in the NCRIC ESOP and unless otherwise required by applicable law.
Prior to the Effective Time, NCRIC, and following the Effective Time, PRA shall
use their respective best efforts in good faith to obtain such favorable
determination letter (including, but not limited to, making such changes to the
ESOP and the proposed allocations as may be requested by the IRS as a condition
to its issuance of a favorable determination letter). NCRIC and following the
Effective Time, PRA, will adopt such amendments to the NCRIC ESOP as may be
reasonably required by the IRS as a condition to granting such favorable
determination letter on termination. Neither NCRIC, nor following the Effective
Time, PRA shall make any distribution from the NCRIC ESOP except as may be
required by applicable law until receipt of such favorable determination letter.
In the case of a conflict between the terms of this Section and the terms of the
NCRIC ESOP, the terms of the NCRIC ESOP shall control, however, in the event of
any such conflict, NCRIC before the Merger, and PRA, after the Merger, shall use
their best efforts to cause the ESOP to be amended to conform to the
requirements of this Section.
 
     (e) At the Effective Time, NCRIC shall terminate the NCRIC Group, Inc.
Deferred Compensation Plan (the "NCRIC DCP"). All amounts credited to the
accounts of participants in the NCRIC DCP shall be distributed in lump sum in
accordance with the terms of the plan.
 
     (f) PRA shall assume and honor in accordance with their terms the
employment agreements between NCRIC and any officer or employee thereof that are
listed in Section 6.7(f) of the NCRIC Disclosure Schedule, including without
limitation, the obligation to pay cash severance on termination of employment
after a change of control; provided that PRA shall require in accordance with
the terms of said employment agreements that each officer or employee receiving
a payment shall enter into an acknowledgment and release acknowledging that no
further cash severance payments are due under the employment agreement and
releasing NCRIC and PRA and their respective officers, directors and employees
from any and all claims arising thereunder. Notwithstanding the foregoing, PRA
shall offer the terms of employment set forth in Section 6.7(f) of the PRA
Disclosure Schedule to the NCRIC employees named in Section 6.7(f) of the PRA
Disclosure Schedule.
 
                                       A-45

 
     (g) Notwithstanding anything herein to the contrary, all payments made to
NCRIC Employees under their Section 6.7 shall be subject to withholding required
by applicable federal, state and local taxing authorities.
 
     6.8  Directors' and Officers' Indemnification and Insurance.
 
     (a) PRA shall use its best efforts to cause the individuals serving as
officers and directors of NCRIC and the NCRIC Subsidiaries, immediately prior to
the Effective Time to be covered for a period of three (3) years from the
Effective Time (or the period of the applicable statute of limitations, if
longer) by the directors' and officers' liability insurance policy maintained by
NCRIC or the NCRIC Subsidiary (provided that PRA may substitute therefore
policies of the same or substantially similar coverage and amounts containing
terms and conditions which are not less advantageous in any material respect
than such policy) with respect to acts or omissions occurring prior to the
Effective Time which were committed by such officers and directors in their
capacity as such; provided, however, that in no event shall PRA be required to
expend more than 300% of the current amount expended by NCRIC or the NCRIC
Subsidiary (the "INSURANCE PREMIUM AMOUNT") to maintain or procure insurance
coverage pursuant hereto; and provided further, that if PRA is unable to
maintain or obtain the insurance called for by this Section 6.8, PRA shall use
its best efforts to obtain as much comparable insurance as available for the
Insurance Premium Amount.
 
     (b) In addition to 6.8(a), PRA shall indemnify, defend and hold harmless
each person who is now, or who has been at any time before the date hereof or
who becomes before the Effective Time, an officer, director or employee of NCRIC
or a NCRIC Subsidiary (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorney's fees), liabilities or judgments
or amounts that are paid in settlement of or in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal, or
administrative (each a "Claim"), in which an Indemnified Party is, or is
threatened to be made, a party or witness in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director, officer
or employee of NCRIC or a NCRIC Subsidiary if such Claim pertains to any matter
of fact arising, existing or occurring at or before the Effective Time
(including, without limitation, the Merger and the other transactions
contemplated hereby), regardless of whether such Claim is asserted or claimed
before, or after, the Effective Time (the "Indemnified Liabilities"), to the
fullest extent NCRIC is permitted under, and in accordance with the terms of
indemnification provisions under, NCRIC's Certificate of Incorporation and
Bylaws as of the date of this Agreement. PRA shall pay expenses in advance of
the final disposition of any such action or proceeding to each Indemnified Party
to the full extent provided in NCRIC's Certificate of Incorporation as of the
date of this Agreement. The Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with PRA; provided, however, that (A)
PRA shall have the right to assume the defense thereof and upon such assumption
PRA shall not be liable to any Indemnified Party for any legal expenses of other
counsel or any other expenses subsequently incurred by any Indemnified Party in
connection with the defense thereof, except that if PRA elects not to assume
such defense the Indemnified Party may retain counsel reasonably satisfactory to
him after consultation with PRA, and PRA shall pay the reasonable fees and
expenses of such counsel for the Indemnified Party, (B) PRA shall be obligated
pursuant to this paragraph to pay for only one firm of counsel for all
Indemnified Parties except to the extent representation by a single firm or
attorney is, in the absence of an informed consent by the Indemnified Party,
prohibited by ethical rules relating to lawyers' conflicts of interest, (C) PRA
shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld), (D) PRA shall have
no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated by this Agreement is prohibited by applicable
law and (E) PRA shall have no obligation hereunder to any Indemnified Party for
which and to the extent payment is actually and unqualifiedly made to such
Indemnified Party under any insurance policy, any other agreement for
indemnification or otherwise. Any Indemnified Party wishing to claim
Indemnification under this Section 6.8, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify PRA thereof, provided that the
failure to so notify shall not affect the obligations
 
                                       A-46

 
of PRA under this Section 6.8 except to the extent such failure to notify
materially prejudices PRA. PRA's obligations under this Section 6.8 continue in
full force and effect for a period of three (3) years from the Effective Time
(or the period of the applicable statute of limitations, if longer); provided,
however, that all rights to indemnification in respect of any claim (a "CLAIM")
asserted or made within such period shall continue until the final disposition
of such Claim.
 
     6.9  Advice of Changes.
 
     (a) PRA and NCRIC shall give prompt notice to the other party as soon as
practicable after it has actual knowledge of (i) the occurrence, or failure to
occur, of any event which would or would be likely to cause any party's
representations or warranties contained in this Agreement to be untrue or
incorrect in any material respect at any time from the date of this Agreement to
the Closing Date, or (ii) any failure on its part or on the part of any of its
or its Subsidiaries' officers, directors, employees, representatives or agents
(other than persons or entities who are such employees, representatives or
agents only because they are appointed insurance agents of such parties) to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by such party under this Agreement.
Each party shall have the right to deliver to the other party a written
disclosure schedule as to any matter of which it becomes aware following
execution of this Agreement which would constitute a breach of any
representation, warranty or covenant of this Agreement by such party,
identifying on such disclosure schedule the representation, warranty or covenant
which would be so breached, provided that each such disclosure schedule shall be
delivered as soon as practicable after such party becomes aware of the matter
disclosed therein. The nondisclosing party shall have ten (10) business days
from receipt of such disclosure schedule to notify the disclosing party that (x)
it will close notwithstanding the new disclosure, or (y) it will not close based
on such new disclosure, or (z) further investigation or negotiation is required
for it to reach a determination whether or not to close based on such new
disclosure. If the parties thereafter are unable to reach agreement on a
mutually satisfactory means of resolving the matter so disclosed, the
nondisclosing party shall have the right in its discretion, to terminate this
Agreement to the extent such termination is permitted under Section 8.1 of this
Agreement.
 
     (b) PRA shall update the PRA Disclosure Schedule (the "CLOSING DATE PRA
DISCLOSURE SCHEDULE") to a date that is no earlier than ten (10) business days
prior to the Closing Date and no later than seven (7) business days prior to the
Closing Date and shall deliver the Closing Date PRA Disclosure Schedule to NCRIC
not less than three (3) business days prior to the Closing Date. NCRIC shall
update the NCRIC Disclosure Schedule (the "CLOSING DATE NCRIC DISCLOSURE
SCHEDULE") to a date that is no earlier than ten (10) business days prior to the
Closing Date and no later than seven (7) business days prior to the Closing Date
and shall deliver the Closing Date NCRIC Disclosure Schedule to PRA not less
than three (3) business days prior to the Closing Date. The obligation of PRA to
deliver to NCRIC the Closing Date PRA Disclosure Schedule as provided above
shall be a material obligation for purposes of Section 7.3(b) hereof, and the
obligation of NCRIC to deliver to PRA the Closing Date NCRIC Disclosure Schedule
shall be a material obligation for purposes of Section 7.2(b) hereof.
 
     6.10  Additional Agreements.
 
     (a) In case at any time prior to the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or the
Merger, the proper officers and directors of each party to this Agreement and
their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, PRA.
 
     (b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement (including
any merger between a Subsidiary of PRA and a Subsidiary of NCRIC) or to vest PRA
or any of its Subsidiaries with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to this Agreement or
the Merger, the proper officers and directors of each party to this Agreement
and their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, PRA.
 
                                       A-47

 
     (c) Prior to the Effective Time, neither NCRIC nor the NCRIC Subsidiary
shall acquire, directly or indirectly, beneficial or record ownership of any
shares of PRA Common Stock or other equity securities of PRA, or any securities
convertible into or exercisable for any shares of PRA Common Stock or other
equity securities of PRA.
 
     6.11  Negotiations with Other Parties.
 
     (a) So long as this Agreement remains in effect and no notice of
termination has been given under this Agreement, NCRIC shall not authorize or
knowingly permit any of its representatives, directly or indirectly, to
initiate, entertain, solicit, encourage, engage in, or participate in,
negotiations with any Person or any group of Persons other than the other party
to this Agreement or any of its affiliates (a "POTENTIAL ACQUIROR") concerning
any Acquisition Proposal (as defined in this Section 6.11) other than as
expressly provided in this Agreement. NCRIC will promptly inform PRA of any
serious, bona fide inquiry it may receive with respect to any Acquisition
Proposal and shall furnish to PRA a copy thereof.
 
     (b) Nothing contained in this Agreement shall prohibit NCRIC or its Board
of Directors from making such disclosures to its stockholders as are required
under applicable law or the rules of the NASD or the Nasdaq National Market or
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act. Nothing contained in this Agreement
shall prohibit the Board of Directors of NCRIC from either furnishing
information to, or entering into discussions or negotiations with, any Person or
group of Persons regarding any Acquisition Proposal, or approving and
recommending to the stockholders of NCRIC an Acquisition Proposal from any
Person or group of Persons, if the Board of Directors of NCRIC determines in
good faith that such action is appropriate in furtherance of the best interests
of stockholders. In connection with any such determination, (i) NCRIC shall
direct its officers and other appropriate personnel to cooperate with and be
reasonably available to consult with any such person, entity or group, (ii)
NCRIC will disclose to PRA that it is furnishing information to, or entering
into discussions or negotiations with, such Person or group of Persons, which
disclosure shall describe the terms thereof (but need not identify the person,
entity or group making the offer), (iii) prior to furnishing such information to
such Person or group of Persons, NCRIC shall enter into a written agreement with
such Person or group of Persons which provides for, among other things, (A) the
furnishing to NCRIC of information regarding such Person or group of Persons
that is relevant to its ability to finance and otherwise perform its obligations
under its Acquisition Proposal; (B) the confidentiality of all non-public
information furnished to such Person or group of Persons by NCRIC; and (C)
procedures reasonably satisfactory to NCRIC that are designed to restrict or
limit the provision of information regarding NCRIC that could be used to the
competitive disadvantage of NCRIC, or in a manner that would be detrimental to
the interests of its stockholders; (iv) NCRIC will not furnish any non-public
information regarding PRA or the transactions contemplated hereby; and (v) NCRIC
will keep PRA informed of the status of any such discussions or negotiations
(provided that NCRIC shall not be required to disclose to PRA confidential
information concerning the business or operations of such Person or group of
Persons).
 
     (c) As used in this Agreement, "ACQUISITION PROPOSAL" means (i) any
proposal pursuant to which any Person or group of Persons, other than PRA or
NCRIC, would acquire or participate in a merger or other business combination
involving NCRIC or any of the NCRIC Subsidiaries, directly or indirectly; (ii)
any proposal by which any Person or group of Persons, other than PRA or NCRIC,
would acquire the right to vote 25% or more of the capital stock of NCRIC of any
of the NCRIC Subsidiaries entitled to vote thereon for the election of
directors; (iii) any acquisition of 25% or more of the assets of NCRIC or any of
the NCRIC Subsidiaries, other than in the ordinary course of business; (iv) any
acquisition in excess of [25]% of the outstanding capital stock of NCRIC or any
of the NCRIC Subsidiaries, other than as contemplated by this Agreement; or (v)
any transaction similar to the foregoing.
 
     6.12  Accountants Comfort Letter.  On or before the mailing of the Proxy
Statement, NCRIC shall deliver to PRA a letter from Deloitte & Touche LLP,
accountants for NCRIC, dated as of the effective date of the S-4 and addressed
to PRA to the effect: (i) that they are the independent public accountants with
respect to NCRIC within the meaning of the Exchange Act; (ii) that, in their
opinion, the
 
                                       A-48

 
consolidated financial statements and the financial statement schedules audited
by them and included in NCRIC's latest annual report on Form 10-K included in
and incorporated by reference in the S-4 comply as to form in all material
respects with the applicable accounting requirements of the Securities Act and
the Exchange Act; and (iii) on the basis of certain procedures specified in the
letter and reasonably acceptable to PRA, not constituting an audit, nothing came
to their attention that caused them to believe that: (A) any material
modifications should be made to the unaudited consolidated financial statements
of NCRIC included or incorporated by reference in the S-4 for such financial
statements to conform with GAAP; (B) the unaudited consolidated financial
statement of NCRIC included or incorporated by reference in the S-4 do not
comply as to form in all material respects with the requirements of the Exchange
Act as it applies to Form 10-Q.
 
     6.13  Reservation of Shares.  PRA agrees at all times from the date of this
Agreement until the Merger Consideration has been paid in full to reserve a
sufficient number of shares of its common stock to fulfill its obligations under
this Agreement.
 
     6.14  Registration of Continuing NCRIC Stock Options.  As promptly as
practicable following the Effective Time, PRA shall include the shares of PRA
Common Stock issuable upon exercise of the Continuing NCRIC Stock Options in a
registration statement filed with the SEC.
 
                                   ARTICLE 7
 
                              CONDITIONS PRECEDENT
 
     7.1  Conditions to Each Party's Obligation To Effect the Merger.  The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
 
          (a) This Agreement and the transactions contemplated by this Agreement
     shall have been approved and adopted by the requisite affirmative vote of
     the stockholders of NCRIC entitled to vote thereon.
 
          (b) The shares of PRA Common Stock which shall be issued pursuant to
     the Merger shall have been authorized for trading and reporting on the New
     York Stock Exchange, subject to official notice of issuance.
 
          (c) The Certificate of Merger shall have been filed with the
     appropriate Governmental Authorities immediately prior to or on the Closing
     Date.
 
          (d) All approvals of Governmental Authorities required to consummate
     the transactions contemplated by this Agreement shall have been obtained
     and shall remain in full force and effect and all statutory waiting periods
     in respect thereof shall have expired, without the imposition of any
     condition which in the reasonable judgment of PRA is materially burdensome
     upon PRA or its Subsidiaries (all such approvals and the expiration of all
     such waiting periods being referred to in this Agreement as the "REQUISITE
     REGULATORY APPROVALS"). Without limiting the generality of the foregoing:
     (i) the S-4 shall have become effective under the Securities Act, and no
     stop order suspending the effectiveness of the S-4 shall have been issued
     and shall remain in effect and no proceedings for that purpose shall have
     been initiated or threatened by the SEC; (ii) all Blue Sky Filings shall
     have been made, and the sale of PRA Stock resulting from the Merger shall
     have been qualified or registered with the appropriate state securities law
     regulatory authorities of all states in which qualification or registration
     is required under applicable state securities laws, and such qualifications
     or registrations shall not have been suspended or revoked, or shall be
     exempt from such qualification or registration; (iii) the HSR Act Report
     shall have been submitted to the Pre-Merger Notification Agencies, and the
     waiting period under the HSR Act shall have expired or notice of early
     termination of the waiting period shall have been received; and (iv) the
     Merger and the transfer of ownership of NCRIC and the NCRIC Subsidiaries
     shall have been approved by the Insurance Regulators, to the extent such
     approvals are required.
 
                                       A-49

 
          (e) No order, injunction or decree issued by any Governmental
     Authority of competent jurisdiction or other legal restraint or prohibition
     preventing the consummation of the Merger or any of the other transactions
     contemplated by this Agreement shall be in effect. No statute, rule,
     regulation, order, injunction or decree shall have been enacted, entered,
     promulgated or enforced by any Governmental Authority which prohibits,
     materially restricts or makes illegal consummation of the Merger.
 
          (f) PRA and NCRIC each shall have received a copy of the tax opinions
     contemplated by Section 6.2 of this Agreement, updated as of the Closing
     Date, substantially to the effect that, among other things, on the basis of
     the facts, assumptions and representations set forth in the opinion which
     are consistent with the state of facts existing at the Closing Date:
 
             (i) The former stockholders of NCRIC who receive the PRA Common
        Stock in the NCRIC Merger will not recognize gain or loss for federal
        income tax purposes.
 
             (ii) Neither NCRIC nor PRA, nor any of their respective
        Subsidiaries, shall recognize any gain or loss for federal income tax
        purposes as a result of the Merger.
 
     7.2  Conditions to Obligation of PRA.  The obligation of PRA to effect the
Merger is also subject to the satisfaction or waiver by PRA at or prior to the
Effective Time of the following conditions:
 
          (a) The representations and warranties of NCRIC set forth in this
     Agreement shall be true and correct in all material respects as of the date
     of this Agreement and (except (i) to the extent such representations and
     warranties speak as of an earlier date and (ii) for any changes to the
     NCRIC Disclosure Schedule that are disclosed by NCRIC to PRA in the Closing
     Date NCRIC Disclosure Schedule) as of the Closing Date as though made on
     and as of the Closing Date. PRA shall have received a certificate signed on
     behalf of NCRIC by the Chief Executive Officer and the Chief Financial
     Officer of NCRIC to the foregoing effect, and to which any Closing Date
     NCRIC Disclosure Schedule shall be appended. Notwithstanding the foregoing,
     no representation or warranty of NCRIC contained in this Agreement shall be
     deemed untrue or incorrect, and NCRIC shall not be deemed to have breached
     a representation or warranty, as a consequence of the existence of any
     fact, circumstance or event unless such fact, circumstance or event,
     individually or taken together with all other facts, circumstances or
     events inconsistent with any representation or warranty, has had or is
     reasonably expected to have a Material Adverse Effect, disregarding for
     these purposes (x) any qualification or exception for, or reference to,
     materiality in any such representation or warranty and (y) any use of the
     terms "material", "materially", "in all material respects", "Material
     Adverse Effect" or similar terms or phrases in any such representation or
     warranty (except with respect to representations and warranties contained
     in Sections 3.1, 3.4(a), and 3.5, which shall be deemed untrue, incorrect
     and breached if they are not true and correct in all material respects
     based on the qualifications and standards therein contained).
 
          (b) NCRIC shall have performed in all material respects all
     obligations required to be performed by it under this Agreement at or prior
     to the Closing Date, and PRA shall have received a certificate signed on
     behalf of NCRIC by the Chief Executive Officer and the Chief Financial
     Officer of NCRIC to such effect.
 
          (c) NCRIC and the NCRIC Subsidiaries, taken as a whole, shall not have
     suffered a Material Adverse Effect; and no event or circumstance shall have
     occurred which has, or is likely to have, a Material Adverse Effect on
     NCRIC or upon the right of NCRIC or the NCRIC Subsidiaries to conduct their
     respective businesses as presently conducted.
 
          (d) No legal, administrative, arbitral or other inquiries,
     proceedings, claims, actions have been initiated by any governmental or
     regulatory authority or SRO alleging violations of Federal securities laws
     (including the Securities Act and the Exchange Act) by NCRIC, any NCRIC
     Subsidiary or any director or officer of NCRIC or any NCRIC Subsidiary,
     which action has not been dismissed with prejudice.
 
                                       A-50

 
          (e) NCRIC shall have delivered to PRA such other certificates and
     instruments as PRA and its counsel may reasonably request. The form and
     substance of all certificates, instruments, opinions and other
     documentation delivered to PRA under this Agreement shall be reasonably
     satisfactory to PRA and its counsel.
 
     7.3  Conditions to Obligation of NCRIC.  The obligation of NCRIC to effect
the Merger is also subject to the satisfaction or waiver by NCRIC at or prior to
the Effective Time of the following conditions:
 
          (a) The representations and warranties of PRA set forth in this
     Agreement shall be true and correct in all material respects as of the date
     of this Agreement and (except (i) to the extent such representations and
     warranties speak as of an earlier date and (ii) for any changes to the PRA
     Disclosure Schedule that are disclosed by PRA to NCRIC in the Closing Date
     PRA Disclosure Schedule) as of the Closing Date as though made on and as of
     the Closing Date. NCRIC shall have received a certificate signed on behalf
     of PRA by the Chief Executive Officer and the Chief Financial Officer of
     PRA to the foregoing effect, and to which any Closing Date PRA Disclosure
     Schedule shall be appended. Notwithstanding the foregoing, no
     representation or warranty of PRA contained in this Agreement shall be
     deemed untrue or incorrect, and PRA shall not be deemed to have breached a
     representation or warranty, as a consequence of the existence of any fact,
     circumstance or event unless such fact, circumstance or event, individually
     or taken together with all other facts, circumstances or events
     inconsistent with any representation or warranty, has had or is reasonably
     expected to have a Material Adverse Effect, disregarding for these purposes
     (x) any qualification or exception for, or reference to, materiality in any
     such representation or warranty and (y) any use of the terms "material",
     "materially", "in all material respects", "Material Adverse Effect" or
     similar terms or phrases in any such representation or warranty (except
     with respect to representations and warranties contained in Sections 4.1,
     4.3 and 4.4, which shall be deemed untrue, incorrect and breached if they
     are not true and correct in all material respects based on the
     qualifications and standards therein contained).
 
          (b) PRA shall have performed in all material respects all obligations
     required to be performed by it under this Agreement at or prior to the
     Closing Date, and NCRIC shall have received a certificate signed on behalf
     of PRA by the Chief Executive Officer and the Chief Financial Officer of
     PRA to such effect.
 
          (c) PRA and its Subsidiaries, taken as a whole, shall not have
     suffered a Material Adverse Effect and no event or circumstance shall have
     occurred which has, or is likely to have, a Material Adverse Effect on PRA
     or upon the right of PRA or any of the PRA Subsidiaries to conduct their
     respective businesses as presently conducted.
 
          (d) PRA shall have delivered to NCRIC such other certificates and
     instruments as NCRIC and its counsel may reasonably request. The form and
     substance of all certificates, instruments and other documentation
     delivered to NCRIC under this Agreement shall be reasonably satisfactory to
     NCRIC and its counsel.
 
                                   ARTICLE 8
 
                           TERMINATION AND AMENDMENT
 
     8.1  Termination.  This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of NCRIC:
 
          (a) by mutual consent of PRA and NCRIC in a written instrument, if the
     Board of Directors of PRA and the Board of Directors of NCRIC so determine
     to terminate this Agreement by an affirmative vote of a majority of the
     members of its entire Board;
 
                                       A-51

 
          (b) by either PRA or NCRIC if (i) any Governmental Authority which
     must grant a Requisite Regulatory Approval has denied approval of the
     Merger and such denial has become final and nonappealable or any
     Governmental Authority of competent jurisdiction shall have issued a final
     nonappealable order permanently enjoining or otherwise prohibiting the
     consummation of the transactions contemplated by this Agreement, and (ii)
     the Board of Directors of PRA or the Board of Directors of NCRIC, as the
     case may be, determines to terminate this Agreement by an affirmative vote
     of a majority of the members of its entire Board;
 
          (c) by either PRA or NCRIC (provided that the terminating party is not
     then in material breach of any representation, warranty, covenant or other
     agreement contained in this Agreement) if (i) there shall have been a
     material breach of any of the covenants or agreements set forth in this
     Agreement on the part of the other party, which breach is not cured within
     forty-five (45) days following written notice to the party committing such
     breach, or which breach, by its nature or timing, cannot be cured prior to
     the Closing Date, and (ii) the Board of Directors of PRA or the Board of
     Directors of NCRIC, as the case may be, determines to terminate this
     Agreement by an affirmative vote of a majority of the members of its entire
     Board;
 
          (d) by either PRA or NCRIC (provided that the terminating party is not
     then in material breach of any representation, warranty, covenant or other
     agreement contained in this Agreement) if (i) there shall have been a
     breach of any of the representations and warranties set forth in this
     Agreement on the part of the other party, which breach is not cured within
     forty-five (45) days following written notice to the party committing such
     breach, or which breach, by its nature or timing, cannot be cured prior to
     the Closing Date, and (ii) the Board of Directors of PRA or the Board of
     Directors of NCRIC, as the case may be, determines to terminate this
     Agreement by an affirmative vote of a majority of the members of its entire
     Board; provided, however, that no representation or warranty of either
     party contained in this Agreement shall be deemed untrue or incorrect, and
     neither party shall be deemed to have breached a representation or
     warranty, as a consequence of the existence of any fact, circumstance or
     event unless such fact, circumstance or event, individually or taken
     together with all other facts, circumstances or events inconsistent with
     any representation or warranty, has had or is reasonably expected to have a
     Material Adverse Effect, disregarding for these purposes (x) any
     qualification or exception for, or reference to, materiality in any such
     representation or warranty and (y) any use of the terms "material",
     "materially", "in all material respects", "Material Adverse Effect" or
     similar terms or phrases in any such representation or warranty (except
     with respect to representations and warranties contained in Sections 3.1,
     3.4(a), 3.5, 4.1, 4.3 and 4.4, which shall be deemed untrue, incorrect and
     breached if they are not true and correct in all material respects based on
     the qualifications and standards therein contained).
 
          (e) by PRA upon written notice to NCRIC if the Board of Directors of
     NCRIC does not, or shall indicate in writing to PRA that NCRIC is unwilling
     or unable to, publicly recommend in the Proxy Statement that its
     stockholders approve and adopt this Agreement, or if after recommending in
     the Proxy Statement that its stockholders approve and adopt this Agreement,
     the Board of Directors of NCRIC shall have withdrawn, modified or amended
     such recommendation in any respect materially adverse to PRA (each a "NCRIC
     RECOMMENDATION EVENT"), provided that any such notice of termination must
     be given not later than 45 days after the later of the date PRA shall have
     been advised by NCRIC in writing that NCRIC is unable or unwilling to so
     recommend in the Proxy Statement or that it has withdrawn, modified or
     amended such recommendation, or such later date as may be agreed upon by
     PRA and NCRIC;
 
          (f) by PRA upon written notice to NCRIC if NCRIC shall have
     authorized, recommended, or approved or proposed, or if NCRIC shall have
     entered into an agreement with any Person other than PRA or NEWCO to effect
     an Acquisition Proposal;
 
          (g) by either PRA or NCRIC if approval of the stockholders of NCRIC
     required for the consummation of the Merger shall not have been obtained by
     reason of the failure to obtain the required vote at a duly held meeting of
     stockholders or at any adjournment or postponement thereof;
 
                                       A-52

 
          (h) by PRA if the Closing Date NCRIC Disclosure Schedule discloses any
     Material Adverse Effect or any change from the NCRIC Disclosure Schedule
     which has, or is likely to have, a Material Adverse Effect on NCRIC; or by
     NCRIC if the Closing Date PRA Disclosure Schedule discloses any Material
     Adverse Effect or any change from the PRA Disclosure Schedule which has, or
     is likely to have, a Material Adverse Effect on PRA;
 
          (i) by either PRA or NCRIC if the S-4 has not been filed with the SEC
     on or before June 30, 2005, unless the failure to so file the S-4 by such
     date shall be due to the failure of the party seeking to terminate this
     Agreement to perform or observe the covenants and agreements of such party
     set forth in this Agreement, and the Board of Directors of PRA or the Board
     of Directors of NCRIC, as the case may be, determines to terminate this
     Agreement by an affirmative vote of a majority of the members of its entire
     Board;
 
          (j) by written notice from NCRIC to PRA, or from PRA to NCRIC, if the
     Closing does not occur on or before December 31, 2005, for any reason other
     than breach of this Agreement by the party giving such notice; or
 
          (k) By NCRIC upon the occurrence of a NCRIC Acquisition Event (as
     defined in Section 8.5(a) hereof) or NCRIC Recommendation Event.
 
     8.2  Effect of Termination.  In the event of termination of this Agreement
by either PRA or NCRIC as provided in Section 8.1 of this Agreement, (i) this
Agreement shall forthwith become void and have no effect, except that Sections
6.3(b), 8.2, 8.5, 9.2, 9.3, 9.4, 9.5, 9.13, 9.16 and 9.17 of this Agreement
shall survive any termination of this Agreement, and (ii) none of PRA, NEWCO,
and NCRIC, any of their respective Subsidiaries or any of the officers or
directors of any of them shall have any liability of any nature whatsoever under
this Agreement, or in connection with the transactions contemplated by this
Agreement, except as otherwise provided in Section 8.5 of this Agreement;
provided, however, that notwithstanding anything to the contrary contained in
this Agreement, neither PRA nor NCRIC shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
 
     8.3  Amendment.  Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by the Board
of Directors of PRA and the Board of Directors of NCRIC, at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of NCRIC; provided, however, that after any approval of the
transactions contemplated by this Agreement by the stockholders of NCRIC, there
may not be, without further approval of such stockholders, any amendment of this
Agreement which changes the amount or the form of the consideration to be
delivered to the stockholders of NCRIC under this Agreement other than as
contemplated by this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
 
     8.4  Extension; Waiver.  At any time prior to the Effective Time, the
parties to this Agreement may, to the extent legally allowed, (a) extend the
time for the performance of any of the obligations or other acts of the other
parties to this Agreement, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant
hereto, or (c) waive compliance with any of the agreements or conditions
contained in this Agreement; provided, however, that after any approval of the
transactions contemplated by this Agreement by the stockholders of NCRIC, there
may not be, without further approval of such stockholders, any extension or
waiver of this Agreement or any portion thereof which reduces the amount or
changes the form of the consideration to be delivered to the stockholders of
NCRIC under this Agreement other than as contemplated by this Agreement. Any
agreement on the part of a party to this Agreement to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party, but such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
 
                                       A-53

 
     8.5  Liquidated Damages; Termination Fee.  Notwithstanding anything to the
contrary contained in this Agreement, in the event that any of the following
events or circumstances shall occur, NCRIC shall, within ten (10) days after
notice of the occurrence thereof by PRA, pay to PRA the sum equal to $1,725,000
(which the parties agree and stipulate as reasonable and full liquidated damages
and reasonable compensation for the involvement of PRA in the transactions
contemplated in this Agreement, is not a penalty or forfeiture, and will not
affect the provisions of this Section 8.5): (i) at any time prior to termination
of this Agreement a NCRIC Acquisition Event shall occur; (ii) PRA shall
terminate this Agreement pursuant to Section 8.1(e) or (f); (iii) NCRIC shall
terminate this Agreement pursuant to Section 8.1(k); or (iv) if NCRIC fails to
call and hold the meeting of its stockholders as required by Section 6.4 of this
Agreement. For purposes of this Agreement a "NCRIC ACQUISITION EVENT" shall mean
that NCRIC shall have authorized, recommended, approved, or entered into an
agreement with any Person (other than any of the parties to this Agreement) to
effect an Acquisition Proposal or shall fail to publicly oppose a tender offer
or exchange offer by another person based on an Acquisition Proposal. Upon the
making and receipt of such payment under this Section 8.5, NCRIC shall have no
further obligation of any kind under this Agreement and neither PRA nor NEWCO
shall have any further obligation of any kind under this Agreement, except in
each case under Section 8.2 of this Agreement, and no party shall have any
liability for any breach or alleged breach by such party of any provision of
this Agreement.
 
                                   ARTICLE 9
 
                               GENERAL PROVISIONS
 
     9.1  Closing.  Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "CLOSING") will take place at 10:00 a.m. on a date
and at a place to be specified by the parties, which shall be no later than five
(5) business days after the satisfaction or waiver (subject to applicable law)
of the latest to occur of the conditions set forth in Article 7 of this
Agreement, unless extended by mutual agreement of the parties (the "CLOSING
DATE"). The parties shall use their respective best efforts to cause the
Effective Date to occur on or before July 31, 2005. The parties shall cause the
Certificate of Merger to be filed with the Delaware Secretary of State on or
before the Effective Date or as soon thereafter as is possible. The parties
shall take such further actions as may be required by the laws of the State of
Delaware in connection with such filing and the consummation of the Merger.
 
     9.2  Nonsurvival of Representations, Warranties and Agreements.  None of
the representations, warranties, covenants and agreements of NCRIC, PRA and
NEWCO in this Agreement or in any instrument delivered by NCRIC, PRA or NEWCO
pursuant to this Agreement shall survive the Effective Time, except as otherwise
provided in Section 8.2 of this Agreement and except for those covenants and
agreements contained in this Agreement and in any such instrument which by their
terms apply in whole or in part after the Effective Time.
 
     9.3  Expenses.  Except as otherwise expressly provided in this Agreement,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such expense; provided, however, (i) that the costs and expenses of printing and
mailing the Proxy Statement, and all filing and other fees paid to the SEC in
connection with the Merger, shall be borne equally by PRA and NCRIC, and (ii)
that PRA and NCRIC will share the cost of the HSR Act filing fee in proportion
to their relative assets as of December 31, 2004.
 
     9.4  Notices.  All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, by facsimile (with
confirmation), mailed by registered or certified
 
                                       A-54

 
mail (return receipt requested) or delivered by an express courier (with
confirmation) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
 
     (a) if to PRA or NEWCO to:
 
         ProAssurance Corporation
         100 Brookwood Place
         Birmingham, Alabama 35209
         Attention: Chief Executive Officer
         Fax: (205) 877-4405
 
     with copies to:
 
          Burr & Forman LLP
          420 N. 20(th) Street, Suite 3100
          Birmingham, Alabama 35203
          Attention: Jack P. Stephenson, Esq.
          Fax: (205) 458-5100
 
     and
 
     (b) if to NCRIC, to:
 
         1115 30th Street, N.W.
         Washington, D.C. 20007
         Attention: President and Chief Executive Officer
         Fax: (202) 969-1883
 
     with copies to:
 
          Luse Gorman Pomerenk & Schick, PC
          5335 Wisconsin Avenue, NW
          Suite 400
          Washington, DC 20015
          Attention: John J. Gorman
          Fax: (202) 362-2902.
 
     9.5  Jurisdiction; Service of Process.  Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
shall be brought against any of the parties in the State of Delaware, County of
New Castle or the United States District Court for the District of Delaware, and
each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
 
     9.6  Further Assurances.  At the request of any party to this Agreement,
the other parties shall execute, acknowledge and deliver such other documents
and/or instruments as may be reasonably required by the requesting party to
carry out the purposes of this Agreement. In the event any party to this
Agreement shall be involved in litigation, threatened litigation or government
inquiries with respect to a matter covered by this Agreement, every other party
to this Agreement shall also make available to such party, at reasonable times
and subject to the reasonable requirements of its own businesses, such of its
personnel as may have information relevant to such matters, provided that such
party shall reimburse the providing party for its reasonable costs for employee
time incurred in connection therewith if more than one business day is required.
Following the Closing, the parties will cooperate with each other in connection
with tax audits and in the defense of any legal proceedings.
 
     9.7  Remedies Cumulative.  Unless expressly made the exclusive remedy by
the terms of this Agreement, all remedies provided for in this Agreement are
cumulative and shall be in addition to any and all other rights and remedies
provided by law and by any other agreements between the parties.
 
     9.8  Presumptions.  It is expressly acknowledged and agreed that all
parties have been represented by counsel and have participated in the
negotiation and drafting of this Agreement, and that there shall be
 
                                       A-55

 
no presumption against any party on the ground that such party was responsible
for preparing this Agreement or any part of it.
 
     9.9  Exhibits and Schedules.  Each of the Exhibits and Schedules referred
to in, and/or attached to, this Agreement is an integral part of this Agreement
and is incorporated in this Agreement by this reference.
 
     9.10  Interpretation.  When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". No provision of this
Agreement shall be construed to require PRA, NCRIC or any of their respective
Subsidiaries or affiliates to take any action which would violate any applicable
law, rule or regulation.
 
     9.11  Counterparts.  This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
 
     9.12  Entire Agreement.  This Agreement (including the documents and the
instruments referred to in this Agreement) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement.
 
     9.13  Governing Law.  This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law principles.
 
     9.14  Severability.  Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
 
     9.15  Publicity.  PRA and NCRIC shall develop a joint communications plan
and each party shall (i) ensure that all press releases and other public
statements and communications (including any communications that would require a
filing under Rule 425, Rule 165 and Rule 166 under the 1933 Act or Rule 14a-2,
Rule 14a-12 or Rule 14e-2 under the Exchange Act) with respect to this Agreement
and the transactions contemplated hereby shall be consistent with such joint
communications plan and (ii) unless otherwise required by applicable law or by
obligations pursuant to any listing agreement with or rules of the NYSE or the
NASD and the Nasdaq National Market, consult with each other for a reasonable
time before issuing any press release or otherwise making any public statement
or communication (including any communications that would require a filing with
the SEC), and mutually agree upon any such press release or any such public
statement or communication, with respect to this Agreement or the transactions
contemplated hereby. In addition to the foregoing, except to the extent
disclosed in the Proxy Statement, unless otherwise required by applicable law or
by obligations pursuant to any listing agreement with or rules of the NYSE or
the NASD and the Nasdaq National Market, neither PRA nor NCRIC shall issue any
press release or otherwise make any public statement or disclosure concerning
the other party or the other party's business, financial conditions or results
of operations without the consent of the other party.
 
     9.16  Assignment; Third Party Beneficiaries.  Neither this Agreement nor
any of the rights, interests or obligations shall be assigned by any of the
parties to this Agreement (whether by operation of law or otherwise) without the
prior written consent of the other parties to this Agreement. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
Except as otherwise specifically provided in Section 6.9,
                                       A-56

 
this Agreement (including the documents and instruments referred to in this
Agreement) is not intended to confer upon any person other than the parties to
this Agreement any rights or remedies under this Agreement.
 
     9.17  (Intentionally Omitted)
 
     9.18  Definitions.
 
     (a) The following terms, as used in this Agreement, have the meanings that
follow:
 
          "Change-of-Control" means the occurrence of the following events: (i)
     the consummation of any consolidation, merger or similar transaction or
     purchase of securities of PRA pursuant to which (x) the members of the
     Board of Directors of PRA immediately prior to such transaction do not,
     immediately after the transaction, constitute a majority of the Board of
     Directors of the surviving entity, or (y) the stockholders of PRA
     immediately preceding the transaction do not, immediately after the
     transaction, own at least 50.1% of the combined voting power of the
     outstanding securities of the surviving entity, or (ii) any sale, lease,
     exchange or other transfer (in one transaction or a series of related
     transactions) of all or substantially all of the assets of PRA and its
     Subsidiaries, such that PRA and its Subsidiaries cease to function on a
     going-forward basis as an insurance company holding system.
 
          "Employee Plan" means any "employee benefit plan," as defined in
     Section 3(3) of ERISA; any employment, severance or similar service
     agreement, plan, arrangement or policy; any other plan or arrangement
     providing for compensation, bonuses, profit-sharing, stock option or other
     equity-related rights or other forms of incentive or deferred compensation,
     vacation benefits, insurance (including any self-insured arrangements),
     medical, dental or vision benefits, disability or sick leave benefits, life
     insurance, employee assistance program, workers' compensation, supplemental
     unemployment benefits, severance benefits and post-employment or retirement
     benefits (including compensation, pension, insurance or medical benefits);
     or any loan; in each case including plans or arrangements, both written and
     oral, covering or extended to any current or former director, employee or
     independent contractor.
 
          "Environmental Laws" means any federal, state, local or foreign law
     (including common law) treaty, judicial decision, regulation, rule,
     judgment, order, decree, injunction, permit or governmental restriction or
     requirement or any agreement with any Governmental Authority or other third
     party, relating to human health and safety, the environment or to
     pollutants, contaminants, wastes or chemicals or any toxic, radioactive,
     ignitable, corrosive, reactive or otherwise hazardous substances, wastes or
     materials.
 
          "Environmental Permits" means, with respect to any Person, all
     permits, licenses, franchises, certificates, approvals and other similar
     authorizations of governmental authorities relating to or required by
     Environmental Laws and affecting, or relating in any way to, the business
     of such Person or any of such Person's Subsidiaries, as currently
     conducted.
 
          "Governmental Authority" means any governmental body, agency, official
     or authority, domestic, foreign, or supranational, or SRO or other similar
     non-governmental regulatory body.
 
          "Insurance Laws" means all laws, rules and regulations applicable to
     the business of insurance and the regulation of insurance holding
     companies, whether domestic or foreign, and all applicable orders and
     directives of Governmental Authorities and market conduct recommendations
     resulting from market conduct examinations of Insurance Regulators.
 
          "Insurance Regulators" means all Governmental Authorities regulating
     the business of insurance under the Insurance Laws.
 
          "Lien" means, with respect to any property or asset (real or personal,
     tangible or intangible), any mortgage, lien, pledge, charge, security
     interest, encumbrance or other adverse claim of any kind in respect of such
     property or asset. For purposes of this Agreement, a Person shall be deemed
     to own subject to a Lien any property or asset that it has acquired or
     holds subject to the interest of a vendor
 
                                       A-57

 
     or lessor under any conditional sale agreement, capital lease or other
     title retention agreement relating to such property or asset.
 
          "Material Adverse Effect" means, with respect to NCRIC and PRA, as the
     case may be, a material adverse effect on the business, assets, properties,
     operations, or condition (financial or otherwise) or (insofar as can
     reasonably be foreseen) prospects (financial or otherwise) of such party
     and its Subsidiaries taken as a whole; provided that the following shall be
     excluded in any determination of Material Adverse Effect: (i) the payment
     and/or incurrence of transactional expenses by NCRIC, PRA, and NEWCO in
     connection with the Merger, to the extent having such an effect, (ii) any
     change in the value of the Investments of PRA or NCRIC, or any of their
     Subsidiaries, respectively, resulting from a change in interest rates
     generally,; (iii) announcement of this Agreement or transactions
     contemplated by this Agreement (including disruption in customer, agent or
     reinsurance relationships or loss of employees); (iv) acts of terrorism,
     war, armed hostilities or other international or natural calamity directly
     or indirectly involving the United States; (v) circumstances affecting the
     insurance industry or the medical malpractice industry generally (but only
     to the extent that such changes affect NCRIC and PRA in a substantially
     equivalent manner); (vi) changes in laws, regulations, or accounting or
     actuarial principles or practices (but only to the extent that such changes
     affect NCRIC and PRA in a substantially equivalent manner); (vii)
     litigation arising from or relating to this Agreement or the Merger
     including allegations of a breach of fiduciary duty or violation of
     securities laws; and (viii) with respect to NCRIC, (x) the establishment of
     any reserve in an amount up to $19.5 million, relating to the 2004
     Judgment; (ix) any valuation allowance established in connection with the
     deferred tax assets reflected in its statement of condition as of December
     31, 2004, and (z) any charge relating to the impairment of the goodwill
     reflected in its statement of condition as of December 31, 2004.
 
          "Person" means an individual, corporation, partnership (general or
     limited), limited liability company, association, trust or other entity or
     organization, including any Governmental Authority.
 
          "Subsidiary," when used with respect to any Person, means any
     corporation, partnership, limited liability company, association, trust or
     other entity or organization, whether incorporated or unincorporated, which
     is consolidated with such party for financial reporting purposes or in
     which a party has direct or indirect beneficial ownership (as defined in
     Rule 13d-3 of the SEC) of a majority of the voting stock or other equity
     interest of such entity.
 
          The "2004 Judgment" means the verdict or any related judgment in
     NCRIC, Inc. v. Columbia Hospital for Women Medical Center, Inc. (Civil
     Action #00-0007308, Superior Court of District of Columbia, Civil
     Division).
 
     (b) Set forth below is an index to the definitions set forth in this
Agreement.
 


TERM                                                            SECTION
----                                                          ------------
                                                           
2004 Judgment...............................................  9.18
2004 NCRIC Balance Sheet....................................  3.7(d)
2004 PRA Balance Sheet......................................  4.6(e)
Acquisition Proposal........................................  6.11(c)
Actuarial Report............................................  5.1(c)
Adjusted NCRIC Share Value..................................  1.7(b)(ii)
Advisory Committee..........................................  1.12(b)
Agreement...................................................  Recitals
Articles of Merger..........................................  1.2
Base Price..................................................  1.5(a)(iii)
Blue Sky Filings............................................  6.1(d)
Certificate of Merger.......................................  1.2

 
                                       A-58

 


TERM                                                            SECTION
----                                                          ------------
                                                           
Change of Control...........................................  9.18(a)
Claim.......................................................  6.8(b)
Closing.....................................................  9.1
Closing Date................................................  9.1
Closing Date NCRIC Disclosure Schedule......................  6.9(b)
Closing Date PRA Disclosure Schedule........................  6.9(b)
COBRA.......................................................  3.14(c)
Code........................................................  1.8
Confidentiality Agreement...................................  6.3(a)
Consulting Agreement........................................  1.12(a)
Continuing Employees........................................  6.7(a)
Continuing NCRIC Stock Award................................  1.7(c)
Continuing NCRIC Stock Option...............................  1.7(b)
DGCL........................................................  1.1
EDGAR.......................................................  3.7(a)
Effective Time..............................................  1.2
Employee Plan...............................................  9.18(a)
Environmental Laws..........................................  9.18(a)
Environmental Permits.......................................  9.18(a)
ERISA.......................................................  3.14(a)
Escrow Deposit..............................................  1.5(a)(iv)(C)
Exchange Act................................................  3.5(c)
Exchange Agent..............................................  2.1
Exchange Fund...............................................  2.2(a)
Exchange Ratio..............................................  1.5(a)
GAAP........................................................  3.3(b)
Governmental Authority......................................  9.18(a)
HIPPA.......................................................  3.14(k)
HSR Act.....................................................  3.5(c)
HSR Act Report..............................................  3.5(c)
Insurance Laws..............................................  9.18(a)
Insurance Premium Amount....................................  6.8(a)
Insurance Regulators........................................  9.18(a)
Intellectual Property.......................................  3.19(a)
IRS.........................................................  3.13
Lien........................................................  9.18(a)
Litigation Adjustment.......................................  1.5(a)(iv)
Market Adjustment...........................................  1.5(b)
Market Value................................................  1.5(b)
Material Adverse Effect.....................................  9.18(a)
Merger......................................................  1.1
Merger Consideration........................................  1.5(a)
NAIC........................................................  3.5(c)
NASD........................................................  3.5(c)

 
                                       A-59

 


TERM                                                            SECTION
----                                                          ------------
                                                           
New Certificates............................................  2.2(b)
NEWCO.......................................................  Recitals
NEWCO Common Stock..........................................  4.3(b)
NCRIC.......................................................  Recitals
NCRIC Acquisition Event.....................................  8.5
NCRIC Actuarial Analyses....................................  3.23(e)
NCRIC Actuaries.............................................  3.23(e)
NCRIC Advisory Committees...................................  1.12(b)
NCRIC Award Plan............................................  1.7(a)
NCRIC Common Stock..........................................  1.5(a)
NCRIC Contract..............................................  3.17(a)
NCRIC DCP...................................................  6.7(e)
NCRIC Disclosure Schedule...................................  3
NCRIC Employees.............................................  6.7(a)
NCRIC Employee Plan.........................................  3.14(a)
NCRIC ESOP..................................................  1.5(d)
NCRIC Filed SEC Reports.....................................  3.7(a)
NCRIC Holding Company Act Reports...........................  3.6(c)
NCRIC Insurance Policies....................................  3.12(a)
NCRIC Insurance Subsidiaries................................  3.2(b)
NCRIC Option Plans..........................................  1.7(a)
NCRIC Personal Property Leases..............................  3.21(b)
NCRIC Real Property.........................................  3.20(a)
NCRIC Real Property Leases..................................  3.20(a)
NCRIC Recommendation Event..................................  8.1(e)
NCRIC Regulatory Agreement..................................  3.16(b)
NCRIC Reinsurance Treaties..................................  3.23(c)
NCRIC Reserves..............................................  3.23(d)
NCRIC SAP Statements........................................  3.6(a)
NCRIC SEC Reports...........................................  3.7(a)
NCRIC Stock Awards..........................................  1.7(a)
NCRIC Stock Award Plans.....................................  1.7(a)
NCRIC Stock Options.........................................  1.7(a)
NCRIC Subsidiaries..........................................  3.2(a)
NYSE........................................................  3.5(c)
Old Certificates............................................  2.2(b)
Person......................................................  9.18(a)
Potential Acquirer..........................................  6.11(a)
PRA.........................................................  Recitals
PRA Acquisition Event.......................................  8.5(b)
PRA Common Stock............................................  1.5(a)
PRA Debentures..............................................  4.3(a)
PRA Disclosure Schedule.....................................  4
PRA Filed SEC Reports.......................................  4.6(a)

 
                                       A-60

 


TERM                                                            SECTION
----                                                          ------------
                                                           
PRA Holding Company Act Report..............................  4.5(c)
PRA Insurance Subsidiaries..................................  4.2(b)
PRA Regulatory Agreement....................................  4.9(g)
PRA Reinsurance Treaties....................................  4.12(a)
PRA Reserves................................................  4.12(b)
PRA SAP Statements..........................................  4.5(a)
PRA SEC Reports.............................................  4.6(a)
PRA Subsidiaries............................................  4.2(a)
Practice Management Adjustment..............................  1.5(a)(v)
Practice Management Business................................  1.5(a)(v)
Pre-Merger Notification Agencies............................  3.5(c)
Proxy Statement.............................................  3.5(c)
Purchase Price..............................................  1.5(a)(ii)
Requisite Regulatory Approvals..............................  7.1(d)
S-4.........................................................  3.5(c)
SAP.........................................................  3.6(b)
SEC.........................................................  3.5(c)
Securities Act..............................................  3.5(c)
SOX.........................................................  3.7(a)
SRO.........................................................  3.5(c)
Stockholders' Equity Determination Date.....................  9.18
Subsidiary..................................................  9.18(a)
Tax or Taxes................................................  3.13(a)
Tax Return or Tax Returns...................................  3.13(a)
WARN Act....................................................  3.15(e)

 
                                       A-61

 
     IN WITNESS WHEREOF, PRA, NEWCO, and NCRIC have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
 
                                          PROASSURANCE CORPORATION,
                                          a Delaware corporation
 
                                          By: /s/ Victor T. Adamo
                                            ------------------------------------
                                              Victor T. Adamo
                                              President
 
                                          NCRIC MERGER CORPORATION,
                                          a Delaware corporation
 
                                          By: /s/ Victor T. Adamo
                                            ------------------------------------
                                              Victor T. Adamo
                                              President
 
                                          NCRIC GROUP, INC.,
                                          a Delaware corporation
 
                                          By: /s/ R. Ray Pate, Jr.
                                            ------------------------------------
                                              R. Ray Pate, Jr.
                                              President and Chief Executive
                                              Officer
 
                                       A-62

 
                                                                      APPENDIX B

                [LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P.]

 

June 20, 2005

 
Board of Directors
NCRIC Group, Inc.
1115 30(th) Street, N.W.
Washington, D.C. 20007
 
Ladies and Gentlemen:
 
     NCRIC Group, Inc. ("NCRIC"), ProAssurance Corporation ("PRA"), and NCP
Merger Corporation, a wholly owned subsidiary of PRA ("Merger Sub"), have
entered into an Agreement and Plan of Merger, dated as of February 28, 2005 (the
"Agreement"), pursuant to which NCRIC will be merged with and into Merger Sub,
with Merger Sub being the surviving entity (the "Merger"). Under the terms of
the Agreement, upon consummation of the Merger, each share of NCRIC common stock
issued and outstanding immediately prior to the Merger, other than certain
shares specified in the Agreement (the "NCRIC Shares"), will be converted into
the right to receive 0.25 shares of PRA common stock ("PRA Shares"), subject to
a market adjustment as provided in the Agreement (as adjusted, the "Exchange
Ratio"). Pursuant to the market adjustment provisions in the Agreement, in the
event that the Market Value of the PRA Shares is greater than $44.00 per share,
the Exchange Ratio will be reduced to a fraction of a PRA Share determined by
dividing $11.00 by the Market Value. In the event that the Market Value of the
PRA Shares is less than $36.00 per share, the Exchange Ratio will be increased
to a fraction of a PRA Share determined by dividing $9.00 by the Market Value.
"Market Value" is the amount equal to the arithmetic average of the last
reported sales prices of one PRA Share as reported on the New York Stock
Exchange for each of the ten trading days ending on the date preceding the
closing of the Merger. Cash will be paid in lieu of fractional shares in an
amount determined by taking the product of the relevant fraction and $40.00 if
there is no market adjustment to the Exchange Ratio and the Market Value if
there is a market adjustment to the Exchange Ratio. The other terms and
conditions of the Merger are more fully set forth in the Agreement. You have
requested our opinion as to the fairness, from a financial point of view, of the
Exchange Ratio to holders of NCRIC Shares.
 
     In connection with this opinion, we have reviewed, among other things: (i)
the Agreement; (ii) certain publicly available financial statements and other
historical financial information of NCRIC that we deemed relevant; (iii) certain
publicly available financial statements and other historical financial
information of PRA that we deemed relevant; (iv) earnings projections and
earnings per share estimates for NCRIC for the year ending December 31, 2005
prepared by and reviewed in discussions with senior management of NCRIC,
adjusted to reflect three possible financial resolutions concerning the Judgment
(as defined below) and earnings projections for the years thereafter, reviewed
in discussions with senior management of NCRIC; (v) earnings per share estimates
for PRA for the years ending December 31, 2005 and 2006 and long-term earnings
per share growth rate estimates for periods thereafter published by Thomson
First Call (reviewed with senior management of PRA as to reasonableness for use
by us in our analyses); (vi) the pro forma financial impact of the Merger on
PRA, based on assumptions relating to transaction expenses, purchase accounting
adjustments and cost savings and expenses associated with the Judgment
determined by the senior management of PRA; (vii) the publicly reported
historical price and trading activity for NCRIC's and PRA's common stock,
including a comparison of certain financial and stock market information for
NCRIC and PRA with similar publicly available information for certain other
companies the securities of which are publicly traded; (viii) the financial
terms, to the extent publicly available, of certain recent business combinations
in the medical malpractice insurance industry; (ix) the current market
environment generally and the medical malpractice insurance environment in
particular; and (x) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we considered
relevant. We also discussed with certain members of senior management of NCRIC
the business, financial condition, results of operations and prospects of NCRIC
and held similar discussions with certain members of senior management of PRA
regarding the business, financial condition, results of operations and prospects
of PRA.
 
                                       B-1


Board of Directors


NCRIC Group, Inc.


June 20, 2005

 
     We are aware that on February 20, 2004, a judgment of $18.2 million was
entered against NCRIC with respect to certain counterclaims made by Columbia
Hospital for Women Medical Center, Inc. in a premium collection litigation
brought by NCRIC (the "Judgment"). As you are aware, the Judgment is not final
due to certain post-trial motions filed by NCRIC with respect to the judgment
and may be appealed when and if made final. In connection with filing the
post-trial motions, NCRIC secured a $19.5 million appellate bond and associated
letter of credit. While, with your concurrence, we have performed certain of our
analyses using three possible financial resolutions of this matter, we have
performed no independent evaluation of (i) the merits of the counterclaims,
post-trial motions or any potential appeal of the Judgment, (ii) the prospects
or amount of any potential settlement, liability or other payment relating to
the Judgment, or (iii) the actual or potential costs of the actions or matters
referred to in clauses (i) and (ii). Instead, at your direction, with regard to
this litigation we have relied exclusively on information provided by NCRIC and
its legal advisors.
 
     In performing our review, we have relied upon the accuracy and completeness
of all of the financial and other information that was available to us from
public sources, that was provided to us by NCRIC or PRA or their respective
representatives or that was otherwise reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. We have
further relied on the assurances of management of NCRIC and PRA that they are
not aware of any facts or circumstances that would make any of such information
inaccurate or misleading. We have not been asked to undertake, and have not
undertaken, an independent verification of any of such information and we do not
assume any responsibility or liability for the accuracy or completeness thereof.
We did not make an independent evaluation or appraisal of the specific assets,
the collateral securing assets or the liabilities (contingent or otherwise) of
NCRIC or PRA or any of their subsidiaries, or the collectibility of any such
assets, nor have we been furnished with any such evaluations or appraisals. We
have not been furnished with any actuarial analyses or reports, except for
certain analyses and reports prepared by NCRIC's actuarial advisors. We are not
actuaries and our services did not include actuarial determinations or
evaluations by us or an attempt by us to evaluate any actuarial assumptions. In
that regard, we have made no analysis of, and express no opinion as to, the
adequacy of NCRIC's losses and loss adjustment expense reserves, including the
reserve strengthening taken by NCRIC in the fourth quarter of 2004 or the
current reserves of PRA. We have not evaluated the solvency or fair value of
NCRIC or PRA under any state or federal laws relating to bankruptcy, insolvency
or similar matters.
 
     With respect to the earnings projections and earnings per share estimates
for NCRIC prepared by and/or reviewed with the management of NCRIC and used by
Sandler O'Neill in its analyses, NCRIC's management confirmed to us that they
reflected the best currently available estimates and judgments of such
management of the future financial performance of NCRIC and we assumed that such
performance would be achieved. The earnings per share estimates for PRA were
reviewed with senior management of PRA as to reasonableness for use by Sandler
O'Neill in its analyses and Sandler O'Neill assumed PRA would perform in
accordance with those estimates. With respect to the projections of transaction
costs, purchase accounting adjustments and expected cost savings determined by
senior management of PRA, such management confirmed to Sandler O'Neill that they
reflected the best currently available estimates and judgments of such
management and Sandler O'Neill assumed that they would be achieved. We express
no opinion as to any financial projections or estimates or the assumptions on
which they are based. We have also assumed that there has been no material
change in NCRIC's or PRA's assets, financial condition, results of operations,
business or prospects since the date of the most recent financial statements
made available to us. We have assumed in all respects material to our analysis
that NCRIC and PRA will remain as going concerns for all periods relevant to our
analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to
the agreements will perform all of the covenants required to be performed by
such party under the agreements, that the conditions precedent in the agreements
are not waived and that the Merger will be a
                                       B-2


Board of Directors


NCRIC Group, Inc.


June 20, 2005

 
tax-free reorganization for federal income tax purposes. Finally, with your
consent, we have relied upon the advice NCRIC has received from its legal,
accounting, actuarial and tax advisors as to all legal, accounting, actuarial
and tax matters relating to the Merger and the other transactions contemplated
by the Agreement.
 
     Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise, reaffirm or withdraw this
opinion or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of PRA's common stock will be
when issued to NCRIC's shareholders pursuant to the Agreement or the prices at
which NCRIC or PRA's common stock may trade at any time.
 

     We have acted as NCRIC's financial advisor in connection with the Merger
and will receive a fee for our services, a substantial portion of which is
contingent upon consummation of the Merger. We have also received a fee for
rendering this opinion. NCRIC has also agreed to indemnify us against certain
liabilities arising out of our engagement. As you are aware, we have provided
certain other investment banking services to NCRIC in the past (including
managing NCRIC's first step conversion in 1999 and managing the demutualization
of NCRIC's mutual holding company in 2003) and have received compensation for
such services. In addition, as we have previously advised you, we have provided
certain investment banking services to PRA in the past and have received
compensation for, such services, including participating as a co-manager in a
follow-on offering of common stock of PRA in 2002. We may provide investment
banking services for PRA in the future and receive compensation for such
services, including during the pendency of the Merger. As you are aware, a
principal of Sandler O'Neill and certain members of his family are shareholders
of NCRIC.

 
     In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to NCRIC and PRA and their affiliates. We
may also actively trade the equity or debt securities of NCRIC and PRA or their
affiliates for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
 
     Our opinion is directed to the Board of Directors of NCRIC in connection
with its consideration of the Merger and does not constitute a recommendation to
any shareholder of NCRIC as to how such shareholder should vote at any meeting
of shareholders called to consider and vote upon the Merger. Our opinion is
directed only to the fairness, from a financial point of view, of the Exchange
Ratio to holders of NCRIC Shares and does not address the underlying business
decision of NCRIC to engage in the Merger, the relative merits of the Merger as
compared to any other alternative business strategies that might exist for NCRIC
or the effect of any other transaction in which NCRIC might engage. Our opinion
is not to be quoted or referred to, in whole or in part, in a registration
statement, prospectus, proxy statement or in any other document, nor shall this
opinion be used for any other purposes, without Sandler O'Neill's prior written
consent; provided, however, that we hereby consent to the inclusion of this
opinion as an appendix to the Proxy Statement/Prospectus of NCRIC and
ProAssurance relating to the Merger and to the references to this opinion
therein.
 
     Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio in the Merger is fair to the holders of NCRIC
Shares from a financial point of view.
 
                                          Very truly yours,
 

                                          /s/ Sandler O'Neill & Partners L.P.

 
                                       B-3

 
                                                                      APPENDIX C
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 

                                  FORM 10-K(1)

 
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
 
                        COMMISSION FILE NUMBER: 0-25505
 
                            (NCRIC GROUP, INC. LOGO)
 
                               NCRIC GROUP, INC.
 

                                            
                   DELAWARE                                      52-2134774
       (State or Other Jurisdiction of                        (I.R.S. Employer
        Incorporation or Organization)                     Identification Number)

 
                 1115 30TH STREET, N.W., WASHINGTON, D.C. 20007
                    (Address of Principal Executive Offices)
 
                                  202-969-1866
                        (Registrant's Telephone Number)
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.  Yes [X]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.  No [X]
 
     Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
 
     As of March 15, 2005, there were issued and outstanding 6,892,517 shares of
the Registrant's Common Stock. The aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the last trade price
of the Common Stock as of June 30, 2004 was $59.9 million.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     The following documents, in whole or in part, are specifically incorporated
by reference in the indicated Part of this Annual Report on Form 10-K:
 
          I. Portions of the NCRIC Group, Inc. Proxy Statement for the 2005
     Annual Meeting of Shareholders are incorporated by reference into certain
     items of Part III.
 

(1) As amended on April 19, 2005.

 
                                       C-1

 
                               TABLE OF CONTENTS
 



                                                                               PAGE
                                                                               ----
                                                                         
                                      PART I
Item 1.          Business....................................................   C-3
Item 2.          Properties..................................................  C-27
Item 3.          Legal Proceedings...........................................  C-27
Item 4.          Submission of Matters to a Vote of Security Holders.........  C-28

                                      PART II
Item 5.          Market for Registrant's Common Equity and Related
                 Stockholder Matters.........................................  C-28
Item 6.          Selected Financial Data.....................................  C-29
Item 7.          Management's Discussion and Analysis of Financial Condition
                 and Results of Operations...................................  C-30
Item 7A.         Quantitative and Qualitative Disclosures About Market
                 Price.......................................................  C-54
Item 8.          Financial Statements and Supplementing Data.................  C-56
Item 9.          Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure....................................  C-91
Item 9A.         Controls and Procedures.....................................  C-91
Item 9B.         Other Information...........................................  C-91

                                     PART III
Item 10.         Directors and Executive Officers of the Registrant..........  C-91
Item 11.         Executive Compensation......................................  C-91
Item 12.         Security Ownership of Certain Beneficial Owners and
                 Management and Related Stockholder Matters..................  C-91
Item 13.         Certain Relationships and Related Transactions..............  C-91
Item 14.         Principal Accountant Fees and Services......................  C-91

                                      PART IV
Item 15.         Exhibits, Financial Statement Schedules and Reports on Form
                 8-K.........................................................  C-92


 
                                       C-2

 
                                     PART I
 
ITEM 1.  BUSINESS
 
GENERAL
 
     NCRIC Group, Inc. is a holding company for a specialty property and
casualty insurance company focused on the medical professional liability
insurance market and a physician business management company. Our executive
offices are located at 1115 30th Street, NW, Washington, D.C. 20007 and our
telephone number is (202) 969-1866. Our stock trades on the National Association
of Securities Dealers (Nasdaq) Stock Exchange under the symbol "NCRI."
 
     We maintain a website at www.ncric.com and provide, free of charge, online
access to all of the reports that we file with the Securities and Exchange
Commission, SEC, including our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and all amendments to these reports.
These reports, as well as Forms 3, 4 and 5 detailing stock trading by corporate
insiders, are made available as soon as reasonably practical after such material
is electronically filed with or furnished to the SEC. We also provide access to
news releases, earnings conference calls, and quarterly and annual statutory
financial statements filed with the District of Columbia Department of
Insurance, Securities and Banking. All of the previously named documents can be
accessed within the Investor Relations section of our website and are available
for a minimum of one year after their filing or release.
 
CORPORATE ORGANIZATION AND HISTORY
 
     National Capital Reciprocal Insurance Company, NCRIC, the predecessor
company of our primary insurance subsidiary, NCRIC, Inc., was founded in 1980 by
Washington, D.C. physicians, with the assistance of the Medical Society of the
District of Columbia. NCRIC was formed in response to a medical professional
liability insurance crisis in the District of Columbia. As a physician-governed
reciprocal insurance company, NCRIC began its operations with approximately 500
policyholders, offering a single insurance product. By the mid 1980s, NCRIC
insured more physicians in the District of Columbia than any other carrier, a
distinction we maintain today.
 
     In the late 1990s, with the advent of managed care and the changing climate
affecting the practice of medicine, physicians began to look to us for
assistance in more areas than solely medical professional liability insurance.
In order to raise additional capital, effective December 31, 1998, the
reciprocal was reorganized as a stock insurance company, called NCRIC, Inc.,
with a mutual holding company parent, NCRIC, A Mutual Holding Company. In
addition, two intermediate holding companies were created, and the mutual
holding company became the parent of NCRIC Holdings, Inc., which in turn owned a
majority of the outstanding shares of NCRIC Group, Inc., an insurance holding
company incorporated in Delaware.
 
     In July 1999, we completed an initial public offering and issued 2.2
million shares of NCRIC Group, Inc. common stock to NCRIC Holdings, Inc. and
sold 1.5 million shares to the public. The capital raised in this transaction
was used to purchase HealthCare Consulting, a company that assists physicians in
managing their practices more efficiently through integrated business and
financial management services.
 
     On June 25, 2003, we completed a plan of conversion and reorganization in
which NCRIC Group, Inc. became a fully public company. In the conversion and
related stock offering, NCRIC, A Mutual Holding Company offered for sale its 60%
ownership in NCRIC Group, Inc., and as a result, NCRIC, A Mutual Holding Company
and NCRIC Holdings, Inc. ceased to exist. In the conversion and stock offering,
4.1 million shares of the common stock of NCRIC Group, Inc. were sold to
eligible members, employee benefit plans, directors, officers and employees and
to members of the general public in a subscription and community offering.
 
     The additional capital raised in the 2003 conversion offering, which
totaled $41.4 million in gross proceeds, was used to pursue growth opportunities
in our core market territories in the mid-Atlantic region. Today, as a result of
this expansion, we are the leading medical professional liability insurance
carrier in
                                       C-3

 
both Delaware and the District of Columbia, and among the top writers in
Virginia and Maryland. We also have a limited market presence in West Virginia.
 
     On February 28, 2005, we announced that the Board of Directors had approved
an agreement to merge NCRIC Group, Inc. into ProAssurance Corporation in a
stock-for-stock transaction that values NCRIC Group at $10.10 per share, based
on the closing price of ProAssurance common stock on Friday, February 25, 2005.
Under the terms of the agreement each holder of common stock of NCRIC Group will
have the right to receive 0.25 of a share of ProAssurance common stock for each
share of NCRIC Group. This exchange ratio is subject to adjustment in the event
that the market price of the ProAssurance stock prior to the closing of the
transaction either exceeds $44.00 or is less than $36.00 such that the exchange
ratio would then be adjusted such that the value per NCRIC Group share would
neither exceed $11.00 nor be less than $9.00, respectively. The transaction is
subject to required regulatory approvals and a vote of NCRIC Group stockholders
and is expected to close early in the third quarter of 2005.
 
BUSINESS OVERVIEW
 
     We own NCRIC, Inc., a medical professional liability insurance company,
through which we provide individual physicians, groups of physicians and other
healthcare providers with stable, high-quality medical professional liability
insurance. We also own ConsiCare, Inc., formerly known as NCRIC MSO, Inc. d/b/a
HealthCare Consulting and Employee Benefits Services, a business management
company, through which we provide a comprehensive range of integrated business
and financial services to help physicians, dentists and other non-healthcare
related entities operate successfully.
 
     We offer medical professional liability insurance and integrated business
and financial services to physicians and other healthcare providers in Delaware,
the District of Columbia, Maryland, North Carolina, Virginia and West Virginia.
We provide our insurance product and business management services to
approximately 4,700 physicians throughout this market area as of December 31,
2004. The following table shows our insurance segment policy count and gross
premiums written over the last ten years.
 


                                                                           GROSS
                                                              POLICY      PREMIUMS
                                                              COUNT       WRITTEN
                                                              ------   --------------
                                                                       (IN THOUSANDS)
                                                                 
1995........................................................  1,223       $19,506
1996........................................................  1,231        19,017
1997........................................................  1,250        17,869
1998........................................................  1,328        19,214
1999........................................................  1,532        21,353
2000........................................................  2,010        22,727
2001........................................................  2,953        34,459
2002........................................................  3,785        51,799
2003........................................................  4,229        71,365
2004........................................................  3,942        87,229

 
     As reflected in the table above, we have experienced significant growth
since 1999, and not during the soft-market pricing environment of the
mid-to-late 1990s. We have maintained a disciplined approach towards
underwriting, product pricing and loss reserves, and we have remained focused on
selective expansion in our core markets as pricing conditions have improved.
Beginning in 2001, our market presence expanded significantly throughout
Delaware, Virginia and West Virginia as competing medical professional liability
insurers were forced to either restrict their premium writings or exit the
market completely due to financial difficulties. In 2004, our total policy count
declined due to several key factors, including the lower pricing strategies of
several competitors in the Virginia market, our decision to non-renew policies
in the West Virginia market and attrition in the physician population in the
District of Columbia market.
 
                                       C-4

 
     According to the most recent available market share data from A.M. Best
Company, which considers premiums written for all forms of medical professional
liability coverage including physicians, hospitals and ancillary healthcare
providers, in 2003 we were the highest ranked company in terms of market share
in the District of Columbia and Delaware at 62.4% and 25.2%, respectively. The
following table shows a comparison of our market share by jurisdiction in 2003
and 2002 as reported by A.M. Best:
 


                                                                  NCRIC
                                                              MARKET SHARE
                                                              -------------
                                                              2003    2002
                                                              -----   -----
                                                                
District of Columbia........................................  62.4%   56.5%
Delaware....................................................  25.2     7.7
Virginia....................................................   9.8     8.7
Maryland....................................................   4.3     3.3
West Virginia...............................................  10.5     7.5

 
     Our medical professional liability insurance company maintains a strong
presence in its local markets. Five jurisdictions represented 100% of our gross
written premiums for the years ended December 31, 2004 and 2003, as displayed in
the following chart:
 


                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                            2004            2003
                                                        -------------   -------------
                                                        AMOUNT     %    AMOUNT     %
                                                        -------   ---   -------   ---
                                                           (DOLLARS IN THOUSANDS)
                                                                      
District of Columbia..................................  $25,650    30%  $23,216    33%
Virginia..............................................   29,612    34    22,640    32
Maryland..............................................   11,451    13     8,819    12
West Virginia.........................................    7,174     8     7,935    11
Delaware..............................................   13,342    15     8,755    12
                                                        -------   ---   -------   ---
  Total...............................................  $87,229   100%  $71,365   100%
                                                        =======   ===   =======   ===

 
     For the year ended December 31, 2004, our medical professional liability
insurance company produced a combined ratio of 124.8%, consisting of a current
year loss ratio of 80.0% and prior year development of 25.8%. The combined ratio
is a formula used to relate premium income to claims and underwriting expenses
and is calculated by dividing the sum of incurred losses and expenses by earned
premium. It indicates the profitability of an insurer's operations by combining
the loss ratio with expense ratio (including dividends if any). A combined ratio
below 100% generally indicates profitable underwriting prior to the
consideration of investment income.
 
     For the year ended December 31, 2004, we generated $87.2 million of gross
premiums written, $66.5 million of net premiums earned and $79.4 million of
total revenues. At December 31, 2004, we had consolidated assets of $292.9
million, liabilities of $220.9 million, and stockholders' equity of $72.0
million. Our insurance subsidiary is rated "B++" (Very Good) by A.M. Best
Company.
 
     As a result of significant premium rate increases, healthcare providers are
seeking alternative methods to secure medical professional liability coverage.
We established American Captive Corporation, ACC, under District of Columbia Law
in 2001 to form independent protected captive cells to accommodate affinity
groups seeking to manage their own risk through an alternative risk transfer
structure. Alternative risk transfer is broadly defined as the use of
alternative insurance mechanisms as a substitute for traditional risk-transfer
products offered by insurers. ACC is well-positioned to meet current
professional liability insurance market needs due to our ability to manage risk
and provide access to increasingly unavailable reinsurance markets. We believe
this venture is strategically placed to capitalize on the emerging opportunities
as demand for these specialized services increases. We are competing with
established national brokerage and specialty companies to provide both the risk
transfer vehicle and services to support and manage captives. We also compete on
a regulatory level with other jurisdictions
 
                                       C-5

 
and varying regulatory requirements in such domiciles as Hawaii, Bermuda, the
Caribbean and Europe. As of December 31, 2004, ACC had no active cells.
 
     We offer integrated business management and financial services to
physicians and other business entities in the District of Columbia, North
Carolina and Virginia. These services are heavily concentrated in North Carolina
and Virginia and are utilized by approximately 800 physicians and 250
non-healthcare related businesses. We compete most often with single source
providers of individual services who target small businesses. In our accounting,
tax, and financial services we also compete with local and regional certified
public accounting firms. In our retirement plan administration we compete with
large brokerage firms; with respect to our payroll services we compete with
national companies. In 2004, upon the completion of a branding analysis, the
decision was made to re-introduce this business to the market in early 2005
under the brand name of ConsiCare. We believe that this initiative will
differentiate the business management operations from its competitors and
contribute to the establishment of a consistent and distinguishable brand
identity. In addition, a strategic business plan has been developed with the
primary objective of creating growth through the establishment of partnerships
with other successful practice management entities and an increased focus on the
marketing and delivery of an integrated suite of services to new and existing
management services clients.
 
MANAGEMENT
 
     Our executive management team is led by R. Ray Pate, Jr., president and
chief executive officer. Mr. Pate joined us in 1996 and has more than 20 years
of experience in the medical professional liability insurance business. Rebecca
B. Crunk, senior vice president and chief financial officer, began with us in
1998. Ms. Crunk is a certified public accountant with more than 27 years of
accounting experience in the insurance industry. William E. Burgess, senior vice
president, has been with us for 25 years and is responsible for our risk
management and claims processing functions. Eric R. Anderson is senior vice
president, corporate communications and investor relations. He joined us in 1993
and has 12 years of experience in the medical professional liability insurance
industry and 15 years of experience in the field of corporate communications.
Anne K. Missett is senior vice president, marketing and underwriting for our
primary insurance subsidiary, NCRIC, Inc. Ms. Missett began with us in 2001 and
has more than 20 years of experience in the healthcare industry.
 
FORWARD-LOOKING STATEMENTS
 
     This document contains historical information as well as forward-looking
statements that are based upon our estimates and anticipation of future events
that are subject to certain risks and uncertainties that could cause actual
results to vary materially from the expected results described in the
forward-looking statements. The words "anticipate," "believe," "estimate,"
"expect," "hopeful," "intend," "may," "optimistic," "preliminary," "project,"
"should," "will," and similar expressions are intended to identify these
forward-looking statements. There are numerous important factors that could
cause our actual results to differ materially from those in the forward-looking
statements. Thus, sentences and phrases that we use to convey our view of future
events and trends are expressly designated as forward-looking statements as are
statements clearly identified as giving our outlook on future business. These
forward-looking statements are subject to significant risks, assumptions and
uncertainties, including, among other things, the following important factors
that could affect the actual outcome of future events:
 
     - general economic conditions, either nationally or in our market area,
       that are worse than expected;
 
     - regulatory and legislative actions or decisions that adversely affect our
       business plans or operations;
 
     - price competition;
 
     - inflation and changes in the interest rate environment;
 
     - the performance of financial markets and/or changes in the securities
       markets that adversely affect the fair value of our investments or
       operations;
 
                                       C-6

 
     - changes in laws or government regulations affecting medical professional
       liability insurance and practice management and financial services;
 
     - changes to our rating assigned by A.M. Best;
 
     - the effect of managed healthcare;
 
     - uncertainties inherent in the estimate of loss and loss adjustment
       expense reserves and reinsurance;
 
     - changes in the availability, cost, quality, or collectibility of
       reinsurance;
 
     - significantly increased competition among insurance providers and related
       pricing weaknesses in some markets;
 
     - changes in accounting policies and practices, as may be adopted by our
       regulatory agencies and the Financial Accounting Standards Board; and
 
     - changes in our organization, compensation and benefit plans.
 
     We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and wish to
advise readers that the factors listed above could affect our financial
performance and could cause actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements. We do not undertake and specifically decline
any obligation to publicly release the result of any revisions that may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
 
COMPETITION
 
     Medical professional liability insurance is a competitive industry. A
number of carriers that operate in our market territory have higher financial
ratings or have significantly larger financial resources than we do. In
addition, a number of factors, including, but not limited to, the quality of
service, brand recognition, size, financial stability, coverage features and
product pricing, impact our ability to compete successfully in our market area.
We believe that we compare favorably to our competitors based on our depth of
knowledge and history in the markets in which we operate, superior claims
handling ability, physician leadership, excellent customer service reputation,
medical community relationships, established product distribution network,
longevity and name recognition, particularly in the District of Columbia and
Virginia markets.
 
     Our current competition is primarily composed of a number of mono-line
specialty writers that focus on confined, contiguous geographic areas and one
physician-directed national specialty writer. These competitors may have
existing relationships with insurance agents or other distribution channels,
which we may be unable to supplant.
 
     We have seen, however, some indications that a shift in the market may be
underway. Prior to the withdrawal of The St. Paul Companies in 2001, multi-line
commercial writers comprised approximately 35% of the national medical
professional liability insurance market. Subsequent to St. Paul's exit, other
multi-line commercial carriers such as Farmers Insurance Group and Fireman's
Fund also withdrew from the market. With the departure of these significant
commercial carriers, it has not been clear which segment of the market would
fill this void. Based on recent data from the National Underwriters Insurance
Data Services, it appears that GE Insurance Solutions and American International
Group have filled this capacity gap, as each grew their premium writings to more
than $800 million in 2003, up from $200 million and $400 million, respectively,
in 2001. While both of these companies have a presence in our market
territories, at the present time only GE Insurance Solutions presents a
competitive challenge as American International Group focuses primarily on
hospital liability coverage.
 
     We also believe that several carriers are employing low pricing strategies
in one of our primary markets, Virginia. We experienced a 7.7% reduction in the
number of policies written in Virginia in 2004,
 
                                       C-7

 
and we believe that this attrition is due to the fact that our product is priced
at the high end of the market.
 
     The following is a brief competitive analysis of the jurisdictions in which
we operate. The A.M. Best market share data considers premiums written for all
forms of medical professional liability coverage including physicians, hospitals
and ancillary healthcare providers.
 
     District of Columbia.  We are the leading carrier writing medical
professional liability insurance policies in Washington, D.C. According to A.M.
Best 2003 data, the most recent available, we have 62.4% of the District of
Columbia medical professional liability market share. Professionals Advocate, a
member of The Medical Mutual Group of Maryland, holds an 11.8% market share in
the District of Columbia. The Doctors Company Insurance Group and American
International Group hold market shares of 6.1% and 5.3%, respectively. We
anticipate that growth in the District of Columbia physician population will be
constrained in the near term due to environmental factors. However, recent
medical liability legislation enacted in the state of Maryland may result in
capacity constraints for Professionals Advocate and thus provide us with an
opportunity to increase our District of Columbia market share.
 
     Delaware.  Our market share in Delaware increased significantly in 2003 as
a result of the withdrawal from the physician professional liability market by
Fireman's Fund, PHICO, CNA Insurance Companies, and Princeton Insurance Company.
As reported in 2003 data from A.M. Best, we are the state's largest writer, with
25.2% of the market share. CNA is the second leading carrier, with a market
share of 24.2%, however the majority of this business is related to hospital
liability coverage. Other companies licensed in the state include American
International Group, GE Insurance Solutions, and SCPIE Holdings, Inc. which hold
market shares of 10.7%, 7.7% and 7.1%, respectively.
 
     Maryland.  While we have been issuing coverage in Maryland since 1980, a
number of these policies have been written to accommodate District of Columbia
policyholders who have elected to relocate their practices to Maryland.
Currently, we hold a 4.3% share of the market. Our primary competitor in the
state is The Medical Mutual Group of Maryland, a physician-governed carrier that
has 41.8% of the market share. Other carriers in the state include American
International Group with an 11.3% market share, GE Insurance Solutions with a
9.0% market share and the Doctors' Company Insurance Group with a 7.3% market
share. We are currently re-evaluating growth plans in Maryland due to the
medical liability reform legislation passed by the Maryland General Assembly in
January 2005.
 
     Virginia.  Over the last three years, the Virginia market has offered
considerable expansion opportunities with the departures of The St. Paul
Companies, Princeton Insurance Company, CNA Insurance Companies and MIIX Group,
Inc. in 2002 and the January 2003 exit of the Doctors Insurance Reciprocal. We
experienced significant growth in this market during 2002 and 2003. However,
more recently, due to the low pricing strategies of several carriers in the
market, we have limited our new premium writings in this state. Market share in
Virginia is fragmented among a number of companies. According to A.M. Best 2003
data, we have a 9.8% share of the market. Our primary competitors in the
Virginia marketplace include GE Insurance Solutions with an 11.7% share,
Doctors' Company Insurance Group with an 11.6% share, The Medical Mutual Group
of Maryland with an 11.2% share, American International Group with a 9.4% share,
and Medical Mutual of North Carolina with a 9.1% share. Also competing in
Virginia are State Volunteer Mutual Insurance Company, MAG Mutual Insurance
Company, and ProAssurance Group. Medical liability legislation enacted in the
state of Maryland may result in capacity constraints for The Medical Mutual
Group of Maryland and thus provide an opportunity for growth in the Virginia
market.
 
     West Virginia.  In January 2004, we informed the West Virginia Commissioner
of Insurance of our intention to non-renew West Virginia policyholders and began
this process with policies expiring in March 2004. This decision was based on
our inability to achieve an adequate rate level for our West Virginia exposure.
In the third quarter of 2004, we re-filed for a rate increase in the state. This
filing was subsequently approved by the West Virginia Department of Insurance
and we began renewing select West Virginia policies effective September 1, 2004.
We have experienced a reduction in our West Virginia business as a result of the
non-renewals and the price differential between our product and the
                                       C-8

 
West Virginia Physicians Mutual Insurance Company, the leading writer in the
state. We do not anticipate a significant change in market position in 2005.
 
INSURANCE ACTIVITIES
 
     General.  We provide medical professional liability insurance for
independent physicians who practice individually or in small groups. Our
insurance protects policyholders against losses arising from professional
liability claims as a result of patient injuries that occur from any act,
omission, or series of related acts or omissions that take place in the
furnishing of professional medical services. The most common policy limit or
amount of coverage that we sell is $1 million of coverage for any one incident
with a $3 million annual aggregate limit for incidents reported within the
policy year. Our policies are written on a claims-made basis and include
coverage for the entire defense cost of the claim. These policies provide
coverage for claims arising from incidents that both occur and are reported to
us while the policy is in force. A claims-made policy is in force from the
starting date of the initial policy period and continues in force from that date
through each subsequent renewal. Policyholders can purchase up to $4 million
dollars of excess coverage that provides coverage for losses up to $5 million
with an annual aggregate limit of $7 million. Optional coverage is available for
the professional corporations under which physicians practice.
 
     Underwriting.  Our underwriting department is responsible for the
evaluation of applicants for medical professional liability coverage, the
issuance of policies and the establishment and implementation of underwriting
standards. In addition, this department provides information to the D.C.
Underwriting Committee and Virginia and Delaware Physician Advisory Boards.
These boards are comprised of physicians who represent a cross-discipline of
medical specialties and provide valued input on local standards of care as they
relate to understanding medical risk and underwriting in each area. We believe
this combination of medical and insurance industry professionals provides a
competitive advantage in underwriting services when compared to our competitors.
 
     We adhere to consistent and strict underwriting procedures with respect to
the issuance of all physician medical professional liability policies. Each
applicant or member of an applicant medical group is required to complete and
sign a detailed application that provides a personal and professional history,
the type and nature of the applicant's professional practice, information
relating to specific practice procedures, hospital and professional
affiliations, and a complete history of any prior claims and incidents.
 
     We also perform a continuous process of underwriting policyholders at
renewal. Information concerning physicians with large losses, a high frequency
of claims, or changing or unusual practice characteristics is developed through
renewal applications, claims history and risk management reports.
 
     Claims.  Our claims department is responsible for claims investigation,
establishment of appropriate case reserves for losses and LAE, defense planning
and coordination, monitoring of attorneys engaged to defend policyholders
against claims, and negotiation of the settlement or other disposition of
claims.
 
     We emphasize early evaluation and aggressive management of claims. When a
claim is reported, our claims professionals complete a preliminary evaluation
and set an initial reserve. After a full evaluation of the claim has been
completed, which generally occurs within seven months, the initial reserve may
be adjusted.
 
     As of December 31, 2004, we had approximately 653 open cases with an
average of 73 cases being handled by each claims representative. Our claims
department consists of 12 claims professionals and includes experienced claims
adjusters, certified paralegals and individuals who have earned juris doctor
degrees. The current professional claims staff has an average of 11 years of
experience handling medical professional liability and related insurance cases.
We limit the number of claims handled by each representative to fewer than 90
cases. We believe this number is lower than other companies in the medical
professional liability insurance industry.
 
     Our objective is to maintain a local presence in the jurisdictions where we
write coverage. We have obtained an understanding of the medical and legal
climates where we write policies through on-site visits, interviews and ongoing
communication with local law firms and discussions with policyholders. We retain
                                       C-9

 
locally-based attorneys to represent our policyholders. These litigators
specialize in medical professional liability defense and understand and share
our claims philosophy. We also retain the services of medical experts who are
leaders in their specialties and who bring credibility and expertise to the
litigation process.
 
     Our D.C. claims committee is composed of nine physicians from various
specialties and meets monthly to provide evaluation and guidance on claims. The
multi-specialty approach of these physicians adds a unique perspective to the
claims handling process as it provides an opportunity to obtain the opinions of
several different specialists meeting to share their knowledge in the area of
liability evaluation and general peer review.
 
     Our objective of local physician claims guidance is carried out in Delaware
and Virginia through our physician advisory boards. These boards meet to review
medical incidents, assess claims and practice characteristics of current and
prospective policyholders, and bring to our attention all matters of special
interest to healthcare providers in their states.
 
     Risk management.  The goal of our risk management staff is to assist our
policyholders in identifying potential areas of exposure to loss and to develop
strategies to reduce or eliminate such risk. Our risk management committee, a
group of eight physicians comprising various specialties, lends their individual
expertise in the development of risk management services tailored to the needs
of the individual policyholders to aid in this endeavor.
 
     Our risk management staff presents educational seminars throughout the year
in locations convenient to our policyholders. Programs designed to address the
needs and interests of physicians are held throughout the District of Columbia,
Delaware, Maryland and Virginia, and cover a wide variety of topics. Our staff
is also available to present customized programs, as requested, to individual
physician groups or office staff.
 
     Physicians unable to attend a live seminar are given the opportunity to
access our risk management services in other ways. Currently, four home study
courses are available and accessible online. Those physicians wanting a more
involved approach to dealing with their risk management concerns may participate
in an office assessment conducted by one of our risk management staff members.
 
     CME accreditation through the Medical Society of the District of Columbia,
MSDC, allows us to award Category 1 CME credit to those physicians who attend a
live seminar, successfully complete a home study course, or undergo an office
assessment. Participation in one of these activities also entitles policyholders
to a 5% policy premium credit.
 
     Marketing.  Within the District of Columbia, we market directly to
individual physicians and other prospective policyholders through our sponsored
relationship with the MSDC, referrals by existing policyholders, advertisements
in medical journals, and direct solicitation to licensed physicians. We attract
new physicians by targeting medical residents and physicians just entering
medical practice. In addition, we participate as a sponsor and participant in
various medical group and hospital administrators' programs, medical association
and specialty society conventions and similar events. We believe that our
comprehensive approach, market knowledge and insurance expertise all play key
roles in the successful direct marketing of our medical professional liability
insurance in this jurisdiction.
 
     Our primary marketing channel in Delaware, Maryland, Virginia and West
Virginia is our independent agent network. In 2004, our agent network totaled 30
agencies. These agents produced 63% of renewing premiums in 2004. Physicians
frequently utilize agents when they purchase professional liability insurance.
Therefore, we believe that developing our agent relationships in these states is
important to maintain our market share. We select agents who have demonstrated
experience and stability in the medical professional liability insurance
industry. Agents receive market rate commissions and other incentives averaging
9% based on the business they produce and maintain. We strive to foster
relationships with those agents who are committed to promoting our products and
are successful in producing business for us. In 2002, we created the President's
Gold Circle to recognize agencies that contribute growth in excess of $1 million
in premium and to foster enhanced communications with these top producers.
Currently, four of our agents are members of this group.
                                       C-10

 
     Account information is communicated to all policyholders and agents through
our marketing and underwriting departments. We strive to maintain a close
relationship with the medical groups and individual practitioners insured by us
as well as the agents who make up our agent network. To best serve clients and
agents, we deploy client service representatives who can answer most inquiries
and, in other instances, provide immediate access to an appropriate individual
who has the expertise to provide a response. For large and mid-size medical
groups, we have an account manager assigned to each group who leads a team
comprised of underwriting, risk management and claims management
representatives, each of whom may be contacted directly by the policyholder.
Over the years, we believe this approach has resulted in our high customer
retention and satisfaction rate.
 
     Risk Sharing Arrangements.  As of December 31, 2004, we have ended all
agreements for risk sharing programs for physicians at hospitals in the
Washington, D.C. metropolitan area. The type of risk sharing arrangement we
previously offered involved the initial funding of a portion of a premium being
held to pay losses. In these arrangements, we received full gross premium, less
applicable credits otherwise granted. After quota share losses were determined,
if loss development was favorable, any premium in excess of the losses was
returned.
 
     Rates.  We establish rates and rating classifications for physician and
medical group policyholders in the District of Columbia based on the losses and
LAE experience we have developed over the past 25 years. For our other market
areas, we rely on losses and LAE experience data from the medical professional
liability industry. We have various rating classifications based on practice
location, medical specialty and other factors. We utilize premium credits,
including credits for part-time practice, physicians just entering medical
practice, cost-free physicians and risk management participation. Generally,
total credits granted to a policyholder do not exceed 25% of the base premium.
In addition, surcharges generally do not exceed 25% of the base premium.
Effective rates equal our base rate, less any discounts, plus any surcharges to
the policyholder.
 
     Our rates are established based on previous loss experience, loss
adjustment expenses, anticipated policyholder discounts or surcharges, and fixed
and variable operating expenses. In recognition of the increase in the severity
of losses and the need to provide a return to our shareholders, the weighted
average rate increase for our base premiums was 20% effective January 1, 2005,
27% effective January 1, 2004 and 28.0% effective January 1, 2003.
 
     Reserves for Losses and LAE.  The determination of losses and LAE reserves
involves projection of ultimate losses through an actuarial analysis of our
claims history and other medical professional liability insurers, subject to
adjustments deemed appropriate by us due to changing circumstances. Included in
our claims history are losses and LAE paid by us in prior periods, and case
reserves for losses and LAE developed by our claims department as claims are
reported and investigated. Actuaries rely primarily on historical loss
experience in determining reserve levels on the assumption that historical loss
experience provides a good indication of future loss experience despite the
uncertainties in loss trends and the delays in reporting and settling claims. As
additional information becomes available, the estimates reflected in earlier
loss reserves might be revised. Any increase or decrease in the amount of
reserves, including reserves for insured events of prior years, would have a
corresponding adverse or beneficial effect on our results of operations for the
period in which the adjustments are made.
 
     Our estimates of the ultimate cost of settling the claims are based on
numerous factors including, but not limited to:
 
     - information then known;
 
     - predictions of future events;
 
     - estimates of future trends in claims frequency and severity;
 
     - predictions of future inflation rates;
 
     - judicial theories of liability;
 
                                       C-11

 
     - judicial interpretations of insurance contracts; and
 
     - legislative activity.
 
     The inherent uncertainty of establishing reserves is greater for medical
professional liability insurance because lengthy periods may elapse before
notice of a claim or a determination of liability. Medical professional
liability insurance policies are long tail policies, which means that claims and
expenses may be paid over a period of ten or more years. This is longer than
most property and casualty claims. As a result of these long payment periods,
trends in medical professional liability policies may be slow to emerge, and we
may not promptly modify our underwriting practices and change our premium rates
to reflect underlying loss trends. Finally, changes in the practice of medicine
and healthcare delivery, like the emergence of new, larger medical groups that
do not have an established claims history, and additional claims resulting from
restrictions on treatment by managed care organizations, may not be fully
reflected in our underwriting and reserving practices.
 
     Our independent actuary reviews our reserves for losses and LAE
periodically and prepares semi-annual reports that include a recommended level
of reserves. We consider this recommendation as well as other factors, like loss
retention levels and anticipated or estimated changes in frequency and severity
of claims, in establishing the amount of our reserves for losses and LAE. We
continually refine reserve estimates as experience develops and claims are
settled. Medical professional liability insurance is a line of business for
which the initial losses and LAE estimates may change significantly as a result
of events occurring long after the reporting of the claim. For example, losses
and LAE estimates may prove to be inadequate because of sudden severe inflation
or adverse judicial or legislative decisions.
 
     Activity in the liability for unpaid losses and LAE is summarized as
follows:
 


                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2004       2003       2002
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
                                                                    
Balance, beginning of year...........................  $125,991   $104,022   $ 84,560
  Less reinsurance recoverable on unpaid claims......   (44,673)   (42,412)   (29,624)
                                                       --------   --------   --------
Net balance..........................................    81,318     61,610     54,936
                                                       --------   --------   --------
Incurred related to:
  Current year.......................................    53,158     44,588     24,063
  Prior years........................................    17,152      5,885      2,766
                                                       --------   --------   --------
     Total incurred..................................    70,310     50,473     26,829
                                                       --------   --------   --------
Paid related to:
  Current year.......................................     3,457      4,383      1,491
  Prior years........................................    34,520     26,382     18,664
                                                       --------   --------   --------
     Total paid......................................    37,977     30,765     20,155
                                                       --------   --------   --------
Net balance..........................................   113,651     81,318     61,610
  Plus reinsurance recoverable on unpaid claims......    39,591     44,673     42,412
                                                       --------   --------   --------
Balance, end of year.................................  $153,242   $125,991   $104,022
                                                       ========   ========   ========

 
     The amounts shown above and the reserve for unpaid losses and LAE on the
chart located on the next page are presented in conformity with accounting
principles generally accepted in the United States of America, GAAP.
 
     The following table reflects the development of reserves for unpaid losses
and LAE for the years indicated, at the end of that year and each subsequent
year. The first line shows the reserves, as originally reported at the end of
the stated year. Each calendar year-end reserve includes the estimated unpaid
liabilities for that coverage year and for all prior coverage years. The section
under the caption
 
                                       C-12

 
"Cumulative Liability Paid Through End of Year" shows the cumulative amounts
paid through each subsequent year on those claims for which reserves were
carried as of each specific year-end. The section under the caption
"Re-estimated Liability" shows the original recorded reserve as adjusted as of
the end of each subsequent year to reflect the cumulative amounts paid and any
other facts and circumstances discovered during each year. The line "Redundancy
(deficiency)" sets forth the difference between the latest re-estimated
liability and the liability as originally established.
 
     The table reflects the effects of all changes in amounts of prior periods.
For example, if a loss determined in 1996 to be $100,000 was first reserved in
1993 at $150,000, the $50,000 favorable loss development, being the original
estimate minus the actual loss, would be included in the cumulative redundancy
in each of the years 1993 through 1996 shown below. This table presents
development data by calendar year and does not relate the data to the year in
which the claim was reported or the incident actually occurred. Conditions and
trends that have affected the development of these reserves in the past will not
necessarily recur in the future.
 


                         1994      1995      1996      1997      1998      1999      2000      2001       2002       2003
                        -------   -------   -------   -------   -------   -------   -------   -------   --------   --------
                                                                 (IN THOUSANDS)
                                                                                     
Reserve for Unpaid
  Losses and LAE.....   $77,647   $68,928   $68,101   $72,031   $84,595   $84,282   $81,134   $84,560   $104,022   $125,991
Cumulative Liability
  Paid Through End of
    Year:
  One year later.....    21,667    16,084    14,916     9,667    13,865    20,813    20,828    21,995     31,872     45,255
  Two years later....    34,829    27,634    22,237    21,810    32,778    38,078    34,253    45,764     61,973
  Three years
    later............    43,237    32,409    29,135    36,310    42,381    44,696    47,273    64,389
  Four years later...    45,219    34,657    39,938    42,553    44,352    50,634    51,927
  Five years later...    45,682    41,578    44,297    43,581    48,120    53,756
  Six years later....    51,450    43,753    44,724    46,324    48,893
  Seven years
    later............    52,551    43,962    46,385    47,015
  Eight years
    later............    52,737    44,058    46,438
  Nine years later...    52,824    44,095
  Ten years later....    52,861
Re-estimated
  Liability:
  One year later.....    68,891    62,028    61,121    71,419    72,575    77,373    73,582    86,534    107,980    138,338
  Two years later....    66,439    53,429    62,097    64,980    66,733    71,489    73,654    87,074    108,836
  Three years
    later............    60,858    55,883    58,169    61,336    60,752    68,439    68,528    87,553
  Four years later...    62,625    53,400    54,324    54,996    59,069    63,028    66,024
  Five years later...    61,077    50,744    50,977    53,952    55,191    60,842
  Six years later....    58,220    47,946    50,666    51,136    53,909
  Seven years
    later............    55,739    47,099    47,994    50,633
  Eight years
    later............    55,156    45,329    47,689
  Nine years later...    53,927    45,113
  Ten years later....    53,795
Redundancy
  (deficiency).......   $23,852   $23,815   $20,412   $21,398   $30,686   $23,440   $15,110   $(2,993)  $ (4,814)  $(12,347)

 
     General office premises liability incurred losses have been less than 1% of
medical professional liability incurred losses in the last five years. We do not
have reserves for pollution claims as our policies exclude liability for
pollution. We have never been presented with a pollution claim brought against
us or our insureds.
 
     Reinsurance.  We follow customary industry practice by reinsuring a portion
of our risks and paying a reinsurance premium based upon the premiums received
on all policies subject to reinsurance. By reducing
                                       C-13

 
our potential liability on individual risks, reinsurance protects us against
large losses. We have full underwriting authority for medical professional
liability policies including premises liability policies issued to physicians,
surgeons, dentists and professional corporations and partnerships. The 2003 and
2004 reinsurance program cedes to the reinsurers up to the maximum reinsurance
policy limit those risks insured by us in excess of our $1 million retention.
 
     Although reinsurance does not discharge us from our primary liability for
the full amount of our insurance policies, it contractually obligates the
reinsurer to pay successful claims against us to the extent of risk ceded. Our
current reinsurance program is designed to provide coverage through separate
reinsurance treaties for two layers of risk.
 
     Losses in excess of $1,000,000 per claim up to $2,000,000. Effective
January 1, 2003 to January 1, 2006, the treaty, which reinsures us for losses in
excess of $1,000,000 per claim up to $2,000,000, is a fixed rate treaty. The
reinsurance premium is agreed upon as a fixed percentage of gross net earned
premium income. Gross net earned premium income is our gross premium earned net
of discounts for coverage limits up to $2,000,000.
 
     Effective January 1, 2000 to January 1, 2003 our primary treaty reinsures
losses in excess of $500,000 per claim up to $1,000,000 and is a fixed rate
treaty. Our first excess cession treaty covers losses up to $1,000,000 in excess
of $1,000,000 per claim. For risks related to claims submitted January 1, 2000
to January 1, 2003, under this first excess cession treaty, we cede 100% of our
risks and premium.
 
     For claims submitted for 1999 and prior years, we have a swing-rated treaty
which reinsures us for losses in excess of $500,000 per claim up to $1,000,000,
subject to an inner aggregate deductible of 5% of gross net earned premium
income. The ultimate reinsurance premium is subject to incurred losses and
ranges between a minimum premium of 4% of gross net earned premium income and a
maximum premium of 22.5% of gross net earned premium income. The inner aggregate
deductible means that we must pay losses within the reinsurance layer until the
inner aggregate deductible is satisfied. We paid a deposit premium equal to 14%
of gross net earned premium income that is ultimately increased or decreased
based on actual losses, subject to the minimum and maximum premium. Following
are the reinsurance premium terms for the swing-rated treaty for calendar years
1999, 1998, 1997 and 1996.
 


                                                              PERCENTAGE OF GROSS NET EARNED
                                                                      PREMIUM INCOME
                                                             ---------------------------------
                                                              1999     1998     1997     1996
                                                             ------   ------   ------   ------
                                                                            
Deposit premium............................................   14.0%    14.0%    14.0%    14.0%
Maximum premium............................................   22.5     22.5     22.5     30.0
Minimum premium............................................    4.0      4.0      4.0      4.0
Inner aggregate deductible.................................    5.0      5.0      5.0     10.0

 
     We have recorded, based on actuarial analysis, management's best estimate
of premium expense under the terms of the swing-rated treaty. In the initial
year of development for each coverage year, the premium was capped at the
maximum rate. We then adjust the liability and expense as losses develop in
subsequent years.
 
     For claims related to 1999 and prior years, we cede 91% of our risks and
premium to the $1,000,000 excess layer treaty program and retain 9% of the risks
and premium. We receive a ceding commission from the reinsurers to cover the
costs associated with issuing this coverage.
 
     Losses up to $9,000,000 in excess of $2,000,000 per claim. An excess
cession layer treaty covers losses up to $9,000,000 in excess of $2,000,000 per
claim. We cede 100% of our risks to the $2,000,000 excess layer treaty program
and retain none of the risks. The premium for the $2,000,000 excess layer treaty
is 100% of the premium collected from insureds for this coverage. We receive a
ceding commission from the reinsurers to cover the costs associated with issuing
this coverage.
 
                                       C-14

 
     Ceding commissions, which are 15% of gross ceded reinsurance premiums in
the excess layer, are deducted from other underwriting expenses. Ceding
commissions were $457,000, $833,000 and $1.1 million in 2004, 2003 and 2002,
respectively.
 
     Additionally, our reinsurance program protects us from paying multiple
retentions for claims arising out of one event. In most situations we will only
pay one retention regardless of the number of original policies or claimants
involved. We also have protection against losses in excess of our existing
reinsurance. We may provide higher policy limits reinsured through facultative
reinsurance programs. Facultative reinsurance programs are reinsurance programs
which are specifically designed for a particular risk not covered by our
existing reinsurance arrangements.
 
     We determine the amount and scope of reinsurance coverage to purchase each
year based upon evaluation of the risks accepted, consultations with reinsurance
consultants and a review of market conditions, including the availability and
pricing of reinsurance. Our primary reinsurance treaty is placed with
non-affiliated reinsurers for a three-year term with annual renegotiations. Our
current three-year treaty expires January 1, 2006.
 
     The reinsurance program is placed with a number of individual reinsurance
companies and Lloyds' syndicates to mitigate the concentrations of reinsurance
credit risk. Most of the reinsurers are European companies or Lloyds'
syndicates; there is a small percentage placed with domestic reinsurers. As of
December 31, 2004, the amounts recoverable from reinsurers attributable to
Lloyds of London represents a total of 48 syndicates. We rely on our
wholly-owned brokerage firm, National Capital Insurance Brokerage, Ltd., Willis
Re, Inc., and a London-based intermediary to assist in the analysis of the
credit quality of reinsurers. We also require reinsurers that are not authorized
to do business in the District of Columbia to post a letter of credit to secure
reinsurance recoverable on paid losses.
 
     The following table reflects reinsurance recoverable on paid and unpaid
losses at December 31, 2004 by reinsurer:
 


                                                               REINSURANCE     A.M. BEST
REINSURER                                                      RECOVERABLE      RATING
---------                                                     --------------   ---------
                                                              (IN THOUSANDS)
                                                                         
Lloyd's of London syndicates................................     $22,637            A
Hanover Rueckversicherungs -- AG............................       6,149            A
AXA Reassurance.............................................       4,754           A-
Transatlantic Reinsurance Company...........................       1,835           A+
Aspen Reinsurance Limited...................................       1,569            A
CX Reinsurance LTD..........................................       1,464          NR5
Alea London Limited.........................................       1,304           A-
Unionamerica Insurance......................................         972          NR3
Terra Nova Insurance Company LTD............................         691           A-
Other reinsurers............................................       3,471         A/A-
  Total.....................................................     $44,846
                                                                 =======

 
     The two reinsurers that are not rated by A.M. Best, CX Reinsurance LTD and
Unionamerica Insurance, have made all requested payments on a timely basis.
 
                                       C-15

 
     The effect of reinsurance on premiums written and earned for the years
ended December 31, 2004, 2003 and 2002 is as follows:
 


                                            YEAR ENDED DECEMBER 31,
                        ---------------------------------------------------------------
                               2004                  2003                  2002
                        -------------------   -------------------   -------------------
                        WRITTEN     EARNED    WRITTEN     EARNED    WRITTEN     EARNED
                        --------   --------   --------   --------   --------   --------
                                                (IN THOUSANDS)
                                                             
Direct................  $ 87,229   $ 80,992   $ 71,365   $ 61,023   $ 51,799   $ 44,113
Ceded.................   (14,693)   (14,530)   (12,088)   (13,759)   (18,003)   (14,023)
                        --------   --------   --------   --------   --------   --------
Net...................  $ 72,536   $ 66,462   $ 59,277   $ 47,264   $ 33,796   $ 30,090
                        ========   ========   ========   ========   ========   ========

 
     In late 1999, we introduced PracticeGard Plus, which provides errors and
omissions coverage on Medicare/Medicaid billing to healthcare providers. This
coverage provides up to $1 million in indemnity and expense protection and only
pays indemnity on civil fines and penalties. We reinsure 100% of this risk and
receive a ceding commission. We intend to evaluate our level of risk acceptance
based on how losses develop in the future. Since this coverage protects a new
risk based on recently passed national legislation, current loss development is
uncertain.
 
     Investment Portfolio.  Investment income is an important component in
support of our operating results. We utilize external investment managers who
adhere to policies established and supervised by our investment committee. Our
current investment policy has placed primary emphasis on investment grade,
fixed-income securities and seeks to maximize after-tax yields while minimizing
portfolio credit risk. Toward achieving this goal, our investment guidelines,
which set the parameters for our investment policy, permit investments in
high-yield bonds, tax-advantaged securities such as municipal bonds and
preferred stock, and common stock. During 2003, an allocation to common stock
was implemented as a measure to provide a level of protection against the rising
interest rate environment. An allocation of the portfolio to high-yield
securities was funded in January 2004. Our investment guidelines document is
reviewed and updated as needed, at least annually.
 
     Deutsche Asset Management (DeAM), previously Zurich Scudder Insurance Asset
Management, was the external investment manager for our fixed-income securities
including tax advantaged preferred stocks for the year ended December 31, 2002.
Effective January 1, 2003, Standish Mellon Asset Management became the external
investment manager for our fixed-income portfolio. We utilize three different
managers, each with a different investment objective, for our equity securities
portfolio. The high-yield bond allocation is invested through a mutual fund
instrument in order to achieve adequate diversity of underlying credits.
 
     Each year we, along with our investment manager, have conducted extensive
financial analyses of the investment portfolio using stochastic models to
develop a risk-appropriate investment portfolio given the business environment
and risks relevant to us. Standish Mellon supplemented stochastic modeling with
the output from their independent investment research and strategy group to
develop a tailored investment approach for us. Analysis of our capital structure
and risk-bearing ability, valuation, peer comparisons, as well as proprietary
and third-party modeling, determine the optimal level of tax-advantaged
investments and provide strategy input.
 
     Standish Mellon used Dynamic Financial Analysis (DFA), a total company
tool, to test our capital structure and business plan under numerous potential
future economic scenarios. The results of DFA, in the form of probability
distributions on key financial statistics, allow us to make risk-informed
decisions on the structure of our investment portfolio as it relates to our
business profile. DFA output has been especially useful in setting portfolio
policy regarding average duration and optimizing potential equity exposure.
 
     We have classified our investments as available for sale and report them at
fair value, with unrealized gains and losses excluded from net income and
reported, net of deferred taxes, as a component of stockholders' equity. During
periods of rising interest rates, as experienced during mid-year 2004, the fair
 
                                       C-16

 
value of our fixed-income investment portfolio will generally decline resulting
in decreases in our stockholders' equity. Conversely, during periods of falling
interest rates, as experienced during 2002, the fair value of our investment
portfolio will generally increase resulting in increases in our stockholders'
equity.
 
     The following table sets forth the fair value and the cost or amortized
cost of our investment portfolio at the dates indicated.
 


                                              COST OR      GROSS        GROSS
                                             AMORTIZED   UNREALIZED   UNREALIZED
                                               COST        GAINS        LOSSES     FAIR VALUE
                                             ---------   ----------   ----------   ----------
                                                             (IN THOUSANDS)
                                                                       
At December 31, 2004
U.S. Government and agencies...............  $ 37,355      $  211      $  (253)     $ 37,313
Corporate..................................    48,184         603         (407)       48,380
Tax-exempt obligations.....................    42,571       1,124         (166)       43,529
Asset and mortgage-backed securities.......    50,322          89         (634)       49,777
                                             --------      ------      -------      --------
                                              178,432       2,027       (1,460)      178,999
                                             --------      ------      -------      --------
Equity securities..........................    20,679       2,660          (31)       23,308
                                             --------      ------      -------      --------
  Total....................................  $199,111      $4,687      $(1,491)     $202,307
                                             ========      ======      =======      ========
At December 31, 2003
U.S. Government and agencies...............  $ 29,328      $   75      $  (118)     $ 29,285
Corporate..................................    41,773         247         (720)       41,300
Tax-exempt obligations.....................    35,329       1,907          (78)       37,158
Asset and mortgage-backed securities.......    55,446         186         (631)       55,001
                                             --------      ------      -------      --------
                                              161,876       2,415       (1,547)      162,744
                                             --------      ------      -------      --------
Equity securities..........................    10,269       1,373          (29)       11,613
                                             --------      ------      -------      --------
  Total....................................  $172,145      $3,788      $(1,576)     $174,357
                                             ========      ======      =======      ========

 
     Our investment portfolio of fixed-maturity securities consists primarily of
intermediate-term, investment-grade securities. Our investment policy provides
that all security purchases be limited to rated securities or unrated securities
approved by management on the recommendation of our investment advisor. At
December 31, 2004, we held 116 asset and mortgage-related securities, most of
which had a quality of Agency/AAA. Collectively, our mortgage-related securities
had an average yield to maturity of approximately 4.4%. Approximately 83% of the
mortgage-related securities are pass-through securities. We do not have any
interest only or principal only pass-through securities.
 
     The following table contains the investment quality distribution of our
fixed maturity investments at December 31, 2004.
 


TYPE/RATINGS OF INVESTMENT                                    PERCENTAGE
--------------------------                                    ----------
                                                           
Treasury/Agency.............................................     40.2%
AAA.........................................................     24.3
AA..........................................................      7.2
A...........................................................     16.6
BBB.........................................................     11.7
                                                                -----
                                                                100.0%
                                                                =====

 
     The ratings set forth in the table are based on ratings assigned by
Standard & Poor's Corporation.
 
                                       C-17

 
     The following table sets forth information concerning the maturities of
fixed-maturity securities in our investment portfolio as of December 31, 2004,
by contractual maturity. Actual maturities will differ from contractual
maturities because borrowers may have the right to prepay obligations with or
without prepayment penalties.
 


                                                              AT DECEMBER 31, 2004
                                                       -----------------------------------
                                                        COST OR                 PERCENTAGE
                                                       AMORTIZED                 OF FAIR
                                                         COST      FAIR VALUE     VALUE
                                                       ---------   ----------   ----------
                                                                 (IN THOUSANDS)
                                                                       
Due in one year or less..............................  $  8,091     $  8,084         4%
Due after one year through five years................    49,124       49,074        24
Due after five years through ten years...............    44,107       44,516        22
Due after ten years..................................    26,788       27,549        14
                                                       --------     --------       ---
                                                        128,110      129,223        64%
Equity securities....................................    20,679       23,308        12
Asset and mortgage-backed securities.................    50,322       49,776        24
                                                       --------     --------       ---
  Total..............................................  $199,111     $202,307       100%
                                                       ========     ========       ===

 
     Proceeds from bond maturities, sales and redemptions of available-for-sale
investments during the years 2004, 2003, and 2002 were $67.9 million, $138.6
million and $39.0 million, respectively. Gross gains of $917,000, $3,441,000 and
$1,437,000 and gross losses of $442,000, $1,511,000 and $1,568,000 were realized
on available for sale investment redemptions during 2004, 2003, and 2002,
respectively.
 
     The average duration of the securities in our fixed-maturity portfolio as
of December 31, 2004 and 2003 was 4.4 years and 4.8 years, respectively.
 
A.M. BEST COMPANY RATINGS
 
     As of December 31, 2004, A.M. Best Company, which rates insurance companies
based on factors of concern to policyholders, rated NCRIC, Inc. "A-"
(Excellent). This is the fourth highest rating of the 15 ratings that A.M. Best
assigns. NCRIC, Inc. received its initial rating of "B" in 1988, was upgraded to
"B+" in 1989, to "B++" in 1996 and was upgraded to "A-" in 1997. A.M. Best
reaffirmed the "A-" rating of NCRIC, Inc. in 2004. On March 4, 2005, A.M. Best
downgraded the rating of NCRIC, Inc. from "A-" to "B++" (Very Good) under review
with negative implications. A "B++" is A.M. Best's fifth highest rating out of
its 15 possible rating classifications. This action followed the February 28,
2005 announcement of NCRIC Group, Inc.'s fourth quarter and year-end 2004
results of a net loss of $8.3 million and $7.1 million, respectively. On
February 28, 2005, we also announced a definitive agreement to merge with
ProAssurance Corporation. The rating will remain under review pending A.M.
Best's review of NCRIC, Inc.'s loss reserves, completion of the merger with
ProAssurance and discussions with management. Our goal is to restore the rating
to its previous level of "A-" once A.M. Best has more time to factor in the
financial strength provided by the proposed transaction with ProAssurance.
 
     A.M. Best's "B++" rating is assigned to those companies that in A.M. Best's
opinion have a good ability to meet their obligations to policyholders over a
long period of time. In evaluating a company's financial and operating
performance, A.M. Best reviews:
 
     - the company's profitability, leverage and liquidity;
 
     - its book of business;
 
     - the adequacy and soundness of its reinsurance;
 
     - the quality and estimated market value of its assets;
 
     - the adequacy of its reserves and surplus;
 
                                       C-18

 
     - its capital structure;
 
     - the experience and competence of its management; and
 
     - its market presence.
 
RISK FACTORS
 
  OUR RESULTS MAY BE AFFECTED IF ACTUAL INSURED LOSSES DIFFER FROM OUR LOSS
  RESERVES
 
     Significant periods of time often elapse between the occurrence of an
insured loss, the reporting of the loss to us and our payment of that loss. To
recognize liabilities for unpaid losses, we establish reserves as balance sheet
liabilities representing estimates of amounts needed to pay reported losses and
the related loss adjustment expenses. The process of estimating loss reserves is
a difficult and complex exercise involving many variables and subjective
judgments. We regularly review our reserving techniques and our overall level of
reserves. As part of the reserving process, we review historical data and
consider the impact of various factors such as:
 
     - trends in claim frequency and severity;
 
     - changes in operations;
 
     - emerging economic and social trends;
 
     - inflation; and
 
     - changes in the regulatory and litigation environments.
 
     This process assumes that past experience, adjusted for the effects of
current developments and anticipated trends, is an appropriate, but not
necessarily accurate, basis for predicting future events. There is no precise
method for evaluating the impact of any specific factor on the adequacy of
reserves, and actual results are likely to differ from original estimates. To
the extent loss reserves prove to be inadequate in the future, we would need to
increase our loss reserves and incur a charge to earnings in the period the
reserves are increased, which could have a material adverse impact on our
financial condition and results of operations. Although we intend to estimate
conservatively our future payments relating to losses incurred, there can be no
assurance that currently established reserves will prove adequate in light of
subsequent actual experience. Our ultimate liability will be known only after
all claims are closed, which is likely to be several years into the future.
 
     The loss reserves of our insurance subsidiary also may be affected by court
decisions that expand liability on our policies after they have been priced and
issued. In addition, a significant jury award, or series of awards, against one
or more of our insureds could require us to pay large sums of money in excess of
our reserved amounts. Our policy to aggressively litigate claims against our
insureds that we consider unwarranted or claims where settlement resolution
cannot be achieved may increase the risk that we may be required to make such
payments.
 
  THE CHANGE IN OUR REINSURANCE PROGRAM EFFECTIVE JANUARY 1, 2003 EXPOSES US TO
  LARGER LOSSES
 
     In 2003, we increased our retention of loss from $500,000 to $1,000,000 for
each and every loss. As a result, we expect a higher level of losses and are
subject to a higher level of loss volatility since it is more difficult to
predict the number and timing of losses in excess of $500,000.
 
     We purchase limited reinsurance for protection against more than one
insured being involved in a single incident so that we are exposed to no more
than one retention of loss in a single medical incident. The limited protection
may not be adequate if there are several policyholders involved in a single
medical incident and a jury returns an extraordinarily high verdict against all
defendants.
 
                                       C-19

 
  OUR EARNINGS MAY NOT INCREASE AS A RESULT OF GROWTH IN NEW BUSINESS IN STATES
  IN WHICH WE HAVE LIMITED OPERATING EXPERIENCE
 
     In recent years we have expanded our business in Delaware, Virginia and
West Virginia. We utilize publicly available information on loss experience of
our competitors when we price our products in states when we can not rely on our
own experience. The use of competitor data does not provide the same level of
confidence as when we can use our own historical data from territories we have
been operating in for many years, i.e., the District of Columbia. The increase
in uncertainty is a result of us not knowing the effectiveness of our
underwriting and claims adjudication process in the new states. This risk
impacted results of operations in 2004 and 2003 and could impact future results
of operations.
 
  OUR REVENUES AND INCOME MAY FLUCTUATE WITH INTEREST RATES AND INVESTMENT
  RESULTS
 
     We generally rely on the positive performance of our investment portfolio
to offset insurance losses and to contribute to our profitability. As our
investment portfolio is primarily comprised of interest-earning assets,
prevailing economic conditions, particularly changes in market interest rates,
may significantly affect our operating results. Changes in interest rates also
can affect the value of our interest-earning assets, which are principally
comprised of fixed-rate investment securities. Generally, the value of
fixed-rate investment securities fluctuates inversely with changes in interest
rates. Interest rate fluctuation could adversely affect our GAAP stockholders'
equity, total comprehensive income, and/or cash flows. As of December 31, 2004,
$179 million of our $202 million investment portfolio was invested in fixed
maturities. Unrealized pre-tax net investment gains on investments in fixed
maturities were $567,000 and $868,000 as of December 31, 2004, and 2003,
respectively.
 
     In accordance with our investment policies, the duration of our investment
portfolio is intended to be similar to our expectation for the duration of our
loss reserves. Changes in the actual duration of our loss reserves from our
expectations may affect our results. Our investment portfolio, however, is
subject to prepayment risk primarily due to our investments in mortgage-backed
and other asset-backed securities. An investment has prepayment risk when there
is a risk that the timing of cash flows that result from the repayment of
principal might occur earlier than anticipated because of declining interest
rates or later than anticipated because of rising interest rates. We are subject
to reinvestment risk to the extent that we are not able to reinvest prepayments
at rates comparable to the rates on the maturing investments.
 
  REGULATORY CHANGES COULD HAVE A MATERIAL IMPACT ON OUR OPERATIONS
 
     Our insurance businesses are subject to extensive regulation by state
insurance authorities in each state in which we operate. Regulation is intended
for the benefit of policyholders rather than stockholders. In addition to the
amount of dividends and other payments that can be made by our insurance
subsidiaries, these regulatory authorities have broad administrative and
supervisory power relating to:
 
     - rates charged to insurance customers;
 
     - licensing requirements;
 
     - trade practices;
 
     - capital and surplus requirements; and
 
     - investment practices.
 
     These regulations may impede or impose burdensome conditions on rate
increases or other actions that we may want to take to enhance our operating
results, and could affect our ability to pay dividends on our common stock. In
addition, we may incur significant costs in the course of complying with
regulatory requirements. Most states also regulate insurance holding companies
like us in a variety of matters such as acquisitions, changes of control, and
the terms of affiliated transactions. Future legislative or regulatory changes
may adversely affect our business operations.
 
                                       C-20

 
  THE UNPREDICTABILITY OF COURT DECISIONS COULD HAVE A MATERIAL IMPACT ON OUR
  FINANCIAL RESULTS
 
     The financial position of our insurance subsidiary may be affected by court
decisions that expand insurance coverage beyond the intention of the insurer at
the time it originally issued an insurance policy or by a judiciary's decision
to accelerate the resolution of claims through an expedited court calendar,
thereby reducing the amount of investment income we would have earned on related
reserves. In addition, a significant jury award, or series of awards, against
one or more of our policyholders could require us to pay large sums of money in
excess of our reserve amount.
 
  OUR REVENUES AND OPERATING PERFORMANCE MAY FLUCTUATE WITH INSURANCE BUSINESS
  CYCLES
 
     Growth in premiums written in the medical professional liability industry
has fluctuated significantly over the past 10 years as a result of, among other
factors, changing premium rates. The cyclical pattern of such fluctuation has
been generally consistent with similar patterns for the broader property and
casualty insurance industry, due in part to the participation in the medical
professional liability industry of insurers and reinsurers which also
participate in many other lines of property and casualty insurance and
reinsurance. Historically, the financial performance of the property and
casualty insurance industry has tended to fluctuate in cyclical patterns
characterized by periods of greater competition in pricing and underwriting
terms and conditions, a soft insurance market, followed by a period of capital
shortage, lesser competition and increasing premium rates, a hard insurance
market.
 
     For several years in the 1990s, the medical professional liability industry
faced a soft insurance market that generally resulted in lower premium rates.
The medical professional liability industry is currently in a hard insurance
market cycle. We cannot predict whether, or the extent to which, the recent
increase in premium rates will continue.
 
  OUR GEOGRAPHIC CONCENTRATION TIES OUR PERFORMANCE TO THE ECONOMIC, REGULATORY
  AND DEMOGRAPHIC CONDITIONS OF THE MID-ATLANTIC REGION
 
     Our revenues and profitability are subject to prevailing economic,
regulatory, demographic and other conditions in the region in which we write
insurance. We write our medical professional liability insurance in the District
of Columbia, Delaware, Maryland, Virginia and West Virginia. Because our
business is concentrated in a limited number of states, we may be exposed to
adverse developments that may have a greater affect on us than the risks of
doing business in a broader market area.
 
  OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO ATTRACT AND
  RETAIN INDEPENDENT AGENTS
 
     We depend in part on the services of independent agents in marketing our
insurance products. We face competition from other insurance companies for the
services and allegiance of our independent agents. Changes in commissions,
services or products offered by our competitors could make it more difficult for
us to attract and retain independent agents to sell our insurance products.
 
  IF WE ARE UNABLE TO MAINTAIN A FAVORABLE A.M. BEST COMPANY RATING, IT MAY BE
  MORE DIFFICULT FOR US TO WRITE NEW BUSINESS OR RENEW OUR EXISTING BUSINESS
 
     A.M. Best assesses and rates the financial strength and claims-paying
ability of insurers based upon its criteria. The financial strength ratings
assigned by A.M. Best to insurance companies represent independent opinions of
financial strength and ability to meet policyholder obligations, and are not
directed toward the protection of investors. A.M. Best ratings are not ratings
of securities or recommendations to buy, hold or sell any security.
 
     As of December 31, 2004, A.M. Best Company rated NCRIC, Inc. "A-"
(Excellent). On March 4, 2005, A.M. Best downgraded the rating of NCRIC, Inc.
from "A-" to "B++" (Very Good) under review with negative implications. A "B++"
rating is A.M. Best's fifth highest rating out of its 15 possible rating
classifications. This action followed the February 28, 2005 announcement of
NCRIC Group, Inc.'s fourth quarter and year-end 2004 results of a net loss of
$8.3 million and $7.1 million, respectively. On
 
                                       C-21

 
February 28, 2005, we also announced a definitive agreement to merge with
ProAssurance Corporation. The rating will remain under review pending A.M.
Best's review of NCRIC, Inc.'s loss reserves, completion of the merger with
ProAssurance and discussions with management. Our goal is to restore the rating
to its previous level of "A-" once A.M. Best has more time to factor in the
financial strength provided by the proposed transaction with ProAssurance.
 
     Financial strength ratings are used by agents and customers as an important
means of assessing the financial strength and quality of insurers. If our
financial position deteriorates, we may not maintain our favorable rating. This
downgrade or any further downgrade or withdrawal of any such rating could
severely limit or prevent us from writing desirable business or renewing our
existing business.
 
  IF MARKET CONDITIONS CAUSE REINSURANCE TO BE MORE COSTLY OR UNAVAILABLE, WE
  MAY BE REQUIRED TO BEAR INCREASED RISKS OR REDUCE THE LEVEL OF OUR
  UNDERWRITING COMMITMENTS
 
     As part of our overall risk and capacity management strategy, we purchase
reinsurance for significant amounts of risk underwritten by our insurance
company subsidiary. Market conditions beyond our control determine the
availability and cost of the reinsurance we purchase, which may affect the level
of our business and profitability. We may be unable to maintain our current
reinsurance coverage or to obtain other reinsurance coverage in adequate amounts
and at favorable rates. If we are unable to renew our expiring reinsurance
coverage or to obtain new reinsurance coverage, either our net risk exposures
would increase or, if we are unwilling to bear an increase in net risk
exposures, we would have to reduce the amount of risk we underwrite.
 
  WE CANNOT GUARANTEE THAT OUR REINSURERS WILL PAY IN A TIMELY FASHION, IF AT
  ALL, AND, AS A RESULT, WE COULD EXPERIENCE LOSSES
 
     We transfer some of the risk we have assumed to reinsurance companies in
exchange for part of the premium we receive in connection with the risk.
Although reinsurance coverage makes the reinsurer liable to us to the extent the
risk is transferred, it does not relieve us of our liability to our
policyholders. If our reinsurers fail to pay us or fail to pay us on a timely
basis, our financial results would be adversely affected.
 
  THE GUARANTY FUND ASSESSMENTS THAT WE ARE REQUIRED TO PAY TO STATE GUARANTY
  ASSOCIATIONS MAY INCREASE AND OUR RESULTS OF OPERATIONS AND FINANCIAL
  CONDITIONS COULD BE ADVERSELY AFFECTED
 
     Each jurisdiction in which we operate has separate insurance guaranty fund
laws requiring property and casualty insurance companies doing business within
their respective jurisdictions to be members of their guaranty associations.
These associations are organized to pay covered claims (as defined and limited
by the various guaranty association statutes) under insurance policies issued by
insolvent insurance companies. Most guaranty association laws enable the
associations to make assessments against member insurers to obtain funds to pay
covered claims after a member insurer becomes insolvent. These associations levy
assessments (up to prescribed limits) on all member insurers in a particular
state on the basis of the proportionate share of the premiums written by member
insurers in the covered lines of business in that state. Maximum assessments
permitted by law in any one year generally vary between 1% and 2% of annual
premiums written by a member in that state.
 
     Property and casualty guaranty fund assessments incurred by us totaled
$15,000 for 2004. We received a refund of $25,000 and accrued an assessment of
$137,000 in 2003. Our policy is to accrue the guaranty fund assessments when
notified and in accordance with accounting principles generally accepted in the
United States of America, GAAP. We cannot reasonably estimate liabilities for
insolvency because of the lack of adequate financial data on insolvent
companies.
 
  OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THE LOSS OF ONE OR MORE EMPLOYEES
 
     We are heavily dependent upon our senior management and the loss of
services of our senior executives could adversely affect our business. Our
success has been, and will continue to be, dependent on
                                       C-22

 
our ability to retain the services of our existing key employees and to attract
and retain additional qualified personnel in the future. The loss of services of
any of our senior management or any other key employee, or the inability to
identify, hire and retain other highly qualified personnel in the future, could
adversely affect the quality and profitability of our business operations. While
we have employment agreements with our senior executives, we currently do not
maintain key employee insurance with respect to any of our employees.
 
  WE ARE A HOLDING COMPANY AND ARE DEPENDENT ON DIVIDENDS AND OTHER PAYMENTS
  FROM OUR OPERATING SUBSIDIARIES, WHICH ARE SUBJECT TO DIVIDEND RESTRICTIONS
 
     We are a holding company whose principal source of funds is cash dividends
and other permitted payments from our operating subsidiaries, principally NCRIC,
Inc. If our subsidiaries are unable to make payments to us, or are able to pay
only limited amounts, we may be unable to pay dividends or make payments on our
indebtedness. The payment of dividends by these operating subsidiaries is
subject to restrictions set forth in the insurance laws and regulations of the
District of Columbia. See "Insurance Regulatory Matters -- Regulation of
Dividends and Other Payments From Our Operating Subsidiaries."
 
  OUR PROFITABILITY COULD BE ADVERSELY AFFECTED BY MARKET-DRIVEN CHANGES IN THE
  HEALTHCARE INDUSTRY
 
     Managed care has negatively impacted physicians' ability to efficiently
conduct a traditional medical practice. As a result, many physicians have joined
or affiliated with managed care organizations, healthcare delivery systems or
practice management organizations. The impact of managed care and tightened
Medicare/Medicaid reimbursement may impact a physician's decision to continue
purchasing consulting and practice management services, shifting a purchase
decision from quality and value to price only. Larger healthcare systems
generally retain more risk by accepting higher deductibles and self-insured
retentions or form their own captive insurance companies. This consolidation has
reduced the role of the individual physician and the small medical group, which
represents a significant portion of our policyholders, in the medical
professional liability insurance purchasing decision.
 
  RISING INTEREST RATES WOULD INCREASE INTEREST COSTS ASSOCIATED WITH THE TRUST
  PREFERRED SECURITIES ISSUED BY US
 
     In December 2002 we issued $15,000,000 of trust preferred securities. The
trust preferred securities bear interest at a rate of 400 basis points over the
three-month London Interbank Offered Rate (LIBOR) and adjust quarterly subject
to a maximum interest rate of 12.5%. Our interest expense will increase if the
three-month LIBOR increases.
 
  STATE INSURANCE REGULATORS MAY NOT BE WILLING TO APPROVE OUR CAPTIVE INSURANCE
  OPERATIONS
 
     While higher pricing and reduced availability of traditional insurance
sources have created favorable market conditions for this risk financing
vehicle, state insurance regulators may not be willing to approve our captive
insurance operations or market conditions may change.
 
  A DECLINE IN REVENUE AND PROFITABILITY IN CONSICARE, INC. COULD RESULT IN A
  GOODWILL IMPAIRMENT CHARGE
 
     ConsiCare's revenue is subject to clients facing declining reimbursement
for their services. Therefore, in an effort to pare their own expenses to
improve their net profitability, our clients may not order new services, or may
diminish and possibly cease using our existing services. This could result in a
reduction of revenue to us, thereby reducing net income and resulting in an
impairment charge relative to the goodwill ascribed to ConsiCare.
 
  THE PREMIUM COLLECTION LITIGATION MAY REDUCE EARNINGS AND STOCKHOLDERS' EQUITY
 
     As disclosed elsewhere in this report, a jury returned an $18.2 million
judgment against NCRIC, Inc. in connection with the premium collection
litigation initiated by NCRIC, Inc. against Columbia Hospital for Women, CHW.
NCRIC, Inc. intends to appeal this verdict, and has filed post-trial motions,
including
                                       C-23

 
motions to set aside and to reduce the verdict. The outcome of the post-trial
motions and potential appellate process is not predictable. An outcome that
requires NCRIC to pay a significant amount to CHW would reduce stockholders'
equity and would reduce the statutory measure of policyholders' surplus and
therefore could potentially reduce our capacity to write insurance. In addition,
expenses incurred in appealing the verdict are expected to be significant and
will reduce earnings.
 
INSURANCE COMPANY REGULATION
 
     General.  NCRIC, Inc. is subject to supervision and regulation by the
District of Columbia Department of Insurance, Securities and Banking and
insurance authorities in Delaware, Maryland, Virginia and West Virginia. This
regulation is concerned primarily with the protection of policyholders'
interests rather than stockholders' interests. Accordingly, decisions of
insurance authorities made with a view to protecting the interests of
policyholders may reduce our profitability. The extent of regulation varies by
jurisdiction, but this regulation usually includes:
 
     - regulating premium rates and policy forms;
 
     - setting minimum capital and surplus requirements;
 
     - regulating guaranty fund assessments;
 
     - licensing of insurers and agents;
 
     - approving accounting methods and methods of setting statutory loss and
       expense reserves;
 
     - underwriting limitations;
 
     - restrictions on transactions with affiliates;
 
     - setting requirements for and limiting the types and amounts of
       investments;
 
     - establishing requirements for the filing of annual statements and other
       financial reports;
 
     - conducting periodic statutory examinations of the affairs of insurance
       companies;
 
     - approving proposed changes of control; and
 
     - limiting the amounts of dividends that may be paid without prior
       regulatory approval.
 
     Without the approval of the District of Columbia Commissioner of Insurance,
Securities and Banking, NCRIC, Inc. may not diversify out of the healthcare and
insurance fields through an acquisition or otherwise.
 
     Guaranty fund laws.  Each of the jurisdictions in which we do business has
guaranty fund laws under which insurers doing business in those jurisdictions
can be assessed on the basis of premiums written by the insurer in that
jurisdiction in order to fund policyholder liabilities of insolvent insurance
companies. Under these laws in general, an insurer is subject to assessment,
depending upon its market share of a given line of business, to assist in the
payment of policyholder claims against insolvent insurers. In the District of
Columbia, insurance companies are assessed in three categories: (i) automobile;
(ii) workers' compensation; and (iii) all other. An insurance company licensed
to do business in the District of Columbia is only liable to pay an assessment
if another insurance company within its category becomes insolvent. We are in
the "all other" category.
 
     Significant assessments could have a material adverse effect on our
financial condition or results of operations. While we will not necessarily be
liable to pay assessments each year, the insolvency of another insurance company
within our category of insurance could result in the maximum assessment being
imposed on us over several years. We cannot predict the amount of future
assessments. In 2002, PHICO Insurance Company went into receivership; this
resulted in guaranty fund assessments to us of $355,000. Our 2003 assessment
covered PHICO, Legion and Reciprocal of America. In each of the jurisdictions in
which we conduct business, the amount of the assessment cannot exceed 2% of our
direct premiums written per year in that jurisdiction.
                                       C-24

 
     Examination of insurance companies.  Every insurance company is subject to
a periodic financial examination under the authority of the insurance
commissioner of its jurisdiction of domicile. Any other jurisdiction interested
in participating in a periodic examination may do so. The last completed
periodic financial examination of NCRIC, Inc., based on December 31, 2003
financial statements, was completed and a final report was issued on December 7,
2004. The final report positively assessed our financial stability and operating
procedures.
 
     Approval of rates and policies.  The District of Columbia, Virginia and
Delaware require us to submit rates to regulators on a "file and use" basis.
Under a file and use system, an insurer is permitted to bring new rates and
policies into effect on filing them with the appropriate regulator, subject to
the right of the regulator to object within a fixed period of days. In each of
the District of Columbia, Delaware and Virginia, rating plans, policies and
endorsements must be submitted to the regulators 30 days prior to their
effectiveness. Maryland and West Virginia are "prior approval" jurisdictions.
The possibility exists that we may be unable to implement desired rates,
policies, endorsements, forms or manuals if these items are not approved by an
insurance commissioner.
 
     Medical professional liability reports.  We principally write medical
professional liability insurance and, as such, requirements are placed upon us
to report detailed information with regard to settlements or judgments against
our insureds. In addition, we are required to report to the D.C. Department of
Insurance, Securities and Banking or state regulatory agencies or the National
Practitioner Data Bank payments, claims closed without payments and actions such
as terminations or premiums surcharges with respect to our insureds. Penalties
may attach if we fail to report to either the D.C. Department of Insurance,
Securities and Banking or an applicable state insurance regulator or the
National Practitioner Data Bank.
 
     Changes in government regulation of the healthcare system.  Federal and
state governments recently have considered reforming the healthcare system.
While some of the proposals could be beneficial to our business, the adoption of
others could adversely affect us. Public discussion of a broad range of
healthcare reform measures will likely continue in the future. These measures
that would affect our medical professional liability insurance business and our
practice management products and services include, but are not limited to:
 
     - spending limits;
 
     - price controls;
 
     - limits on increases in insurance premiums;
 
     - limits on the liability of doctors and hospitals for tort claims; and
 
     - changes in the healthcare insurance system.
 
     Insurance Holding Company Regulation.  The Commissioner of Insurance,
Securities and Banking of the District of Columbia has jurisdiction over NCRIC
Group as an insurance holding company. We are required to file information
periodically with the Department of Insurance, Securities and Banking, including
information relating to our capital structure, ownership, financial condition
and general business operations. In the District of Columbia, transactions by an
insurance company with affiliates involving loans, sales, purchases, exchanges,
extensions of credit, investments, guarantees or other contingent obligations,
which within any 12-month period aggregate at least 3% of the insurance
company's admitted assets or 25% of its surplus, whichever is greater, require
prior approval. Prior approval is also required for all management agreements,
service contracts and cost-sharing arrangements between an insurance company and
its affiliates. Some reinsurance agreements or modifications also require prior
approval.
 
     District of Columbia insurance laws also provide that the acquisition or
change of control of a domestic insurance company or of any person or entity
that controls an insurance company cannot be consummated without prior
regulatory approval. A change in control is generally defined as the acquisition
of 10% or more of the issued and outstanding shares of an insurance holding
company.
 
                                       C-25

 
     Regulation of dividends from insurance subsidiaries.  The District of
Columbia insurance laws limit the ability of NCRIC, Inc. to pay dividends.
Without prior notice to and approval of the Commissioner of Insurance,
Securities and Banking, NCRIC, Inc. may not declare or pay an extraordinary
dividend, which is defined as any dividend or distribution of cash or other
property whose fair market value, together with other dividends or distributions
made, within the preceding 12 months exceeds the lesser of (1) 10% of NCRIC,
Inc.'s statutory surplus as of the preceding December 31, or (2) NCRIC, Inc.'s
statutory net income excluding realized capital gains, for the 12-month period
ending the preceding December 31, but does not include pro rata distributions of
any class of our own securities. In calculating net income under the test,
NCRIC, Inc. may carry forward net income, excluding realized capital gains, from
the previous two calendar years that has not been paid out as dividends.
District of Columbia law gives the Commissioner of Insurance, Securities and
Banking broad discretion to disapprove dividends even if the dividends are
within the above-described limits. The District of Columbia permits the payment
of dividends only out of unassigned statutory surplus. Using these criteria, as
of December 31, 2004, because of the statutory loss from operations in 2003 and
2004, NCRIC, Inc. has no amounts available for dividends without regulatory
approval.
 
OUR COMPANIES
 
     We were organized in December 1998 in connection with the reorganization of
National Capital Reciprocal Insurance Company into a mutual holding company
structure. NCRIC, A Mutual Holding Company owned all of the outstanding shares
of NCRIC Holdings, Inc. Effective July 29, 1999, we completed an initial public
offering and issued 2,220,000 shares of the common stock to NCRIC Holdings, Inc.
and 1,480,000 shares of the common stock in a subscription and community
offering.
 
     On June 24, 2003, a plan of conversion and reorganization was approved by
the members of NCRIC, A Mutual Holding Company and by the shareholders of NCRIC
Group, Inc. In the conversion and related stock offering, the Mutual Holding
Company offered for sale its 60% ownership interest in NCRIC Group. As a result
of the conversion and stock offering, the Mutual Holding Company ceased to
exist, and NCRIC Group became a fully public company.
 
     NCRIC, Inc. NCRIC, Inc., a wholly owned subsidiary of NCRIC Group, Inc., is
the former National Capital Reciprocal Insurance Company incorporated in 1980
and is a licensed property and casualty insurance company domiciled in the
District of Columbia. NCRIC, Inc. provides professional liability insurance to
physicians in the District of Columbia, Delaware, Maryland, Virginia and West
Virginia. Commonwealth Medical Liability Insurance Company, CML, was merged into
NCRIC, Inc. as of December 31, 2003. CML was originally incorporated in 1989.
CML provided professional liability insurance to physicians in Delaware,
Maryland, Virginia and West Virginia.
 
     National Capital Insurance Brokerage, Ltd.  National Capital Insurance
Brokerage, Ltd., a wholly owned subsidiary of NCRIC, Inc. incorporated in 1984,
is a licensed insurance brokerage that provides reinsurance brokerage services
to NCRIC, Inc. and protected cells within American Captive Corporation.
 
     American Captive Corporation.  American Captive Corporation, ACC, a wholly
owned subsidiary of NCRIC, Inc. incorporated in 2001, is an organization that is
authorized to form independent protected cells to accommodate affinity groups
seeking to manage their own risk through an alternative risk transfer structure.
In February 2002, we announced formation of a joint venture with Risk Services,
LLC, to form National Capital Risk Services, LLC to offer a complete range of
alternative risk transfer services to healthcare clients throughout the nation.
As of December 31, 2004, ACC had no active cells.
 
     NCRIC Insurance Agency, Inc.  NCRIC Insurance Agency, Inc., a wholly owned
subsidiary of NCRIC, Inc. incorporated in 1989, is a licensed insurance agency
that has strategic partnerships with experienced brokers to provide life,
health, disability, and long term care coverage to our clients. These products
are not underwritten by us.
 
     ConsiCare, Inc.  ConsiCare, Inc., a wholly owned subsidiary of NCRIC Group,
Inc. incorporated in 1998, provides business management services and employee
benefits services to physicians, dentists and
 
                                       C-26

 
other non-healthcare related entities in Virginia, North Carolina and the
District of Columbia. ConsiCare was formerly known as NCRIC MSO, Inc. d/b/a
HealthCare Consulting, Inc. and Employee Benefits Services, Inc. The name of
this subsidiary was changed to ConsiCare upon the completion of a branding
analysis in the fourth quarter of 2004. In the first quarter of 2005, this
business was re-introduced to the market under the brand name of ConsiCare. We
believe that this initiative will differentiate the practice management
operations from its competitors and contribute to the establishment of a
consistent and distinguishable brand identity.
 
     NCRIC Physicians Organization, Inc.  NCRIC Physicians Organization, Inc., a
wholly owned subsidiary of ConsiCare, Inc., was organized in 1994 to provide a
network for managed care contracting with third party payers. NCRIC Physicians
Organization no longer contracts as a network and effective October 1, 2004
reached the end of a settlement agreement with a former health plan partner,
American Medical Services.
 
     NCRIC Statutory Trust I.  NCRIC Statutory Trust I was formed in 2002 as a
special purpose entity for the purpose of issuing trust preferred securities.
 
PERSONNEL
 
     As of December 31, 2004, we employed 107 full-time persons. Sixty-five of
these individuals were employed by NCRIC, Inc. and 42 were employed by
ConsiCare. None of our employees are represented by a collective bargaining unit
and we consider our relationship with our employees to be good.
 
ITEM 2.  PROPERTIES
 
     Our principal business operations are conducted from our leased executive
offices, which consist of approximately 18,156 square feet located at 1115 30th
Street, N.W., Washington, D.C. 20007. The term of the lease is for ten years,
commencing April 15, 1998 and expiring April 30, 2008. Annual rental is $421,476
with 2% annual increases, except in the sixth year of the term when the rent
increases by $2.00 per rentable square foot. We have the option to renew the
lease for one additional term of five years. In November 2003, we leased
additional space across the street from our executive offices at 1055 Thomas
Jefferson Street, N.W., Washington, D.C. 20007. We also maintain office space in
Lynchburg, Fredericksburg and Richmond, Virginia; Greensboro, North Carolina;
Wilmington, Delaware; and Charleston, West Virginia.
 
     The following table sets forth the facilities leased by us at December 31,
2004, along with the applicable lease expiration date:
 


PROPERTY LOCATION                                             LEASE EXPIRATION DATE
-----------------                                             ---------------------
                                                           
Offices:
1115 30th Street, N.W., Washington, D.C. 20007..............     April 30, 2008
1055 Thomas Jefferson Street, N.W. Washington, D.C. 20007...      May 31, 2008
424 Graves Mill Road, Lynchburg, Virginia 24502.............    October 31, 2007
4701 Cox Road, Richmond, Virginia 23060.....................     April 30, 2006
1708 Fall Hill Avenue, Suite 201, Fredericksburg, Virginia
  22401.....................................................     Month-to-Month
600 Green Valley Road, Greensboro, North Carolina 27408.....     March 31, 2008
1201 N. Orange Street, Suite 901, Wilmington, Delaware
  19801.....................................................     July 31, 2005
300 Association Drive, North Gate Business Park, Charleston,
  West Virginia 25311.......................................     Month-to-Month

 
ITEM 3.  LEGAL PROCEEDINGS
 
     We are from time to time named as a defendant in various lawsuits
incidental to our insurance business. In many of these actions, plaintiffs
assert claims for exemplary and punitive damages. We vigorously defend these
actions, unless a reasonable settlement appears appropriate. Aside from the
matter
 
                                       C-27

 
reported in Note 14 to the Consolidated Financial Statements included in Item 8
of this Form 10-K, we believe that these legal proceedings in the aggregate are
not material to our consolidated financial condition.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     We do not currently pay cash dividends on our common stock and we do not
intend to pay any cash dividends in the foreseeable future. As a holding company
with no direct operations, we rely on cash dividends and other permitted
payments from our insurance subsidiaries to pay any future dividends to our
stockholders. State insurance laws and restrictions under our credit agreement
limit the amounts that may be paid to us by our insurance subsidiaries (see
"Business of NCRIC Group -- Insurance Company Regulation" and "Regulation of
dividends from insurance subsidiaries").
 
     Our common stock is traded on the Nasdaq National Market under the symbol
"NCRI." The following table sets forth the high and low closing prices for
shares of our common stock for the periods indicated. As of December 31, 2004,
there were 6,892,517 publicly held shares of our common stock issued and
outstanding held by approximately 539 shareholders of record. Note: the stock
prices for dates prior to the June 2003 conversion and stock offering have been
adjusted to reflect the conversion and issuance of additional shares. There were
no repurchases of common stock in the fourth quarter of 2004.
 


YEAR ENDED DECEMBER 31, 2004                                   HIGH      LOW
----------------------------                                  -------   ------
                                                                  
Fourth quarter..............................................  $10.060   $8.380
Third quarter...............................................   10.020    8.370
Second quarter..............................................   10.140    9.110
First quarter...............................................   11.920    9.450

 


YEAR ENDED DECEMBER 31, 2003                                   HIGH       LOW
----------------------------                                  -------   -------
                                                                  
Fourth quarter..............................................  $11.510   $ 9.110
Third quarter...............................................   11.560    10.150
Second quarter..............................................   10.600     8.203
First quarter...............................................   12.858     5.992

 
     Set forth below is information as of December 31, 2004 as to any equity
compensation plans of the Company that provides for the award of equity
securities or the grant of options, warrants or rights to purchase equity
securities of the Company.
 


                               NUMBER OF SECURITIES TO
                                   BE ISSUED UPON                            NUMBER OF SECURITIES
EQUITY COMPENSATION PLANS      EXERCISE OF OUTSTANDING   WEIGHTED AVERAGE   REMAINING AVAILABLE FOR
APPROVED BY SHAREHOLDERS         OPTIONS AND RIGHTS       EXERCISE PRICE      ISSUANCE UNDER PLAN
-------------------------      -----------------------   ----------------   -----------------------
                                                                   
Stock Option Plan -- 1999....          107,737                      $3.75                 0
Stock Option Plan -- 2003....          320,101                     $10.90            94,269
Stock Award Plan -- 1999.....           14,365(1)          Not Applicable                 0
Stock Award Plan -- 2003.....          109,174(1)          Not Applicable            22,540
Equity compensation plans not
  approved by shareholders...             None                       None              None
  Total......................          551,377             Not Applicable           116,809

 
---------------
 
(1) Represents shares that have been granted but have not yet vested.
                                       C-28

 
ITEM 6.  SELECTED FINANCIAL DATA
 
                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
 
     The following tables set forth selected consolidated historical financial
and other data of NCRIC Group for the years and at the dates indicated and are
derived in part from and should be read together with the audited consolidated
financial statements and notes thereto of NCRIC Group, as well as with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which are included elsewhere in this Form 10-K.
 


                                              AT OR FOR THE YEAR ENDED DECEMBER 31,
                                    ----------------------------------------------------------
                                      2004         2003         2002         2001       2000
                                    --------     --------     --------     --------   --------
                                                          (IN THOUSANDS)
                                                                       
Statement of Operations Data:
Gross premiums written............  $ 87,229     $ 71,365     $ 51,799     $ 34,459   $ 22,727
                                    ========     ========     ========     ========   ========
Net premiums written..............  $ 72,536     $ 59,277     $ 33,804     $ 23,624   $ 15,610
                                    ========     ========     ========     ========   ========
Net premiums earned...............  $ 66,462     $ 47,264     $ 30,098     $ 20,603   $ 14,611
Net investment income.............     7,256        6,008        5,915        6,136      6,407
Net realized investment gains
  (losses)........................       475        1,930        (131)         (278)        (5)
Practice management and related
  income..........................     4,395        4,906        5,800        6,156      5,317
Other income......................       820        1,155        1,013          602        470
                                    --------     --------     --------     --------   --------
  Total revenues..................    79,408       61,263       42,695       33,219     26,800
Losses and loss adjustment
  expenses........................    70,310       50,473       26,829       18,858     11,946
Underwriting expenses.............    12,635       10,003        8,168        4,877      3,591
Practice management and related
  expenses........................     5,016        5,222        5,811        6,063      4,970
Interest expense on Trust
  Preferred Securities............       857          826           62            0          0
Other expenses....................     2,514        1,651        1,405        1,245      1,237
                                    --------     --------     --------     --------   --------
  Total expenses..................    91,332       68,175       42,275       31,043     21,744
                                    --------     --------     --------     --------   --------
(Loss) income before income
  taxes...........................  (11,924)      (6,912)          420        2,176      5,056
Income tax (benefit) provision....   (4,804)      (2,694)        (322)          597      1,561
                                    --------     --------     --------     --------   --------
Net (loss) income.................  $(7,120)     $(4,218)     $    742     $  1,579   $  3,495
                                    ========     ========     ========     ========   ========
Net (loss) earnings per share
  Basic...........................  $ (1.12)     $ (0.65)     $   0.11     $   0.24   $   0.53
  Diluted.........................  $ (1.12)     $ (0.65)     $   0.11     $   0.23   $   0.53
Balance Sheet Data:
Invested assets...................  $202,307     $174,357     $120,120     $103,125   $ 98,045
Total assets......................   292,899      262,546      202,687      161,002    145,864
Reserves for losses and loss
  adjustment expenses.............   153,242      125,991      104,022       84,560     81,134
Total liabilities.................   220,884(1)   184,567(1)   154,870(1)   116,548    104,415
Total stockholders' equity........    72,015       77,979       47,817       44,454     41,449

 
                                       C-29

 


                                              AT OR FOR THE YEAR ENDED DECEMBER 31,
                                    ----------------------------------------------------------
                                      2004         2003         2002         2001       2000
                                    --------     --------     --------     --------   --------
                                                          (IN THOUSANDS)
                                                                       
Selected GAAP Underwriting
  Ratios(2):
Losses and loss adjustment
  expenses ratio..................     105.8%       106.8%        89.1%        91.5%      81.7%
Underwriting expense ratio........      19.0%        21.2%        27.2%        23.7%      24.6%
Combined ratio....................     124.8%       128.0%       116.3%       115.2%     106.3%
Selected Statutory Data:
Losses and loss adjustment
  expenses ratio..................     105.8%       106.8%        89.2%        90.0%      75.3%
Underwriting expense ratio........      20.7%        22.6%        22.6%        21.8%      19.7%
Combined ratio....................     126.5%       129.4%       111.8%       111.8%      95.0%
Operating ratio(3)................     115.6%       113.3%        92.4%        84.3%      63.6%
Ratio of net premiums written to
  policyholders' surplus..........      1.15         0.84         0.83         0.77       0.60
Policyholders' surplus............  $ 62,994     $ 70,372     $ 44,269     $ 32,759   $ 29,764

 
---------------
 
(1) Includes $15.0 million of Trust Preferred Securities.
 
(2) In calculating GAAP underwriting ratios, renewal credits are considered a
    reduction of premium income. In addition, earned premium is used to
    calculate the GAAP loss and underwriting expense ratios. For statutory
    purposes, renewal credits are not considered a reduction in premium income,
    and written premiums are used to calculate the statutory underwriting
    expense ratio. Due to these differences in treatment, GAAP combined ratios
    can differ significantly from statutory combined ratios. See Note 11 to the
    consolidated financial statements for a discussion of the differences
    between statutory and GAAP reporting.
 
(3) The operating ratio is the statutory combined ratio offset by the benefit of
    investment income expressed as a percentage of premiums earned.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
GENERAL
 
     The financial statements and data presented herein have been prepared in
accordance with GAAP, unless otherwise noted. GAAP differs from statutory
accounting practices used by regulatory authorities in their oversight
responsibilities of insurance companies. See Note 11 to the consolidated
financial statements for a reconciliation of our net income and equity between
GAAP and statutory accounting bases.
 
CRITICAL ACCOUNTING POLICIES
 
     Following is a discussion of key financial concepts and of those accounting
policies which we believe to be the most critical. That is, these are most
important to the portrayal of our financial condition and results of operations
and they require management's most complex judgments, including the need to make
estimates about the effect of insurance losses and other matters that are
inherently uncertain.
 
     Premium income.  Gross premiums written represent the amounts billed to
policyholders. Gross premiums written are reduced by premiums ceded to
reinsurers and renewal credits in determining net premiums written. Premiums
ceded to reinsurers represent the cost to us of reducing our exposure to medical
professional liability losses by transferring agreed upon insurance risks to
reinsurers through a reinsurance contract or treaty. Renewal credits are
reductions in premium billings to renewing policyholders. Net premiums written
are adjusted by any amount which has been billed but not yet earned
 
                                       C-30

 
during the period in arriving at earned premiums. Extended reporting
endorsements premium is earned in the same period it is written.
 
     For several large groups of policyholders, we have insurance programs where
the premiums are retrospectively determined based on losses during the period.
Under all of the current programs, the full premium level is determined and
billed at the inception of the policy term. The premium level could potentially
be reduced and a premium refund made if the program loss experience is
favorable. Premiums billed under retrospective programs are recorded as premiums
written, while premium refunds accrued under retrospective programs are recorded
as unearned premiums. When an accrued premium refund is paid, written premiums
are reduced with no change to earned premium. Under retrospective programs,
premiums earned are premiums written reduced by premium refunds accrued. Premium
refunds are accrued to reflect the risk-sharing program results on a basis
consistent with the underlying loss experience. The program loss experience is
that which is included in the determination of our losses and loss adjustment
expenses (LAE). As described more fully below, one component of the expense for
losses and LAE is the estimate of future payments for claims and related
expenses of adjudicating claims.
 
     Unearned premiums represent premiums billed but not yet fully earned at the
end of the reporting period. Premiums receivable represent annual billed and
unbilled premiums which have not yet been collected.
 
     Reserves for losses and loss adjustment expenses.  We write one line of
business, medical professional liability. Losses and LAE reserves are estimates
of future payments for reported claims and related expenses of adjudicating
claims with respect to insured events that have occurred in the past. The change
in these reserves from year to year is reflected as an increase or decrease to
our losses and LAE expense incurred.
 
     Medical professional liability losses and LAE reserves are established
based on an estimate of these future payments as reflected in our past
experience with similar cases and historical trends involving claim payment
patterns. Other factors that modify past experience are also considered in
setting reserves, including court decisions, economic conditions, current trends
in losses, and inflation. Reserving for medical professional liability claims is
a complex and uncertain process, requiring the use of informed estimates and
judgments. Although we intend to estimate conservatively our future payments
relating to losses incurred, there can be no assurance that currently
established reserves will prove adequate in light of subsequent actual
experience.
 
     The estimation process is an extensive effort. It begins in our claims
department with the initial report of a claim. For each claim reported, a case
reserve is established by the claims department based on analysis of the facts
of the particular case and the judgment of claims management. This estimation
process is not by formula but is driven by the investigation of facts combined
with the experience and insight of claims management applied to each individual
case. The timing of establishing case reserves follows established protocols
based on the underlying facts and circumstances on a case by case basis.
Specific factors considered include: the claimant's assertion of loss; the
amount of documented damages asserted; an expert medical assessment; the
jurisdiction where the incident occurred; our experience with any similar cases
in the past; and any other factors pertinent to the specific case.
 
     Each quarter, the aggregate of case reserves by report year is compiled and
subjected to extensive analysis. Semiannually, our independent actuary performs
an actuarial valuation of reserves based on the data comprising our detailed
claims experience since inception.
 
     The actuarial valuation entails application of various statistically based
actuarial formulae, an analysis of trends, and a series of judgments to produce
an aggregate estimate of our liability at the balance sheet date. Specific
factors included in the estimation process include: the level of case reserves
by jurisdiction by report year; the change in case reserves between each
evaluation date; historical trends in the development of our initial case
reserves to final conclusion; expected losses and LAE levels based on past
experience relative to the level of premium earned; reinsurance treaty terms;
and any other pertinent factors that may arise.
 
                                       C-31

 
     In consultation with our independent actuary, we utilize several methods in
order to estimate losses and LAE reserves by projecting ultimate losses. By
utilizing and comparing the results of these methods, we are better able to
analyze loss data and establish an appropriate reserve. Our independent actuary
provides a point estimate for loss reserves rather than a range of estimates.
The statistical accuracy of the actuarial estimate indicates that the actual
ultimate value of reserved losses will be in the range of approximately plus or
minus 10% of the calculated point estimate. The actuarial valuation of reserves
is a critical component of the financial reporting process and provides the
foundation for the determination of reserve levels. In addition to reporting
under GAAP, we file financial statements with state regulatory authorities based
on statutory accounting requirements. These requirements include a certification
of reserves by an appointed actuary. The reserves in our statutory filings have
been certified by an independent medical professional liability insurance
actuary.
 
     Our ultimate liability will be known after all claims are closed, which is
likely to be several years into the future. For example, as of December 31,
2004, the oldest report date of an open claim is 1993. Incurred losses for each
report year will develop with a change in estimate in each subsequent calendar
year until all claims are closed for that report year. Loss development could
potentially have a significant impact on our results of operations. Developments
changing the ultimate aggregate liability as little as 1% could have a material
impact on our reported operating results.
 
     The inherent uncertainty in establishing reserves is relatively greater for
companies writing long-tail medical professional liability business. Each claim
reported has the potential to be significant in amount. For the three-year
period ended December 31, 2004, the average indemnity payment per paid closed
claim was $301,000 with total indemnity payments of $31.4 million, $22.2 million
and $12.9 million for the years ended December 31, 2004, 2003 and 2002,
respectively. The cost of individual indemnity payments over this three-year
period ranged from $1,500 to $2.4 million. Due to the extended nature of the
claim resolution process and the wide range of potential outcomes of
professional liability claims, established reserve estimates may be adversely
impacted by: judicial expansion of liability standards; unfavorable legislative
actions; expansive interpretations of contracts; inflation associated with
medical claims; lack of a legislated cap on non-economic damages; and the
propensity of individuals to file claims. These risk factors are amplified given
the increase in new business written in new markets because there is limited
historical data available which can be used to estimate current loss levels. We
refine reserve estimates as experience develops and additional claims are
reported or existing claims are closed; adjustments to losses reserved in prior
periods are reflected in the results of the periods in which the adjustments are
made.
 
     Losses and LAE reserve liabilities as stated on the balance sheet are
reported gross before recovery from reinsurers for the portion of the claims
covered under the reinsurance program. Losses and LAE expenses as reported in
the statement of operations are reported net of reinsurance recoveries.
 
     Reinsurance.  We manage our exposure to individual claim losses, annual
aggregate losses, and LAE through our reinsurance program. Reinsurance is a
customary practice in the industry. It allows us to obtain indemnification
against a specified portion of losses associated with insurance policies we have
underwritten by entering into a reinsurance agreement with other insurance
enterprises or reinsurers. We pay or cede part of our policyholder premium to
reinsurers. The reinsurers in return agree to reimburse us for a specified
portion of any claims covered under the reinsurance contract. While reinsurance
arrangements are designed to limit losses from large exposures and to permit
recovery of a portion of direct losses, reinsurance does not relieve us of
liability to our insured policyholders. We monitor the creditworthiness of
reinsurers on an ongoing basis. We also routinely evaluate for collectibility
amounts recoverable from reinsurers. No allowance for uncollectible reinsurance
recoverable has been determined to be necessary.
 
     Under our current primary reinsurance contract, the premium ceded to the
reinsurers is based on a fixed rate applied to policy premium for that coverage
layer. During the year, estimated premium payments are made to the reinsurers,
and a final adjustment is made at the end of the year to reflect actual premium
earned in accordance with the treaty. For the years through 2002, we retained
risk
 
                                       C-32

 
exposure up to $500,000 for each and every claim. Beginning January 1, 2003, the
retention level increased to $1,000,000 for each and every claim.
 
     For 1999 and prior years, in accordance with one of our primary reinsurance
contracts, the portion of the policyholder premium ceded to the reinsurers was
swing-rated or experience-rated on a retrospective basis. This swing-rated
cession program is subject to a minimum and maximum premium range to be paid to
the reinsurers in the future, depending upon the extent of losses actually paid
by the reinsurers. A deposit premium is paid by us during the initial policy
year. An additional liability, "retrospective premiums accrued under reinsurance
treaties," is recorded by us to represent an estimate of net additional payments
to be made to the reinsurers under the program, based on the level of loss and
LAE reserves recorded. Like loss and LAE reserves, adjustments to prior year
ceded premiums payable to the reinsurers are reflected in the results of the
periods in which the adjustments are made. The swing-rated reinsurance premiums
are estimated in a manner consistent with the estimation of our loss reserves,
and therefore contain uncertainties like those inherent in the loss reserve
estimate.
 
     Our practice for accounting for the liability for retrospective premiums
accrued under reinsurance treaties is to record the current year swing-rated
reinsurance premium at management's best estimate of the ultimate liability,
which was generally the maximum rate payable under terms of the treaty. Due to
the long tail nature of the medical professional liability insurance business,
it takes several years for the losses for any given report year to fully
develop. Since the ultimate liability for reinsurance premiums depends on the
ultimate losses, among other things, it is several years after the initial
reinsurance premium accrual before the amount becomes known. During the
intervening periods, reevaluations are made and adjustments to the accrued
retrospective premiums are made as considered appropriate by management. As of
December 31, 2004, twenty open claims are from report years covered by the
swing-rated reinsurance treaties.
 
     Exposure to individual losses in excess of $1 million is known as excess
layer coverage. Excess layer premiums are recorded as current year reinsurance
ceded costs. Under the excess layer treaties, prior to 2000 we ceded to our
reinsurers over 90% of our exposure. Effective since January 1, 2000, we cede
100% of our risks and related to these coverage layers.
 
     Investment portfolio.  Our investment portfolio is composed principally of
fixed maturity securities classified as available-for-sale. All securities with
gross unrealized losses at the balance sheet date are evaluated for evidence of
other-than-temporary impairment on a quarterly basis. We write down to fair
value any security with an impairment that is deemed to be other-than-temporary
in the period the determination is made. The assessment of whether such
impairment has occurred is based on management's case-by-case evaluation of the
underlying reasons for the decline in fair value. Management considers a wide
range of factors and uses its best judgment in evaluating the cause of the
decline in the estimated fair value of the security and in assessing the
prospects for near-term recovery. Factors considered in the evaluation include
but are not limited to: (1) interest rates; (2) market-related factors other
than interest rates; and (3) financial conditions, business prospects and other
fundamental factors specific to the securities issuer. Declines attributable to
issuer fundamentals are reviewed in further detail. We have a security
monitoring process which includes quarterly review by an investment committee
comprised of members of our Board of Directors. Our CEO and CFO also participate
in the committee meetings in which our professional investment advisors review
with the committee and management the analysis prepared by our investment
managers of each security that has certain characteristics, reviewing:
deterioration of the financial condition of the issuer; the magnitude and
duration of unrealized losses; and the credit rating and industry of the issuer.
The primary factors considered in evaluating whether a decline in value is
other-than-temporary include: the length of time and the extent to which the
fair value has been less than cost; the financial condition and near-term
prospects of the issuer; whether the issuer is current on contractually
obligated interest and principal payments; and our intent and ability to retain
the investment for a period of time sufficient to allow for any anticipated
recovery.
 
                                       C-33

 
     The evaluation for other-than-temporary impairments is a quantitative and
qualitative process involving judgments which is subject to risks and
uncertainties. The risks and uncertainties include changes in general economic
conditions, the issuer's financial condition and the effects of changes in
interest rates.
 
     Goodwill.  In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of goodwill
ceased upon adoption of SFAS 142 on January 1, 2002.
 
     Our goodwill asset, $7.3 million as of December 31, 2004, resulted from the
1999 acquisition of three businesses which now operate as divisions of our
practice management services. We completed our goodwill impairment testing under
SFAS 142 and concluded that the goodwill asset was not impaired as of the annual
evaluation date, nor was it impaired as of December 31, 2004.
 
     The basic steps involved in the goodwill impairment test are (1)
identification of the reporting unit to be tested; and (2) calculation of the
current fair value of the reporting unit and comparing it to the carrying value.
If the current fair value of the reporting unit exceeds the carrying value,
goodwill is not impaired. Because the acquired divisions are not publicly
traded, a discounted cash value calculation is used to determine the current
fair value of the unit.
 
     Estimates as to future performance of the divisions along with current
market value indicators provide the basis for determination of the current fair
value of the unit. There is no guarantee of either the accuracy of the estimate
of future performance of the divisions or of the accuracy of current market
value indicators, since the real test of market value is what a potential
acquirer is willing to pay.
 
     New accounting guidance.  In July 2004, the Emerging Issues Task Force of
the Financial Accounting Standards Board reached a consensus with respect to
guidance to be used in determining whether an investment within the scope of
EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, is other than temporarily impaired. The
guidance was to be applied in other-than-temporary impairment evaluations made
in reporting periods beginning after June 15, 2004. In September 2004, the FASB
issued, and the Company adopted, FSP EITF Issue 03-1-1, which deferred the
effective date of the impairment measurement and recognition provisions
contained in EITF 03-1 until final guidance is adopted. The disclosure
requirements of EITF 03-1 were previously adopted by the Company as of December
31, 2003 for investments accounted for under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. For all other investments
within the scope of EITF 03-01, the disclosures are effective and have been
adopted by the Company as of December 31, 2004. As this accounting guidance
develops, we will continue to review it to assess any potential impact to our
fixed income portfolio and our asset management policy.
 
     In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS 123R.) This statement replaces Statement No. 123, Accounting for
Stock-Based Compensation and supercedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance. The statement
requires the adoption of a fair-value-based method of accounting for share-based
transactions with employees. Adoption is required by the first interim or annual
period after June 15, 2005. The Company is in the process of evaluating the
requirements of SFAS 123R to comply with the new pronouncement by the third
quarter of 2005.
 
OVERVIEW
 
     Financial results for 2004 were very disappointing.  While over-shadowed by
the financial results, we achieved significant accomplishments during the year.
Results were driven by a few key factors: earned premium growth, increase in
claims severity, and moderation of claims frequency. Earned premiums grew due
primarily to the rate level increases. Approximately 89% of policies eligible
for renewal did renew during 2004. As a result of non-renewals initiated by
NCRIC, both from the annual underwriting process and from West Virginia,
combined with attrition, the overall number of insurance policies in force went
 
                                       C-34

 
down by 287, or 6.8%, during the year. As we have reported previously, in the
first quarter of 2004, we began non-renewing policies in the West Virginia
market at the end of each policy term. After the approval of a rate increase
effective September 1, we again began to renew business in West Virginia.
 
     Claims frequency, as measured by the number of claims reported per 100
exposures, was lower by 23% in 2004 compared to 2003, was lower by 18% compared
to 2002 and was lower by 34% compared to 2001. While the severity of claims
continues to rise, lower frequency also has a direct impact on financial
results.
 
     Claims severity increases impact both claims reported in the current
calendar year and claims originally reported in prior years. In the first half
of 2004, we incurred an increase in the severity of losses, principally from the
2001 report year claims in Virginia and the 2000 report year claims in the
District of Columbia. The fourth quarter adverse development of claims reported
in prior years stemmed from claims reported in 2001, 2002 and 2003 across all
our market territories except West Virginia.
 
     On February 28, 2005, the Company announced its Board had approved an
agreement to merge NCRIC Group, Inc. into ProAssurance Corporation in a
stock-for-stock transaction that values the Company at $10.10 per share, based
on the closing price of ProAssurance common stock on Friday, February 25, 2005.
Under the terms of the agreement each holder of common stock of the Company will
have the right to receive 0.25 of a share of ProAssurance common stock for each
share of NCRIC Group. This exchange ratio is subject to adjustment in the event
that the market price of the ProAssurance stock prior to the closing of the
transaction either exceeds $44.00 or is less than $36.00 such that the exchange
ratio would then be adjusted such that the value per NCRIC Group share would
neither exceed $11.00 nor be less than $9.00, respectively. The transaction is
subject to required regulatory approvals and a vote of NCRIC Group stockholders
and is expected to close early in the third quarter of 2005.
 
     On March 4, 2005 we announced that the financial rating of our primary
insurance subsidiary, NCRIC, Inc., was changed by A.M. Best Company from "A-"
(Excellent) to "B++" (Very Good) with negative implications. The action by A. M.
Best followed announcement of our fourth quarter and year-end 2004 results of a
net loss of $8.3 million and $7.1 million, respectively. The results were driven
primarily by adverse development on claims reported in prior years. The rating
will remain under review pending A. M. Best's review of NCRIC, Inc.'s loss
reserves, completion of the transaction and discussions with management.
 
CONSOLIDATED NET INCOME YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Net results were a loss of $7.1 million for the year ended December 31,
2004 compared to a loss of $4.2 million for the year ended December 31, 2003.
2004 results were negatively impacted by adverse development of claims
originally reported in earlier years.
 
     The operating results of our insurance segment for the year ended December
31, 2004 were primarily driven by growth in earned premiums and the increase in
the estimate of loss reserves for claims reported in prior years. Primarily due
to increased premium rates, net premiums earned increased by 41%. While the cost
for claims reported in 2004 increased due to severity, the development of losses
for claims originally reported in 2001, 2002 and 2003 reduced earnings for 2004.
The re-estimation of losses was driven by two primary factors -- increases in
the estimate of direct losses, primarily for the 2001, 2002 and 2003 report
years, and a change in estimate of the level of reinsurance to be recovered for
the losses reported in the years 2001 and 2002.
 
     Net income for the fourth quarter of 2004 was a loss of $8.3 million driven
by adverse development on losses originally reported in prior years. The section
on Losses and Loss Adjustment Expenses provides a discussion of these loss
costs.
 
                                       C-35

 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Net income was a loss of $4.2 million for the year ended December 31, 2003
compared to income of $742,000 for the prior year. 2003 results were negatively
impacted by adverse development of claims originally reported in earlier years.
 
     The operating results of our insurance segment for the year ended December
31, 2003 were primarily driven by growth in new business written and the
increase in the estimate of loss reserves for claims reported in prior years.
For the year, new business premium written was $10.5 million compared to $12.7
million for 2002. The new business written coupled with the increased premium
rates resulted in a 57% increase in net premiums earned. The strain on current
period earnings as a result of the large increase in new business written,
combined with investment yield declines, resulted in pressure on short-term
profitability. While the cost for claims reported in 2003 increased due to the
rise in exposures, the development of losses for claims originally reported in
2001 and 2002 reduced pre-tax earnings for 2003. The re-estimation of losses was
driven by two primary factors -- increases in the estimate of direct losses,
primarily in Virginia for the 2001 and 2002 report years, and a change in
estimate of the level of reinsurance to be recovered for the losses reported in
the years 2000, 2001 and 2002.
 
     The 2003 fourth quarter loss of $5.6 million was driven by adverse
development of $6.0 million on prior year losses in addition to an increased
reserving level on 2003 losses. The loss reserve development was estimated based
on new information on specific losses and related revision of estimates of loss
trends, primarily in report years 2001 and 2002, combined with a re-estimation
of reinsurance to be recovered on losses in the 2000, 2001 and 2002 report years
based on actual development as those years mature. Related to the change in
estimate of losses, the reinsurance premium on prior year losses covered by the
swing-rated reinsurance program was a charge of $931,000 in the fourth quarter
of 2003 compared to a credit of $106,000 in the fourth quarter of 2002.
 
NET PREMIUMS EARNED
 
     The following table is a summary of our net premiums earned:
 


                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2004       2003       2002
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
                                                                    
Gross premiums written...............................  $ 87,229   $ 71,365   $ 51,799
Change in unearned premiums..........................    (6,237)   (10,342)    (7,686)
                                                       --------   --------   --------
Gross premiums earned................................    80,992     61,023     44,113
Reinsurance premiums ceded related to:
  Current year.......................................   (14,531)   (12,833)   (14,429)
  Prior years........................................         1       (926)       406
                                                       --------   --------   --------
     Total reinsurance premiums ceded................   (14,530)   (13,759)   (14,023)
                                                       --------   --------   --------
Net premiums earned before renewal credits...........    66,462     47,264     30,090
Renewal credits......................................        --         --          8
                                                       --------   --------   --------
Net premiums earned..................................  $ 66,462   $ 47,264   $ 30,098
                                                       ========   ========   ========

 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Gross premiums written increased by $15.8 million, or 22%, to $87.2 million
for the year ended December 31, 2004 from $71.4 million for the year ended
December 31, 2003, due to net new business written, which is new business net of
lost business, combined with the premium rate increases, which averaged 27%. The
gross premiums written include premiums for retrospectively rated programs of
$218,000 for the year ended December 31, 2004 and $1.1 million for the year
ended December 31, 2003, decreasing primarily due to a return of premium under
the terms of the retrospective rating program.
 
                                       C-36

 
Gross premiums written also include $7.5 million in 2004 and $3.2 million in
2003 for extended reporting endorsements. Gross premiums written on excess layer
coverage increased $3.1 million to $13.3 million for the year ended December 31,
2004 from $10.2 million for the year ended December 31, 2003.
 
     The change in unearned premiums for the period decreased by $4.1 million to
$6.2 million for the year ended December 31, 2004 from $10.3 million for the
year ended December 31, 2003. This decrease resulted from policy cancellations
and the refund of previously accrued retrospective rating program premium,
partially offset by premium rate increases and new business written.
 
     Gross premiums earned increased $20.0 million, or 33%, to $81.0 million for
the year ended December 31, 2004 from $61.0 million for the year ended December
31, 2003. The increase consists of $16.2 million for premiums earned under basic
medical professional liability insurance and $3.8 million for excess limits
coverage. Extended reporting endorsements premium is earned in the same period
as it is written.
 
     Reinsurance premiums ceded increased by $0.7 million, or 5.6% to $14.5
million for the year ended December 31, 2004 from $13.8 million for the year
ended December 31, 2003. Current year reinsurance premiums ceded increased by
$1.7 million, or 13%, to $14.5 million for the year ended December 31, 2004 from
$12.8 million for the year ended December 31, 2003 as the result of higher gross
earned premiums. Reinsurance premiums are affected by current year premiums
payable to the reinsurers, as well as the retrospective adjustments to accruals
for prior year premiums.
 
     Reinsurance premiums related to prior years under the swing-rated treaty
were a benefit of $1,000 in 2004 and a charge of $0.9 million in 2003 due to
loss development of reinsured losses compared to our prior estimates. Generally,
losses covered by the swing-rated treaty are in the range excess of $500,000 to
$1 million. Loss development results from the re-estimation and settlement of
individual losses. As claims are brought to conclusion, each year there are
fewer outstanding claims in the years covered by this reinsurance treaty. While
the potential for loss development impacting this reinsurance coverage is
reduced each year as the inventory of open claims is reduced, until all claims
covered by the treaty are closed the potential remains for changes from current
estimates. As of December 31, 2004, there are 20 open claims in the years
covered by swing-rated reinsurance compared to 36 open claims as of December 31,
2003. The liability "retrospective premiums accrued under reinsurance treaties"
decreased to $351,000 at December 31, 2004 from $1.8 million at December 31,
2003.
 
     Renewal credits for the years ended December 31, 2004 and 2003 reflect our
decision to not provide a renewal premium credit for 2004 or 2005 renewals.
 
     Net premiums earned increased by $19.2 million, or 40.6%, to $66.5 million
for the year ended December 31, 2004 from $47.3 million for the year ended
December 31, 2003. The increase reflects the $20.0 million growth in gross
earned premiums offset by the higher reinsurance premiums ceded in 2004 compared
to 2003.
 
     In 2002, we initiated a program to provide insurance coverage to physicians
at four HCA hospitals in West Virginia. Under this arrangement, we ceded 100% of
the insurance exposure to a captive insurance company affiliated with the
sponsoring hospitals. We received a ceding commission for providing complete
policy underwriting, claims and administrative services for these policies.
While accounting standards require the premium written to be included as a part
of our direct written premium, we have no net written nor net earned premium
from this program. This program was terminated effective with July 1, 2003
renewals.
 
                                       C-37

 
     Direct new business comes primarily from the District of Columbia.
Agent-produced new business in 2004 came primarily from Delaware and Virginia.
The following chart of new written premiums shows the composition of new
business by distribution channel.
 


                                                                 YEAR ENDED
                                                                DECEMBER 31,
                                                              ----------------
                                                               2004     2003
                                                              ------   -------
                                                               (IN THOUSANDS)
                                                                 
Direct......................................................  $  775   $   618
Agent.......................................................   2,295     9,900
                                                              ------   -------
                                                              $3,070   $10,518
                                                              ======   =======

 
     The overall level of new business produced in 2004 is lower than in 2003,
as planned. In 2003 our business in Delaware expanded to place us in the top
market share position, therefore, the opportunity for growth in Delaware in 2004
was limited. The other territory identified for growth is Virginia. We continue
to write new business in Virginia, however, our product is priced at the high
end of the market, which has the result of constraining growth. We believe our
price level is required by the loss characteristics of the Virginia market. We
continue to maintain that pricing integrity is critical to long-term viability.
 
     The distribution of premium written continues to show notable growth in our
market areas outside of the District of Columbia. For seven months in 2004 in
West Virginia we stopped writing new business and non-renewed policies at their
anniversary dates due to inadequate rate levels allowed by the West Virginia
Department of Insurance. After receiving approval for a rate increase effective
September 1, 2004, we began offering renewals on some West Virginia business.
 
     The following chart reports the components of gross premium written by
state as follows:
 


                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                            2004            2003
                                                        -------------   -------------
                                                        AMOUNT     %    AMOUNT     %
                                                        -------   ---   -------   ---
                                                           (DOLLARS IN THOUSANDS)
                                                                      
District of Columbia..................................  $25,650    30%  $23,216    33%
Virginia..............................................   29,612    34    22,640    32
Maryland..............................................   11,451    13     8,819    12
West Virginia.........................................    7,174     8     7,935    11
Delaware..............................................   13,342    15     8,755    12
                                                        -------   ---   -------   ---
  Total...............................................  $87,229   100%  $71,365   100%
                                                        =======   ===   =======   ===

 
     Premium collection litigation.  During 2000, it was determined that one of
NCRIC's hospital-sponsored retrospective programs would not be renewed. In
accordance with the terms of the contract, NCRIC billed the hospital sponsor,
Columbia Hospital for Women Medical Center, Inc., for premium due based on the
actual accumulated loss experience of the terminated program. Because the
original 2000 bill was not paid when due, we initiated legal proceedings to
collect. As of December 31, 2004 the amount due to NCRIC for this program was
$2.9 million. NCRIC has accrued no amount of net receivable due to the pending
litigation and questionable collectibility.
 
     On February 13, 2004, a District of Columbia Superior Court jury returned a
verdict in favor of Columbia Hospital for Women Medical Center, Inc. (CHW) in
the premium collection litigation between NCRIC, Inc. and CHW. The verdict came
in a civil action stemming from NCRIC, Inc.'s efforts to collect payment for
nearly $3 million in premiums that NCRIC alleges it is owed by CHW under a
contract with CHW that expired in 2000. The jury ruled against the claim by
NCRIC, Inc. and returned a verdict of $18.2 million in favor of CHW
counterclaims.
 
     The verdict was entered as a judgment on February 20, 2004. On March 5,
2004, NCRIC filed post-trial motions for judgment as a matter of law and, in the
alternative, for a new trial. As a result of these
 
                                       C-38

 
post-trial motions, the judgment is not final, and jurisdiction with respect to
the verdict remains with the trial judge. No decision has yet been rendered on
the post-trial motions. In connection with the filing of post-trial motions,
NCRIC secured a $19.5 million appellate bond and associated letter of credit.
The amount of the bond represents the verdict plus a projection of post-trial
interest. No amounts have been drawn upon the letter of credit as of March 18,
2005. After the post-trial motions have been ruled upon by the judge, any
judgment will be entered as final, but subject to appeal. No liability has been
accrued in these financial statements for any possible loss arising from this
litigation because the judgment remains with the trial judge, and NCRIC believes
that it has meritorious defenses and that it is not probable that the
preliminary judgment will prevail, nor is any potential final outcome reasonably
estimable at this time. Legal expenses incurred for this litigation in 2004 were
$734,000. The expenses associated with the $19.5 million appellate bond and
associated letter of credit were $261,000.
 
     Expenses incurred in 2004 for the trial portion of the litigation were
$525,000, reported as a component of underwriting expenses, and post-trial costs
were $620,000, reported as a component of other expenses. NCRIC Group, Inc. has
indemnified NCRIC, Inc. for post-trial costs expected to be incurred in 2004 and
for any potential final judgment up to $5.5 million, on an after-tax basis.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Gross premiums written increased by $19.6 million, or 38%, to $71.4 million
for the year ended December 31, 2003 from $51.8 million for the year ended
December 31, 2002, due to net new business written, which is new business net of
lost business, combined with the premium rate increases, which averaged 27%. The
gross premiums written include premiums for retrospectively rated programs of
$1.1 million for the year ended December 31, 2003 and $2.2 million for the year
ended December 31, 2002. Gross premiums written also include $3.2 million in
2003 and $1.3 million in 2002 for extended reporting endorsements. Gross
premiums written on excess layer coverage increased $3.6 million to $10.2
million for the year ended December 31, 2003 from $6.6 million for the year
ended December 31, 2002.
 
     The change in unearned premiums for the period increased by $2.6 million to
$10.3 million for the year ended December 31, 2003 from $7.7 million for the
year ended December 31, 2002. This increase resulted from net new business
written throughout the year combined with premium rate increases.
 
     Gross premiums earned increased $16.9 million, or 38%, to $61.0 million for
the year ended December 31, 2003 from $44.1 million for the year ended December
31, 2002. The increase was primarily due to $14.3 million for premiums earned
under basic medical professional liability insurance and $2.5 million for excess
limits coverage. Extended reporting endorsements premium is earned in the same
period as it is written.
 
     Reinsurance premiums ceded decreased by $0.2 million to $13.8 million for
the year ended December 31, 2003 from $14.0 million for the year ended December
31, 2002. The decrease was the result of lower reinsurance premium rates,
partially offset by higher gross earned premiums and additional premium ceded
related to prior years. Reinsurance premiums are affected by current year
premiums payable to the reinsurers, as well as the retrospective adjustments to
accruals for prior year premiums.
 
     Current year reinsurance premiums ceded decreased by $1.6 million, or
11.4%, to $12.8 million for the year ended December 31, 2003 from $14.4 million
for the year ended December 31, 2002. This decrease was due to lower reinsurance
premium rates charged by reinsurers as a result of the increase in NCRIC's
retention level to $1 million from $500,000, partially offset by the increase in
gross earned premiums.
 
     Reinsurance premiums related to prior years under the swing-rated treaty
were a charge of $0.9 million in 2003 and a benefit of $0.4 million in 2002 due
to loss development of reinsured losses compared to our prior estimates.
Generally, losses covered by the swing-rated treaty are in the range excess of
$500,000 to $1 million. Loss development results from the re-estimation and
settlement of individual losses. The 2003 change is due to an increase in the
estimate of losses covered by the swing-
 
                                       C-39

 
rated treaty in the 1997 and 1999 years. The 2002 change is primarily reflective
of the favorable loss development in the 1995, 1997 and 1998 coverage years. As
claims are brought to conclusion, each year there are fewer outstanding claims
in the years covered by this reinsurance treaty. While the potential for loss
development impacting this reinsurance coverage is reduced each year as the
inventory of open claims is reduced, until all claims covered by the treaty are
closed the potential remains for changes from current estimates. As of December
31, 2003, there are 36 open claims in the years covered by swing-rated
reinsurance compared to 48 open claims as of December 31, 2002. The liability
"retrospective premiums accrued under reinsurance treaties" increased to $1.8
million at December 31, 2003 from $0.6 million at December 31, 2002.
 
     Renewal credits for the years ended December 31, 2003 and 2002, reflect our
decision to not provide a renewal premium credit for 2003 or 2004 renewals.
 
     Net premiums earned increased by $17.2 million, or 57.1%, to $47.3 million
for the year ended December 31, 2003 from $30.1 million for the year ended
December 31, 2002. The increase reflects the $16.9 million growth in gross
earned premiums supplemented by the lower reinsurance premiums ceded in 2003
compared to 2002.
 
     In 2002, we initiated a program to provide insurance coverage to physicians
at four HCA hospitals in West Virginia. Under this arrangement, we cede 100% of
the insurance exposure to a captive insurance company affiliated with the
sponsoring hospitals. We receive a ceding commission for providing complete
policy underwriting, claims and administrative services for these policies.
While accounting standards require the premium written to be included as a part
of our direct written premium, we have no net written nor net earned premium
from this program. This program was terminated effective with July 1, 2003
renewals.
 
     The mix of business produced directly by us versus by agents has changed
between years as shown on the following chart of new gross written premiums.
 


                                                                 YEAR ENDED
                                                                DECEMBER 31,
                                                              -----------------
                                                               2003      2002
                                                              -------   -------
                                                               (IN THOUSANDS)
                                                                  
Direct......................................................  $   618   $ 2,309
Agent.......................................................    9,900    10,391
HCA.........................................................        0       793
                                                              -------   -------
                                                              $10,518   $13,493
                                                              =======   =======

 
     Direct new business is primarily in the District of Columbia. The D.C.
market does not provide significant opportunity for new business production.
Agent-produced new business in 2003 came primarily from Delaware and Virginia.
In 2002, agent new business also included $403,000 for the Princeton hospital
program which was discontinued in 2003.
 
                                       C-40

 
     The distribution of premium written shows notable growth in our market
areas outside of the District of Columbia. The following chart illustrates the
components of gross premium written by state.
 


                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                            2003            2002
                                                        -------------   -------------
                                                        AMOUNT     %    AMOUNT     %
                                                        -------   ---   -------   ---
                                                           (DOLLARS IN THOUSANDS)
                                                                      
District of Columbia..................................  $23,216    33%  $21,796    42%
Virginia..............................................   22,640    32    14,863    29
Maryland..............................................    8,819    12     5,663    11
West Virginia.........................................    7,935    11     7,688    15
Delaware..............................................    8,755    12     1,789     3
                                                        -------   ---   -------   ---
  Total...............................................  $71,365   100%  $51,799   100%
                                                        =======   ===   =======   ===

 
     Premium collection litigation.  During 2000, it was determined that one of
NCRIC's hospital-sponsored retrospective programs would not be renewed. In
accordance with the terms of the contract, NCRIC billed the hospital sponsor,
Columbia Hospital for Women Medical Center, Inc., for premium due based on the
actual accumulated loss experience of the terminated program. Because the
original 2000 bill was not paid when due, we initiated legal proceedings to
collect. As of December 31, 2003 the amount due to NCRIC for this program was
$3.0 million. NCRIC has accrued no amount of net receivable due to the pending
litigation and questionable collectibility.
 
     On February 13, 2004, a District of Columbia Superior Court jury rejected
NCRIC's claim for premiums due and returned a verdict in favor of Columbia
Hospital for Women Medical Center, Inc. (CHW) in counterclaims to the premium
collection litigation initiated by NCRIC. The jury awarded $18.2 million in
damages to CHW.
 
     NCRIC filed post-trial motions on March 5, 2004, to set aside the verdict
or reduce the amount of the award. No liability has been accrued in the
financial statements for any possible loss arising from this litigation.
 
NET INVESTMENT INCOME
 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Net investment income increased by $1.3 million, or 22%, for the year ended
December 31, 2004 compared to the prior year reflecting a higher base of average
invested assets partially offset by a decrease in yields. Net investment income
for the year ended December 31, 2004 was $7.3 million compared to $6.0 million
for the year ended December 31, 2003. Average invested assets, which include
cash equivalents, increased by $40.4 million, or 26%, to $194.1 million for the
year ended December 31, 2004, due to the proceeds from the mid-2003 issuance of
stock and cash from operations. The investment portfolio continues to overweight
mortgage-backed securities, and maintains an allocation to common stocks as part
of the strategy to protect the portfolio in a rising interest rate environment.
The average effective yield was approximately 3.7% for the year ended December
31, 2004 and 3.9% for the year ended December 31, 2003. The tax equivalent yield
was approximately 4.2% at December 31, 2004 and 4.4% at December 31, 2003. The
change in investment yields is reflective of the market change in interest rates
in 2004 compared to 2003 as well as the allocation to lower-yielding common
stocks.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Net investment income increased by $93,000, or 2%, for the year ended
December 31, 2003 compared to the prior year reflecting a higher base of average
invested assets partially offset by a decrease in yields. Net investment income
for the year ended December 31, 2003 was $6.0 million compared to $5.9 million
for the year ended December 31, 2002. Average invested assets, which include
cash equivalents, increased by $42.3 million, or 38%, to $153.7 million for the
year ended December 31, 2003, due to the proceeds
 
                                       C-41

 
from the issuance of stock and cash from operations. New investments were
primarily directed to mortgage-backed securities; in addition, the investment
portfolio added an allocation to common stocks as part of the strategy to
protect the portfolio in a rising interest rate environment. The average
effective yield was approximately 3.9% for the year ended December 31, 2003 and
5.3% for the year ended December 31, 2002. The tax equivalent yield was
approximately 4.4% at December 31, 2003 and 5.9% at December 31, 2002. The
change in investment yields is reflective of the market change in interest rates
in 2003 compared to 2002 as well as being reflective of the new allocation to
lower-yielding common stocks and the portfolio restructuring executed in the
first half of 2003. Securities sold as a part of the restructuring generally had
above market coupon rates and were therefore sold at gains. New securities
acquired brought current market rate yields into the portfolio, thereby reducing
the overall portfolio yield.
 
NET REALIZED INVESTMENT GAINS (LOSSES)
 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Net realized investment gains were $475,000 for the year ended December 31,
2004 compared to net realized investment gains of $1.9 million for the year
ended December 31, 2003. The 2004 gains resulted from routine portfolio
management activity, partially offset by the recognition of an
other-than-temporary impairment of $15,000 on an investment in common stock. The
circumstance giving rise to the other-than-temporary impairment charge was a
decline in the value of the stock in 2004, which we do not expect to be
temporary based on available financial information of the issuer.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Net realized investment gains were $1.9 million for the year ended December
31, 2003 compared to net realized investment losses of $131,000 for the year
ended December 31, 2002. The 2003 gains resulted from portfolio restructuring
implemented by our new fixed-income investment portfolio manager to replace weak
credits with stronger rated bonds as well as from routine portfolio management
activity, partially offset by the recognition of an other-than-temporary
impairment loss of $135,000 on an investment in common stock. The circumstance
giving rise to the other-than-temporary impairment charge was a sharp decline in
the value of the stock in 2003, which we do not expect to be temporary based on
available financial information of the issuer. 2002 realized losses included an
other-than-temporary impairment charge of $557,000 for a fixed maturity security
issued by WorldCom.
 
PRACTICE MANAGEMENT AND RELATED INCOME
 
     Revenue for practice management and related services is comprised of fees
for the following categories of services provided: practice management;
accounting; tax and personal financial planning; retirement plan accounting and
administration; and other services.
 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Practice management and related revenues decreased by $0.5 million, or
10.2%, to $4.4 million for the year ended December 31, 2004, from $4.9 million
for the year ended December 31, 2003. This revenue consists of fees generated by
ConsiCare through its HealthCare Consulting and Employee Benefits Services
divisions. The decreased revenue was primarily a result of a reduced level of
non-recurring assignments in the HealthCare Consulting division compared to
2003.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Practice management and related revenues decreased by $0.9 million, or
15.5%, to $4.9 million for the year ended December 31, 2003, from $5.8 million
for the year ended December 31, 2002. This revenue consists of fees generated by
ConsiCare through its HealthCare Consulting and Employee Benefits Services
divisions. The decreased revenue was primarily a result of a reduced level of
non-recurring and recurring assignments in the HealthCare Consulting division
compared to 2002. Additionally, in the later
 
                                       C-42

 
part of 2003, there was some loss of clients and revenue resulting from the
departure from NCRIC of two consultants.
 
OTHER INCOME
 
     Other income includes revenues from insurance brokerage, insurance agency
and physician services, as well as service charge income from installment
payments for our insurance premium billings.
 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Other income decreased $335,000, or 29%, to $820,000 for the year ended
December 31, 2004 from $1.2 million for the year ended December 31, 2003. The
decreased revenue resulted from a decrease of $500,000 in service charge income
due to the initiation of an installment billing program through a third party
premium finance company, partially offset by an increase of $126,000 in
brokerage commission income resulting from the increase in ceded premium and a
small increase in insurance agency commissions.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Other income increased $142,000, or 14%, to $1,155,000 for the year ended
December 31, 2003 from $1.0 million for the year ended December 31, 2002. The
increased revenue resulted primarily from service charge income from installment
payments for our insurance premium billings.
 
LOSSES AND LOSS ADJUSTMENT EXPENSES INCURRED AND COMBINED RATIO RESULTS
 
     The expense for incurred losses and LAE for each year is summarized as
follows. All loss expense amounts incurred are reported net of reinsurance
amounts recoverable.
 


                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2004      2003      2002
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
                                                                     
Incurred losses and LAE related to:
  Current year losses...................................  $53,158   $44,588   $24,063
  Prior years loss development..........................   17,152     5,885     2,766
                                                          -------   -------   -------
     Total incurred for the year........................  $70,310   $50,473   $26,829
                                                          =======   =======   =======

 
     Traditionally, property and casualty insurer results are judged using
ratios of losses and underwriting expenses compared to net premiums earned.
Following is a summary of these ratios for each period.
 


                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               2004     2003     2002
                                                              ------   ------   ------
                                                                       
Losses and LAE ratio:
  Current year losses.......................................   80.0%    94.3%    79.9%
  Prior years loss development..............................   25.8     12.5      9.2
                                                              -----    -----    -----
Total losses and LAE ratio..................................  105.8    106.8     89.1
Underwriting expense ratio..................................   19.0     21.2     27.2
                                                              -----    -----    -----
Combined ratio..............................................  124.8%   128.0%   116.3%
                                                              =====    =====    =====

 
     The combined ratio and its component loss and underwriting expense ratios
are profitability measures used throughout the insurance industry as a relative
measure of underwriting performance. Insurance premium rates are designed to
cover the costs of providing insurance coverage. These costs include loss
expenses arising from indemnity claims, costs required to adjudicate claims, and
costs to issue and service insurance policies. The calculations show the cost of
each expense component as a percentage of earned
 
                                       C-43

 
premium income. A general guide for interpreting the combined ratio is a lower
ratio indicates greater profitability than does a higher ratio.
 
     The resolution of some of the claims reported to us is determined through a
trial. Following is a summary of the trial results for each period.
 


                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                              2004   2003   2002
                                                              ----   ----   ----
                                                                   
Plaintiff verdicts..........................................    7     11      5
Defense verdicts............................................   38     22     13
Mistrials or hung juries....................................    2      0      4
                                                               --     --     --
Total trials................................................   47     33     22
                                                               ==     ==     ==

 
     Of the seven plaintiff verdicts in 2004, all were awarded in excess of our
applicable retention limits. Under the clash protection provided by our
reinsurance program, our exposure to the retention limit was limited in three of
the seven verdicts. Of the 11 plaintiff verdicts in 2003, five verdicts were
awarded in excess of our applicable retention limits. Under the clash protection
provided by our reinsurance program, our exposure to the retention limit was
limited in three of the five verdicts. Of the five plaintiff verdicts in 2002,
three verdicts were awarded in excess of our $500,000 retention.
 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Total incurred losses and LAE expense of $70.3 million for year ended
December 31, 2004 represents an increase of $19.8 million compared to $50.5
million incurred for the year ended December 31, 2003.
 
     The total incurred losses are broken into two components -- incurred losses
related to the current coverage year and development on prior coverage year
losses. Current year incurred losses increased by $8.6 million to $53.2 million
for the year ended December 31, 2004 from $44.6 million for the year ended
December 31, 2003, reflecting an increase in severity of reported claims and an
increase in exposures for extended reporting endorsements.
 
     Prior year development results from the re-estimation and resolution of
individual losses not covered by reinsurance, which are generally losses under
$500,000 for losses reported prior to 2003 and under $1 million for losses
reported in 2003. In 2004 we experienced unfavorable development of $17.1
million on estimated losses for prior years' claims. The re-estimation of loss
cost takes into consideration a variety of factors including recent claims
settlement experience, new information on open claims, and changes in the
judicial environment. The primary factors driving development in 2004, which is
comprised of adverse development in the 2001, 2002 and 2003 report years,
include additional information on claims originally reported in prior years and
interpretation of emerging settlement trends in all our market areas.
 
     As described in the opening section of this MD&A, the process for
determining our estimates of loss cost begins with the establishment of case
reserves within our claims department. Evaluations of individual claims are
updated when additional information on each case is determined, often as a part
of the preparation for trial. Case reserves on individual claims are raised when
new information indicates a greater loss exposure. Case reserves are decreased
either when a case is resolved at a lower level than previously estimated or
when reinsurance recoverable becomes applicable. Actuarial reserves are
established based on case reserves combined with historical loss development
trends utilizing a complex mathematical analysis to determine the actuarially
based estimate of losses.
 
     In 2004 the estimate of losses on claims reported in prior years on a case
reserve basis was a net reduction in estimate. In contrast, the actuarially
calculated losses on prior years' claims produced a net increase in estimate.
 
     We rely on the guidance of our consulting actuary to establish reserves and
each year-end we book the point estimate provided by the actuarial reserve
calculation. However, over the past two years we have
 
                                       C-44

 
subsequently experienced various factors that have required an increase in the
initial actuarial reserve estimates. The factors leading to the reserve
adjustment include: the emergence over the past two years of our own experience
in our new market territories; increasing severity trends that have been
experienced by insurance carriers on a nationwide basis; claims development
within the net retained layer resulting in less recovery from reinsurance; and
environmental factors, such as the rise in Virginia's total loss cap on awards.
 
     Since we have experienced a significant level of adverse development of
losses two years in a row, we engaged a second consulting actuarial firm to
independently calculate the reserve estimate as of December 31, 2004. The
results of this study confirmed the estimate of losses at the level being
reported as of December 31, 2004.
 
     The lower loss ratio on current year losses at 80.0% in 2004 compared to
94.3% in 2003 reflects both the increase in premium rates and lower frequency of
reported losses in 2004. The total loss ratio was increased by 26 points for the
year ended December 31, 2004 and was increased by 13 points for the year ended
December 31, 2003 as a result of the re-estimation of losses reported in prior
years.
 
     The underwriting expense ratio decreased to 19.0% for the year ended
December 31, 2004 from 21.2% for the year ended December 31, 2003. Premiums
increased proportionately more than underwriting expenses, resulting in a
decrease in the underwriting expense ratio. Underwriting expenses increased $2.6
million to $12.6 million for the year ended December 31, 2004 from $10.0 million
for the year ended December 31, 2003. The 26% increase in underwriting expenses
was primarily attributable to the growth in expenses, consisting primarily of
commissions, directly related to the expansion in business, consistent with the
growth in premium.
 
     The statutory combined ratio was 126.5% for the year ended December 31,
2004, and 129.4% for the year ended December 31, 2003. This decrease stems from
the same factors noted previously.
 
     Current year losses in the fourth quarter of 2004 totaled $14.1 million,
increasing over the level of the fourth quarter of 2003 and over the level of
the prior quarters of 2004. The higher level of current year losses primarily
reflects reserves for losses incurred but not reported on extended reporting
endorsements issued and was established with consideration to the prior year
loss development trends that emerged during the year-end actuarial valuation.
The loss ratio on current year losses at 79.1%, lower than in previous quarters
in 2004, reflects the reduced claims frequency in the quarter.
 
     Development on losses reported in prior years totaled $15.6 million in the
fourth quarter of 2004. This adverse loss development emerged during the fourth
quarter from two primary sources:
 
     - upward development on claims in the 2001, 2002 and 2003 report years; and
 
     - a lower estimate of reinsurance to be recovered on losses in the 2001 and
       2002 report years.
 
     Approximately 66% of the net adverse development emerged from the 2003
report year. In the past during the first year of development following the
initial report year, we have observed a general loss development pattern; in the
fourth quarter of 2004, the case basis reserves across all jurisdictions
appeared to be developing differently from that pattern, thus indicating an
overall higher loss level. This higher level of indicated losses was recognized
as adverse development in the fourth quarter.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Total incurred losses and LAE expense of $50.5 million for year ended
December 31, 2003 represents an increase of $23.7 million compared to $26.8
million incurred for the year ended December 31, 2002.
 
     The total incurred losses are broken into two components -- incurred losses
related to the current coverage year and development on prior coverage year
losses. Current year incurred losses increased by $20.5 million to $44.6 million
for the year ended December 31, 2003 from $24.1 million for the year ended
December 31, 2002, reflecting an increase in severity of reported claims, the
rise in the level of liability
 
                                       C-45

 
exposure as a result of expanding business, and the increase in retention under
our reinsurance program to $1 million for each and every loss from $500,000 for
each and every loss in 2002.
 
     Prior year development results from the re-estimation and resolution of
individual losses not covered by reinsurance, which are generally losses under
$500,000. In 2003 we experienced unfavorable development of $5.9 million on
estimated losses for prior years' claims. The re-estimation of loss cost takes
into consideration a variety of factors including recent claims settlement
experience, new information on open claims, and changes in the judicial
environment. The primary factors driving our 2003 development, which is
comprised of favorable development in the 1999 report year offset by adverse
development in the 2000, 2001 and 2002 report years, include additional
information on claims originally reported in prior years and interpretation of
emerging settlement trends in our expansion market areas. The primary market
territory driving the adverse loss development experience is Virginia claims
reported in 2001 and 2002. Additionally, one 2001 claim in West Virginia and
2002 Maryland claims contributed to the adverse development. In addition, the
estimate of reinsurance recoverable, primarily on 2000, 2001 and 2002 losses
across all our market territories, declined.
 
     An increase in severity was first noted in 1996 and continued through 2003
for claims reported in the District of Columbia. The increase in severity
reflects the growing size of plaintiff verdicts and settlements. Our escalation
in this adverse claims trend is similar to the conditions faced by many medical
professional liability insurance carriers across the nation. While an increase
in severity would tend to cause loss ratios to deteriorate, our reinsurance
program provides a layer of protection against the increase in severity of
losses.
 
     In the market territories outside of the District of Columbia, or our
expansion market areas, our experience covers a time-period insufficient to make
a complete determination on severity trends. In these new market areas, we
carefully evaluate developing data to identify and recognize emerging trends as
soon as possible.
 
     The total losses and LAE ratio was increased by 13 points for the year
ended December 31, 2003 and was increased by 9 points for the year ended
December 31, 2002 as a result of prior years loss development. The 2003 change
is primarily reflective of favorable loss development for the 1999 report years,
more than offset by adverse development in the 2000, 2001 and 2002 loss years;
whereas, the 2002 change is primarily reflective of favorable loss development
for the 1996 and 1999 loss years, more than offset by adverse development in the
1998, 2000 and 2001 loss years.
 
     The underwriting expense ratio decreased to 21.2% for the year ended
December 31, 2003 from 27.2% for the year ended December 31, 2002. In 2002
underwriting expenses included $1.2 million for a reserve against the
hospital-sponsored program receivable, as previously discussed. A similar charge
was unnecessary in 2003, contributing 4.1 points of improvement to the
underwriting expense ratio. Underwriting expenses increased $1.8 million to
$10.0 million for the year ended December 31, 2003 from $8.2 million for the
year ended December 31, 2002. The 22% increase in underwriting expenses was
primarily attributable to the growth in expenses, consisting primarily of
commissions, directly related to the expansion in business, consistent with the
growth in premium.
 
     The combined ratio increased to 128.0% for the year ended December 31, 2003
from 116.3% for the year ended December 31, 2002. The primary factor driving the
increased combined ratio was the adverse development of losses reported in prior
years. While adverse development directly contributed 3.3 points of the
increase, the experience on 2001 and 2002 adverse development was factored into
the estimate of 2003 incurred losses, resulting in an increase in the current
year component of the combined ratio.
 
     The statutory combined ratio was 129.4% for the year ended December 31,
2003, and 111.8% for the year ended December 31, 2002. This increase stems from
the same factors noted previously.
 
     Current year losses in the fourth quarter of 2003 totaled $13.4 million,
increasing over the level of the prior quarters of 2003. While the number of new
claims reported in the fourth quarter was the lowest experienced in 2003, the
higher level of current year losses was established to take into consideration
the prior year loss development trends that emerged during the year-end
actuarial valuation. The loss ratio on
                                       C-46

 
current year losses at 108.2%, higher than previous quarters in 2003, reflects
this recognition of higher severity.
 
     Development on losses reported in prior years totaled $6.0 million in the
fourth quarter of 2003. This adverse loss development emerged during the fourth
quarter from two primary sources:
 
     - upward development on claims, primarily in Virginia and Maryland in 2001
       and 2002; and
 
     - a lower estimate of reinsurance to be recovered on losses in the 2000,
       2001 and 2002 report years across all territories.
 
     Evaluations of individual claims are updated when additional information on
each case is determined, often as a part of the preparation for trial. Case
reserves on individual claims are raised when new information indicates a
greater loss exposure. Actuarial reserves are established based on case reserves
combined with historical loss development trends. The upward development in the
fourth quarter on case reserves of individual claims was not consistent with
trends experienced previously. Therefore, in addition to the recognition of the
upward development on individual claims, the actuarial estimates of losses were
increased.
 
     NCRIC's retention of losses in the 2000, 2001 and 2002 report years is
$500,000 for each and every loss. The estimate of reinsurance amounts to be
recovered from reinsurers is based primarily on historical trends, combined with
information on individual claims. In the first three quarters of 2003 NCRIC
recognized in its losses a lesser estimate of reinsurance recoveries. The
revised estimate prepared as of year-end 2003 further reduced the amount of
estimated reinsurance recoveries on losses initially reported in prior years.
 
LOSSES AND LOSS ADJUSTMENT EXPENSES LIABILITY
 
     The losses and LAE reserve liabilities for unpaid claims as of each period
are as follows:
 


                                                                AT DECEMBER 31,
                                                              -------------------
                                                                2004       2003
                                                              --------   --------
                                                                (IN THOUSANDS)
                                                                   
Liability for:
  Loss......................................................  $107,746   $ 87,778
  Loss adjustment expense...................................    45,496     38,213
                                                              --------   --------
Total liability.............................................  $153,242   $125,991
                                                              ========   ========
Reinsurance recoverable on losses...........................  $ 44,846   $ 48,100
                                                              ========   ========
Number of cases pending.....................................       653        616

 
     Each case represents claims against one or more policyholders relating to a
single incident. Losses in the medical professional liability industry can take
up to eight to ten years, or occasionally more, to fully resolve. Amounts are
not due from the reinsurers until we pay a claim. We believe that all of our
reinsurance recoverables are collectible. See "Business -- Reinsurance" for a
discussion on the reinsurance program.
 
UNDERWRITING EXPENSES
 
     For 2004, salaries and benefits accounted for approximately 24% of other
underwriting expenses, commissions and brokerage expenses 28%, with professional
fees, including legal, auditing and director's fees, accounting for
approximately 16% of the underwriting expenditures. Premium taxes and guaranty
fund assessments comprise the majority of the remaining balance. Guaranty fund
assessments are based on industry loss experience in the jurisdictions where we
do business, and are not predictable.
 
                                       C-47

 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Underwriting expenses increased $2.6 million, or 26%, to $12.6 million for
the year ended December 31, 2004 from $10.0 million for the year ended December
31, 2003. The increase in expenses primarily stems from the increase in new
business, particularly agent-produced business, through increases in
commissions, travel, and other underwriting costs. In addition, legal fees
incurred included $525,000 for the collection litigation initiated by us as more
fully discussed in the section "Net Premiums Earned," and $613,000 of expense
resulting from a fraudulent act of a former sales agent.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Underwriting expenses increased $1.8 million, or 22%, to $10.0 million for
the year ended December 31, 2003 from $8.2 million for the year ended December
31, 2002. The increase in expenses primarily stems from the increase in new
business, particularly agent-produced business, through increases in
commissions, travel, and other underwriting costs. In addition, expenses
increased for ceding allowances as a result of the change in the primary
reinsurance treaty effective for 2003, legal fees incurred for the collection
litigation initiated by us as more fully discussed in the section "Net Premiums
Earned," and $364,000 of expense resulting from a fraudulent act of a former
sales agent. Although we believe it is reasonably possible that we could incur
additional expense as a result of the fraudulent act, the amount or timing of
any expense is not reasonably estimable at this time.
 
PRACTICE MANAGEMENT AND RELATED EXPENSES
 
     Practice management and related expenses consist primarily of expenses,
such as salaries, general office expenses and interest on debt, related to
ConsiCare operations of the businesses acquired January 4, 1999. The management
services organization was established in 1997 to provide physicians with a
variety of administrative support and other services but did not have
substantive operations until 1998.
 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Practice management and related expenses decreased $0.2 million, or 4%, to
$5.0 million for the year ended December 31, 2004 compared to $5.2 million for
the year ended December 31, 2003. Expense decreased primarily due to reductions
in staffing commensurate with the reductions in revenue. The expense decrease
was net of increased expenses for branding, resulting in the name change to
ConsiCare, and for strategic business development.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Practice management and related expenses decreased $589,000, or 10%, to
$5.2 million for the year ended December 31, 2003 compared to $5.8 million for
the year ended December 31, 2002. Expense decreased primarily due to reductions
in staffing commensurate with the reductions in revenue. A portion of this
decrease stemmed from the elimination of costs associated with the transition of
client service for two of the former owners as their employment contracts
expired.
 
INTEREST EXPENSE
 
     Interest expense incurred is for the debt service on the Trust Preferred
Securities issued in December, 2002. The stated annual interest rate is 400
basis points over LIBOR, adjusted quarterly.
 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Interest expense increased $31,000, or 3.75%, to $857,000 for the year
ended December 31, 2004 compared to $826,000 for the year ended December 31,
2003. The interest rate in 2004 averaged 5.54% while the interest rate in 2003
averaged 5.31%.
 
                                       C-48

 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Interest expense for the year ended December 31, 2003 totaled $826,000, a
full year of interest, compared to $62,000, a partial month of interest in the
prior year. The interest rate in 2003 averaged 5.31% and the interest rate in
2002 was 5.42%.
 
OTHER EXPENSES
 
     Other expenses include expenditures for holding company and subsidiary
operations which are not directly related to the issuance of medical
professional liability insurance or practice management and related operations,
including insurance brokerage, insurance agency, and captive development.
 
     In 2001 we formed ACC, a wholly owned captive insurance company subsidiary,
to provide an alternative risk-financing vehicle for affinity groups. The
captive program is marketed to organizations and groups wishing to finance and
manage their own risk. During 2004, ACC incurred $163,000 in expenses. As of
December 31, 2004, ACC does not have any active protected cells.
 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     Other expenses of $2.5 million for the year ended December 31, 2004
compares to other expense of $1.7 million for the year ended December 31, 2003.
The primary component of the expense increase is $619,000 for post-trial
expenses for the premium collection litigation. The remainder of the increase is
for holding company operations.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     Other expenses of $1.7 million for the year ended December 31, 2003
compares to other expense of $1.4 million for the year ended December 31, 2002.
Expense increases are for holding company operations.
 
INCOME TAXES
 
     Our effective tax rate is lower than the federal statutory rate principally
due to nontaxable investment income.
 


                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                              2004   2003   2002
                                                              ----   ----   ----
                                                                   
Federal income tax at statutory rates.......................   34%    34%    34%
Tax exempt income...........................................    4      6    (89)
Dividends received..........................................    1      0    (21)
Other, net..................................................    1     (1)    (1)
                                                               --     --    ---
Income tax benefit at effective rates.......................   40%    39%   (77)%
                                                               ==     ==    ===

 
     Our net deferred tax assets are created by temporary differences that will
result in tax benefits in future years due to the differing treatment of items
for tax and financial statement purposes. The primary difference is the
requirement to discount or reduce loss reserves for tax purposes because of
their long-term nature. Additionally, the deferred income tax asset includes
$1.9 million for net operating loss carryforwards, NOLs, which are available to
reduce tax return taxable income in future years.
 


                                                                  AT DECEMBER 31,
                                                              -----------------------
                                                                 2004         2003
                                                              ----------   ----------
                                                                     
Deferred income tax asset...................................  $8,404,000   $5,307,000

 
                                       C-49

 
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 
     The tax benefit for the year ended December 31, 2004 was $4.8 million
compared to $2.7 million for the year ended December 31, 2003. A federal tax
benefit was incurred in 2004 due primarily to the pre-tax loss. In addition, the
effective tax benefit rate was improved by 4% due to tax exempt income.
 
     The increase in the deferred income tax asset to a balance of $8.4 million
as of December 31, 2004 resulted from the growth of the insurance business,
particularly in unearned premiums and loss reserves where the timing of
recognition for financial statement and tax return reporting differ and from the
tax benefits, NOLs and minimum tax credits, associated with the net loss for the
year 2004.
 
  YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
 
     The tax benefit for the year ended December 31, 2003 was $2.7 million
compared to $0.3 million for the year ended December 31, 2002. A federal tax
benefit was incurred in 2003 due primarily to the pre-tax loss. In addition, the
effective tax benefit rate was improved by 6% due to tax exempt income.
 
     The increase in the deferred income tax asset to a balance of $5.3 million
as of December 31, 2003 resulted primarily from the growth of the insurance
business, particularly in unearned premiums and loss reserves where the timing
of recognition for financial statement and tax return reporting differ.
 
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
 
NCRIC GROUP, PARENT COMPANY
 
     Financial condition and capital resources.  We are a stock holding company
whose operations and assets primarily consist of our ownership of NCRIC, Inc.
and ConsiCare, Inc. We assist our subsidiaries in their efforts to compete
effectively and create long-term growth.
 
     Second Step Conversion and Public Offering.  On June 24, 2003, a plan of
conversion and reorganization was approved by the members of NCRIC, A Mutual
Holding Company and by the shareholders of NCRIC Group, Inc. In the conversion
and related stock offering, the Mutual Holding Company offered for sale its 60%
ownership interest in NCRIC Group. As a result of the conversion and stock
offering, the Mutual Holding Company ceased to exist, and NCRIC Group became a
fully public company.
 
     In the conversion and stock offering, 4,143,701 shares of the common stock
of NCRIC Group were sold to Eligible Members, Employee Benefit Plans, Directors,
Officers and Employees and to members of the general public in a Subscription
and Community Offering at $10.00 per share. As part of the conversion, 2,778,144
shares were issued to the former public stockholders of NCRIC Group. The
exchange ratio was 1.8665 new shares for each share of NCRIC Group held by
public stockholders as of the close of business on June 25, 2003. Accordingly,
after the conversion, NCRIC Group had 6,921,845 shares outstanding.
 
     Trust Preferred Securities.  In December 2002, we completed the private
placement sale of $15 million of 30-year floating rate trust preferred
securities. The securities are callable at par five years from the date of
issuance. The interest rate on the securities is floating at the 3-month London
Interbank Offered Rate (LIBOR) plus 400 basis points. We contributed $13.5
million of the funds raised to the statutory surplus of our insurance subsidiary
NCRIC, Inc.
 
     Liquidity.  Liquidity is a measure of an entity's ability to secure enough
cash to meet its contractual obligations and operating needs. Our cash flow from
operations consists of dividends from our subsidiaries, if declared and paid,
and other permissible payments from our subsidiaries, offset by holding company
expenses, which consist of costs for corporate management and interest on the
trust preferred securities. The amount of the future cash flow available to us
may be influenced by a variety of factors, including NCRIC, Inc.'s financial
results and regulation by the District of Columbia Department of Insurance,
Securities and Banking.
 
                                       C-50

 
     The payment of dividends to us by NCRIC, Inc. is subject to limitations
imposed by the District of Columbia Holding Company System Act of 1993. Under
the DC Holding Company Act, NCRIC, Inc. must seek prior approval from the
Commissioner to pay any dividend which, combined with other dividends made
within the preceding 12 months, exceeds the lesser of (A) 10% of the surplus at
the end of the prior year or (B) the prior year's net income excluding realized
capital gains. Net income, excluding realized capital gains, for the two years
preceding the current year is carried forward for purposes of the calculation to
the extent not paid in dividends. The law also requires that an insurer's
statutory surplus following a dividend or other distribution be reasonable in
relation to the insurer's outstanding liabilities and adequate to meet its
financial needs. The District of Columbia permits the payment of dividends only
out of unassigned statutory surplus. As of December 31, 2004, NCRIC, Inc. had
approximately $63 million of unassigned statutory surplus. Any dividend payment
by NCRIC, Inc. would require the approval of the Commissioner.
 
NCRIC GROUP AND SUBSIDIARIES, CONSOLIDATED
 
     Liquidity.  The primary sources of our liquidity are insurance premiums,
net investment income, practice management and financial services fees,
recoveries from reinsurers and proceeds from the maturity or sale of invested
assets. Funds are used to pay losses and LAE, operating expenses, reinsurance
premiums, taxes, and to purchase investments.
 
     We had cash flows provided by operations for the years ended December 31,
as follows:
 


 
                                                           
2004........................................................  $   33.2 million
2003........................................................  $   20.6 million
2002........................................................  $    3.4 million

 
     Comprehensive income was a loss of $6.5 million for the year ended December
31, 2004 compared to a loss of $5.6 million for the year ended December 31,
2003. The decrease in comprehensive income results from the $7.1 million net
loss, partially offset by the $648,000 increase in net unrealized investment
gains for the year ended December 31, 2004.
 
     Financial condition and capital resources.  We invest our positive cash
flow from operations primarily in investment grade, fixed maturity securities.
As of December 31, 2004, the carrying value of the securities portfolio was
$202.3 million, compared to a carrying value of $174.4 million at December 31,
2003. The portfolios were invested as follows:
 


                                                                   AT
                                                              DECEMBER 31,
                                                              -------------
                                                              2004    2003
                                                              -----   -----
                                                                
U.S. Government and agencies................................    18%     17%
Asset and mortgage-backed securities........................    24      31
Tax exempt securities.......................................    21      21
Corporate bonds.............................................    25      24
Equity securities...........................................    12       7
                                                               ---     ---
                                                               100%    100%
                                                               ===     ===

 
     Approximately 72% of the bond portfolio at December 31, 2004 was invested
in U.S. Government and agency securities or had a rating of AAA or AA. The
entire bond portfolio as of December 31, 2004 was held in investment grade (BBB
or better) securities as rated by Standard & Poor's. For regulatory purposes, as
of December 31, 2004, 88% of the portfolio is rated Class 1 which is the highest
quality rated group as classified by the NAIC. The accumulated other
comprehensive income totaled $2.1 million at December 31, 2004 compared to $1.5
million at December 31, 2003. This increase in asset values resulted primarily
from the improvement in fair values of investments in the equity component of
the portfolio.
 
                                       C-51

 
     At December 31, 2004, our portfolio included total gross unrealized gains
of $4.7 million, or 2.3% of the $202.3 million carrying value of the portfolio,
and total unrealized losses of $1.5 million, or less than 1% of the carrying
value of the portfolio. The total unrealized losses are comprised of six equity
securities and 191 fixed maturity securities, including 12 Treasury Note issues,
179 corporate debt and municipal bonds (all of which are investment grade), with
lengths of time to maturity ranging from one to 44 years. All of the fixed
maturity securities are meeting and are expected to continue to meet all
contractual obligations for interest payments.
 
     At December 31, 2004, the aggregate fair value of the securities with
unrealized losses was $112.8 million, or 99% of the amortized cost of those
securities of $114.3 million. The largest single security with an unrealized
loss at December 31, 2004 relates to a FNMA pool which matures in 2018 and
carries a coupon rate of 5.0%. The unrealized pre-tax loss relating to this
security is approximately $115,000 based on the fair value of $4.5 million at
December 31, 2004. Unrealized losses related to other securities are not
individually significant, nor is there any concentration of unrealized losses
with respect to the type of security or industry.
 
     The following table displays characteristics of the securities with an
unrealized loss in value as of December 31, 2004. No concentrations of
industries exist in these securities.
 


                                    TOTAL SECURITIES                  EQUITY SECURITIES
                            ---------------------------------   ------------------------------
LENGTH OF TIME IN           AMORTIZED     FAIR     UNREALIZED   AMORTIZED   FAIR    UNREALIZED
UNREALIZED LOSS POSITION      COST       VALUE        LOSS        COST      VALUE      LOSS
------------------------    ---------   --------   ----------   ---------   -----   ----------
                                                      (IN THOUSANDS)
                                                                  
Less than 1 year..........  $ 54,279    $ 53,708     $  571       $244      $235       $ 9
Over 1 year...............    59,998      59,078        920        402       380        22
                            --------    --------     ------       ----      ----       ---
Total.....................  $114,277    $112,786     $1,491       $646      $615       $31
                            ========    ========     ======       ====      ====       ===

 
     The following table displays the maturity distribution of those fixed
maturity securities with an unrealized loss in value as of December 31, 2004:
 


                                                           FIXED MATURITY SECURITIES
                                                       ---------------------------------
                                                       AMORTIZED     FAIR     UNREALIZED
                                                         COST       VALUE        LOSS
                                                       ---------   --------   ----------
                                                                (IN THOUSANDS)
                                                                     
During one year or less..............................  $  7,990    $  7,982     $    8
Due after one year through five years................    40,023      39,592        431
Due after five years through ten years...............    21,382      20,998        384
Due after ten through twenty years...................    12,338      12,043        295
Due after twenty years...............................    31,898      31,556        342
                                                       --------    --------     ------
                                                       $113,631    $112,171     $1,460
                                                       ========    ========     ======

 
     We believe that all of our fixed maturity securities are readily
marketable. Investment duration is closely monitored to provide adequate cash
flow to meet operational and maturing liability needs. Asset and liability
modeling, including sensitivity analyses and cash flow testing, are performed on
a regular basis.
 
     We are required to pay aggregate annual salaries in the amount of $966,400
to four persons under employment agreements.
 
     Under terms of the purchase agreement between the previous owners of
HealthCare Consulting, Inc., HCI Ventures, LLC, Employee Benefits Services, Inc.
and us, contingency payments totaling $3.1 million could be paid in cash if the
acquired companies achieved earnings targets in 2000, 2001, and 2002. During
June 2001, NCRIC MSO, Inc. borrowed $1,971,000 from SunTrust Bank to finance
these payments. The term of the loan was three years at a floating rate of LIBOR
plus one and one-half percent. The balance
 
                                       C-52

 
of the loan was paid in May of 2004. The interest rate at the time of the payoff
was 2.68%, and 2.67% as of December 31, 2003. Principal and interest payments
were paid on a monthly basis until payoff.
 
     The following table summarizes our contractual obligations as of December
31, 2004, in thousands:
 


                                                         OVER            OVER          MORE
                                           ONE YEAR   ONE YEAR TO   THREE YEARS TO   THAN FIVE
                                 TOTAL     OR LESS    THREE YEARS     FIVE YEARS       YEARS
                                --------   --------   -----------   --------------   ---------
                                                                      
Long-term debt................  $ 15,000   $    --      $    --        $    --        $15,000
Losses & LAE..................   153,242    47,731       71,202         24,510          9,799
Operating leases..............     2,965       917        1,779            269             --
                                --------   -------      -------        -------        -------
                                $171,207   $48,648      $72,981        $24,779        $24,799
                                --------   -------      -------        -------        -------

 
     Operating leases consist of office rental commitments.  The table excludes
purchase obligations which consist of routine acquisitions of office supplies
which represent minimal commitments generally spanning one month or less. As an
insurance company, we have liabilities for losses and related loss adjustment
expenses in the normal course of business. Since these liabilities arise due to
contractual obligations under the insurance policies we issue, estimates of the
amounts to be paid at undetermined future dates are included in this table.
Interest on long-term debt is variable rate and therefore is not included in
this table.
 
     Our stockholders' equity totaled $72.0 million at December 31, 2004 and
$78.0 million at December 31, 2003. The $6.0 million decrease for the year ended
December 31, 2004 was due primarily to the net loss of $7.1 million, offset by
the increase of $648,000 in net unrealized investment gains.
 
STOCK OPTIONS
 
     On July 7, 2004, the Board of Directors accelerated the vesting of the
384,322 outstanding stock options granted in 2003. The options were originally
scheduled to vest during the period from August, 2004 to August, 2008. On the
accelerated vesting date, the per share market value of NCRIC stock of $10.00
was less than the strike price of the options, which ranges from $10.86 to
$11.00 per share.
 
     The acceleration eliminates future compensation expense we would otherwise
recognize in our future income statements with respect to these options after
FASB Statement No. 123R, Share-Based Payment, becomes effective in 2005. The pro
forma note disclosure to the 2004 financial statements includes the maximum
amount of expense which would have been reported in future years.
 
EFFECTS OF INFLATION AND INTEREST RATE CHANGES
 
     The primary effect of inflation on us is in estimating reserves for unpaid
losses and LAE for medical professional liability claims in which there is a
long period between reporting and settlement. The rate of inflation for
malpractice claim settlements can substantially exceed the general rate of
inflation. The actual effect of inflation on our results cannot be conclusively
known until claims are ultimately settled. Based on actual results to date, we
believe that loss and LAE reserve levels and our ratemaking process adequately
incorporate the effects of inflation.
 
     Interest rate changes expose us to market risk on our investment portfolio.
This market risk is the potential for financial losses due to the decrease in
the value or price of an asset resulting from broad movements in prices, such as
interest rates. In general, the market value of our fixed maturity portfolio
increases or decreases in an inverse relationship with fluctuation in interest
rates. In addition, our net investment income increases or decreases in a direct
relationship with interest rate changes on monies re-invested from maturing
securities and investments of positive cash flow from operating activities.
 
FEDERAL INCOME TAX MATTERS
 
     NCRIC Group and its subsidiaries file a consolidated income tax return with
the Internal Revenue Service. Tax years 2001, 2002 and 2003 are open but not
currently under audit.
 
                                       C-53

 
REGULATORY MATTERS
 
     NAIC Risk-Based Capital.  The NAIC has established a methodology for
assessing the adequacy of each insurer's capital position based on the level of
statutory surplus and an evaluation of the risks in the insurer's product mix
and investment portfolio profile. This risk-based capital (RBC) formula is
designed to allow state and District of Columbia insurance regulators to
identify potentially under-capitalized companies. For property-casualty
insurers, the formula takes into account risks related to the insurer's assets
including risks related to its investment portfolio, and the insurer's
liabilities, including risks related to the adverse development of coverages
underwritten. The RBC rules provide for different levels of regulatory attention
depending on the ratio of the insurer's total adjusted capital to the authorized
control level of RBC. The first level of regulatory action, a review by the
domiciliary insurance commissioner of a company-prepared RBC plan, is instituted
at the point a company's total adjusted capital is at a level equal to or less
than two times greater than the authorized control level risk-based capital. For
all periods presented, the total adjusted capital levels for NCRIC, Inc. and CML
were significantly in excess of the authorized control level of RBC. As a
result, the RBC requirements are not expected to have an impact on our
operations. Following is a presentation of the total adjusted capital for NCRIC,
Inc. and CML compared to the authorized control level of RBC. Since CML was
merged into NCRIC, Inc. effective December 31, 2003, results for 2003 and 2004
of NCRIC, Inc. include the impact of the merged business of CML.
 


                                                         AUTHORIZED
                                                       CONTROL LEVEL
                                                         RISK-BASED     TOTAL ADJUSTED
                                                          CAPITAL           CAPITAL
                                                       --------------   ---------------
                                                       NCRIC,           NCRIC,
                                                        INC.     CML     INC.      CML
                                                       ------   -----   -------   -----
                                                                 (IN MILLIONS)
                                                                      
December 31, 2004....................................  $13.8       --    $63.0      --
December 31, 2003....................................  $10.5       --    $70.4      --
December 31, 2002....................................  $ 6.7    $0.49    $44.3    $4.7

 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET PRICE
 
     Our investment portfolio is exposed to various market risks, including
interest rate and equity price risk. Market risk is the potential for financial
losses due to the decrease in the value or price of an asset resulting from
broad movements in prices. At December 31, 2004, fixed maturity securities
comprised 88% of total investments at fair value. U.S. government and agencies
and tax-exempt bonds represent 45% of the fixed maturity securities. Equity
securities, consisting of common stocks, account for the remainder of the
investment portfolio. We have classified our investments as available for sale.
 
     Because of the high percentage of fixed maturity securities, interest rate
risk represents the greatest exposure we have on our investment portfolio. In
general, the market value of our fixed maturity portfolio increases or decreases
in an inverse relationship with fluctuation in interest rates. During periods of
rising interest rates, the fair value of our investment portfolio will generally
decline resulting in decreases in our stockholders' equity. Conversely, during
periods of falling interest rates, the fair value of our investment portfolio
will generally increase resulting in increases in our stockholders' equity. In
addition, our net investment income increases or decreases in a direct
relationship with interest rate changes on monies reinvested from maturing
securities and investments of positive cash flow from operating activities.
 
     Generally, the longer the duration of the security, the more sensitive the
asset is to market interest rate fluctuations. To control the adverse effects of
the changes in interest rates, our investment portfolio of fixed maturity
securities consists primarily of intermediate-term, investment-grade securities.
Our fixed income portfolio at December 31, 2004 reflected an average effective
maturity of 6.17 years and an average modified duration of 4.25 years. Our
investment policy also provides that all security purchases be limited to rated
securities or unrated securities approved by management on the recommendation of
our
 
                                       C-54

 
investment advisor. The entire bond portfolio as of December 31, 2004 was held
in investment grade securities.
 
     One common measure of the interest sensitivity of fixed maturity securities
is effective duration. Effective duration utilizes maturities, yields, and call
terms to calculate an average age of expected cash flows. The following table
shows the estimated fair value of our fixed maturity portfolio based on
fluctuations in the market interest rates.
 


                                                                              PROJECTED
                                                                 MARKET        MARKET
YIELD CHANGE (BP)                                                 YIELD         VALUE
-----------------                                             -------------   ---------
                                                                    (IN MILLIONS)
                                                                        
-300........................................................      0.69%        $201.8
-200........................................................      1.69          194.2
-100........................................................      2.69          186.6
Current Yield**.............................................      3.69          179.0
100.........................................................      4.69          171.4
200.........................................................      5.69          163.8
300.........................................................      6.69          156.2

 
---------------
 
** Current yield is as of December 31, 2004.
 
     The actual impact of the market interest rate changes on the securities may
differ from those shown in the sensitivity analysis above.
 
                                       C-55

 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTING DATA
 
                         INDEX TO FINANCIAL STATEMENTS
 


                                                              PAGE
                                                              ----
                                                           
NCRIC GROUP, INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm.....  C-57
Consolidated Balance Sheets as of December 31, 2004 and
  2003......................................................  C-58
Consolidated Statements of Operations for the Years Ended
  December 31, 2004, 2003, and 2002.........................  C-59
Consolidated Statements of Stockholders' Equity for the
  Years Ended December 31, 2004, 2003, and 2002.............  C-60
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 2004, 2003, and 2002.........................  C-62
Notes to Consolidated Financial Statements for the Years
  Ended December 31, 2004, 2003, and 2002...................  C-63
Schedule I -- Summary of Investments -- Other Than
  Investments in Related Parties............................  C-82
Schedule II -- Condensed Financial Information of
  Registrant................................................  C-83
Schedule III -- Supplementary Insurance Information.........  C-87
Schedule IV -- Reinsurance..................................  C-88
Schedule V -- Valuation and Qualifying Accounts.............  C-89
Schedule VI -- Supplemental Information Concerning
  Property-Casualty Insurance Companies.....................  C-90

 
                                       C-56

 
            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
NCRIC Group, Inc. and Subsidiaries
Washington, DC
 
     We have audited the accompanying consolidated balance sheets of NCRIC
Group, Inc. and subsidiaries (the "Company") as of December 31, 2004 and 2003,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2004.
Our audits also included the financial statement schedules listed in the table
of contents. These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedules based
on our audits.
 
     We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of NCRIC Group, Inc. and
subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
 
     As discussed in Note 15 to the consolidated financial statements, the
Company announced that its Board of Directors had approved an agreement to merge
NCRIC Group, Inc. into ProAssurance Corporation in a stock-for-stock
transaction. The transaction is subject to required regulatory approvals and a
vote of NCRIC Group, Inc. stockholders.
 
                                               /s/ Deloitte & Touche LLP
 
McLean, VA
March 17, 2005
 
                                       C-57

 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2004 AND 2003
 


                                                                 2004          2003
                                                              -----------   -----------
                                                              (IN THOUSANDS, EXCEPT FOR
                                                                     SHARE DATA)
                                                                      
                                        ASSETS
INVESTMENTS:
  Securities available for sale, at fair value:
     Bonds and U.S.Treasury Notes (Amortized cost $178,432
      and $161,876).........................................   $178,999      $162,744
     Equity securities (Cost $20,679 and $10,269)...........     23,308        11,613
                                                               --------      --------
       Total securities available for sale..................    202,307       174,357
OTHER ASSETS:
  Cash and cash equivalents.................................     13,658         9,978
  Reinsurance recoverable...................................     44,846        48,100
  Goodwill, net.............................................      7,296         7,296
  Premiums and accounts receivable, net.....................      7,526         9,333
  Deferred income taxes.....................................      8,404         5,307
  Other assets..............................................      8,862         8,175
                                                               --------      --------
TOTAL ASSETS................................................   $292,899      $262,546
                                                               ========      ========

                         LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Losses and loss adjustment expenses:
     Losses.................................................   $107,746      $ 87,778
     Loss adjustment expenses...............................     45,496        38,213
                                                               --------      --------
       Total losses and loss adjustment expenses............    153,242       125,991
  Other liabilities:
     Retrospective premiums accrued under reinsurance
      treaties..............................................        351         1,809
     Unearned premiums......................................     40,790        34,553
     Advance premium........................................      5,520         3,110
     Reinsurance premium payable............................        766         1,538
     Bank debt..............................................         --           289
     Trust preferred securities.............................     15,000        15,000
     Other liabilities......................................      5,215         2,277
                                                               --------      --------
TOTAL LIABILITIES...........................................    220,884       184,567
                                                               --------      --------
COMMITMENTS AND CONTINGENCIES (Notes 4, 6, and 9)
STOCKHOLDERS' EQUITY:
  Common stock $0.01 par value -- 12,000,000 shares
     authorized; 6,892,517 shares issued and outstanding
     (net of 56,134 treasury shares) at December 31, 2004;
     6,898,865 shares issued and outstanding (net of 33,339
     treasury shares) at December 31, 2003..................         70            70
  Preferred stock $0.01 par value -- 1,000,000 shares
     authorized, 0 shares issued............................         --            --
  Additional paid in capital................................     49,161        48,962
  Unallocated common stock held by the ESOP.................     (2,478)       (2,616)
  Common stock held by the stock award plan.................     (1,218)       (1,594)
  Accumulated other comprehensive income....................      2,109         1,461
  Retained earnings.........................................     24,926        32,046
  Treasury stock, at cost...................................       (555)         (350)
                                                               --------      --------
TOTAL STOCKHOLDERS' EQUITY..................................     72,015        77,979
                                                               --------      --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................   $292,899      $262,546
                                                               ========      ========

 
                See notes to consolidated financial statements.
                                       C-58

 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
 


                                                                 2004          2003         2002
                                                              -----------   ----------   ----------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                
REVENUES:
  Net premiums earned.......................................   $ 66,462      $47,264      $30,098
  Net investment income.....................................      7,256        6,008        5,915
  Net realized investment gains (losses)....................        475        1,930         (131)
  Practice management and related income....................      4,395        4,906        5,800
  Other income..............................................        820        1,155        1,013
                                                               --------      -------      -------
     Total revenues.........................................     79,408       61,263       42,695
                                                               --------      -------      -------
EXPENSES:
  Losses and loss adjustment expenses.......................     70,310       50,473       26,829
  Underwriting expenses.....................................     12,635       10,003        8,168
  Practice management and related expenses..................      5,016        5,222        5,811
  Interest expense on Trust Preferred Securities............        857          826           62
  Other expenses............................................      2,514        1,651        1,405
                                                               --------      -------      -------
     Total expenses.........................................     91,332       68,175       42,275
                                                               --------      -------      -------
(LOSS) INCOME BEFORE INCOME TAXES...........................    (11,924)      (6,912)         420
                                                               --------      -------      -------
INCOME TAX BENEFIT..........................................     (4,804)      (2,694)        (322)
                                                               --------      -------      -------
NET (LOSS) INCOME...........................................   $ (7,120)     $(4,218)     $   742
                                                               ========      =======      =======
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
  Unrealized holding gains (losses) on securities...........   $  1,233      $  (724)     $ 2,478
  Reclassification adjustment for gains included in net
     income.................................................       (585)        (621)        (146)
                                                               --------      -------      -------
OTHER COMPREHENSIVE INCOME (LOSS)...........................        648       (1,345)       2,332
                                                               --------      -------      -------
COMPREHENSIVE (LOSS) INCOME.................................   $ (6,472)     $(5,563)     $ 3,074
                                                               ========      =======      =======
Net (loss) income per common share:
Basic:
  Average shares outstanding................................      6,357        6,486        6,639
                                                               --------      -------      -------
  (Loss) Earnings Per Share.................................   $  (1.12)     $ (0.65)     $  0.11
                                                               ========      =======      =======
Diluted:
  Average shares outstanding................................      6,357        6,486        6,639
  Dilutive effect of stock options..........................         --           --          140
                                                               --------      -------      -------
  Average shares outstanding - diluted......................      6,357        6,486        6,779
                                                               --------      -------      -------
  (Loss) Earnings Per Share.................................   $  (1.12)     $ (0.65)     $  0.11
                                                               ========      =======      =======

 
                See notes to consolidated financial statements.
                                       C-59

 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
 


                                                                ADDITIONAL   UNALLOCATED    STOCK
                                                       COMMON    PAID IN        ESOP        AWARD
                                                       STOCK     CAPITAL       SHARES      SHARES
                                                       ------   ----------   -----------   -------
                                                                     (IN THOUSANDS)
                                                                               
BALANCE, JANUARY 1, 2002.............................   $37      $ 9,552       $  (786)    $  (339)
Net income...........................................    --           --            --          --
Other comprehensive income...........................    --           --            --          --
Acquisition of treasury stock........................    --           --            --          --
Shares released......................................    --           78           104         137
                                                        ---      -------       -------     -------
BALANCE, DECEMBER 31, 2002...........................    37        9,630          (682)       (202)
Net loss.............................................    --           --            --          --
Other comprehensive loss.............................    --           --            --          --
Public stock offering................................    32       39,190        (2,072)     (1,657)
Conversion of mutual holding company.................    --           --            --          --
Acquisition of treasury stock........................    --           --            --          --
Shares released......................................     1          142           138         265
                                                        ---      -------       -------     -------
BALANCE, DECEMBER 31, 2003...........................    70       48,962        (2,616)     (1,594)
Net loss.............................................    --           --            --          --
Other comprehensive income...........................    --           --            --          --
Acquisition of treasury stock........................    --           --            --          --
Shares released......................................    --          199           138         376
                                                        ---      -------       -------     -------
BALANCE, DECEMBER 31, 2004...........................   $70      $49,161       $(2,478)    $(1,218)
                                                        ===      =======       =======     =======

 
                                       C-60

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
 


                                                               ACCUMULATED
                                                                  OTHER                      TOTAL
                                                   TREASURY   COMPREHENSIVE   RETAINED   STOCKHOLDERS'
                                                    STOCK        INCOME       EARNINGS      EQUITY
                                                   --------   -------------   --------   -------------
                                                                             
BALANCE, JANUARY 1, 2002.........................   $(260)       $   474      $35,776       $44,454
Net income.......................................      --             --          742           742
Other comprehensive income.......................      --          2,332           --         2,332
Acquisition of treasury stock....................     (30)            --           --           (30)
Shares released..................................      --             --           --           319
                                                    -----        -------      -------       -------
BALANCE, DECEMBER 31, 2002.......................    (290)         2,806       36,518        47,817
Net loss.........................................      --             --       (4,218)       (4,218)
Other comprehensive loss.........................      --         (1,345)          --        (1,345)
Public stock offering............................     290             --           --        35,783
Conversion of mutual holding company.............      --             --         (254)         (254)
Acquisition of treasury stock....................    (350)            --           --          (350)
Shares released..................................      --             --           --           546
                                                    -----        -------      -------       -------
BALANCE, DECEMBER 31, 2003.......................    (350)         1,461       32,046        77,979
Net loss.........................................      --             --       (7,120)       (7,120)
Other comprehensive income.......................      --            648           --           648
Acquisition of treasury stock....................    (205)            --           --          (205)
Shares released..................................      --             --           --           713
                                                    -----        -------      -------       -------
BALANCE, DECEMBER 31, 2004.......................   $(555)       $ 2,109      $24,926       $72,015
                                                    =====        =======      =======       =======

 
                See notes to consolidated financial statements.
                                       C-61

 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
 


                                                                2004       2003        2002
                                                              --------   ---------   --------
                                                                      (IN THOUSANDS)
                                                                            
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income.........................................  $ (7,120)  $  (4,218)  $    742
  Adjustments to reconcile net (loss) income to net cash
     flows from operating activities:
     Net realized investment (gains) losses.................      (475)     (1,930)       131
     Amortization and depreciation..........................     2,069       1,503        661
     Provision for uncollectable receivables................       108         486      1,362
     Deferred income taxes..................................    (3,431)       (825)    (2,508)
     Stock released for coverage of benefit plans...........       683         546        319
     Changes in assets and liabilities:
       Reinsurance recoverable..............................     3,254      (4,869)   (13,154)
       Premiums and accounts receivable.....................     1,699        (342)    (6,037)
       Other assets.........................................      (200)       (151)    (2,132)
       Losses and loss adjustment expenses..................    27,251      21,969     19,462
       Retrospective premiums accrued under reinsurance
          treaties..........................................    (1,458)      1,202     (1,801)
       Unearned premiums....................................     6,237      10,342      6,974
       Advance premium......................................     2,410         139     (1,167)
       Reinsurance premium payable..........................      (772)     (3,507)     2,593
       Other liabilities....................................     2,938         257     (2,071)
                                                              --------   ---------   --------
       Net cash flows provided by operating activities......    33,193      20,602      3,374
                                                              --------   ---------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of investments..................................   (95,842)   (193,911)   (52,824)
  Sales, maturities and redemptions of investments..........    67,927     138,607     39,027
  Purchases of property and equipment.......................    (1,134)       (597)      (895)
                                                              --------   ---------   --------
       Net cash flows used in investing activities..........   (29,049)    (55,901)   (14,692)
                                                              --------   ---------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from public stock offering...................        --      35,783         --
  Proceeds from the issuance of trust preferred
     securities.............................................        --          --     15,000
  Proceeds from exercise of stock options...................        30          --         --
  Purchase of Treasury Stock................................      (205)       (350)       (30)
  Repayment of bank debt....................................      (289)       (706)      (667)
                                                              --------   ---------   --------
       Net cash flows (used in) provided by financing
          activities........................................      (464)     34,727     14,303
                                                              --------   ---------   --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.....................     3,680        (572)     2,985
                                                              --------   ---------   --------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................     9,978      10,550      7,565
                                                              --------   ---------   --------
CASH AND CASH EQUIVALENTS, END OF YEAR......................  $ 13,658   $   9,978   $ 10,550
                                                              ========   =========   ========
SUPPLEMENTARY INFORMATION:
  Cash paid for income taxes................................  $    720   $   1,200   $  2,200
                                                              ========   =========   ========
  Interest paid.............................................  $    844   $     858   $     61
                                                              ========   =========   ========

 
                See notes to consolidated financial statements.
                                       C-62

 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
 
1.  SIGNIFICANT ACCOUNTING POLICIES
 
     Organization and Basis of Reporting -- NCRIC, Group, Inc. (the Company) is
a healthcare financial services organization that provides individual physicians
and groups of physicians and other healthcare providers with professional
liability insurance and practice management services through its subsidiary
companies.
 
     On April 20, 1998, the Board of Governors of National Capital Reciprocal
Insurance Company adopted a plan of reorganization that authorized the formation
of NCRIC, A Mutual Holding Company (Mutual Holding Company) and the conversion
into NCRIC, Inc. (NCRIC), a stock medical professional liability insurance
company domiciled in the District of Columbia. The reorganization became
effective on December 31, 1998. In 1999, the Company completed an initial public
offering of 1,480,000 shares, which represented approximately 40% of its
outstanding shares. Prior to the plan of conversion discussed above, the Mutual
Holding Company owned approximately 60% of the outstanding shares of the
Company.
 
     On December 4, 2002, the Company formed NCRIC Statutory Trust I for the
purpose of issuing $15,000,000 in trust preferred securities in a pooled
transaction to unrelated investors. (See Note 5.)
 
     On June 24, 2003, a plan of conversion and reorganization was approved by
the members of NCRIC, A Mutual Holding Company and by the shareholders of NCRIC
Group, Inc. In the conversion and related stock offering, NCRIC, A Mutual
Holding Company offered for sale its 60% ownership interest in NCRIC Group, Inc.
As a result of the conversion and stock offering, NCRIC, A Mutual Holding
Company ceased to exist, and NCRIC Group, Inc. became a fully public company.
(See Note 2.)
 
     Through its property-casualty insurance company subsidiary, NCRIC, Inc.,
the Company provides comprehensive professional liability and office premises
liability insurance under nonassessable policies to physicians having their
principal practice in the District of Columbia, Maryland, Virginia, West
Virginia, or Delaware. Effective December 31, 2003, the Insurance Commissioner
of the District of Columbia approved the statutory merger of NCRIC, Inc. and
Commonwealth Medical Liability Insurance Company, CML. As a result, the assets,
liabilities and policyholder obligations of CML were transferred, at book value,
to NCRIC, Inc. and CML ceased to exist as a separate entity.
 
     The Company also provides (i) practice management services, accounting and
tax services, and personal financial planning services to medical and dental
practices and (ii) retirement planning services and administration to medical
and dental practices and certain other businesses throughout the mid-Atlantic
region.
 
     The Company has issued policies on both an occurrence and a claims-made
basis. However, subsequent to June 1, 1986, substantially all policies have been
issued on the claims-made basis. Occurrence-basis policies provide coverage to
the policyholder for losses incurred during the policy year regardless of when
the related claims are reported. Claims-made basis policies provide coverage to
the policyholder for covered claims reported during the current policy year,
provided the related losses were incurred while claims-made basis policies were
in effect.
 
     Tail coverage is offered for doctors terminating their insurance policies.
This coverage extends ad infinitum the period in which to report future claims
resulting from incidents occurring while a claims-made policy was in effect.
Beginning in 1988, prior acts insurance coverage was first issued, subject to
underwriting criteria for new insureds. Such coverage extends the effective date
of claims-made policies to designated periods prior to initial coverage.
 
                                       C-63

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Principles of Consolidation -- The accompanying financial statements
present the consolidated financial position and results of operations of the
Company and its subsidiaries. All significant intercompany transactions have
been eliminated in the consolidation.
 
     The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America (GAAP),
which differ from statutory accounting practices prescribed or permitted for
insurance companies by regulatory authorities.
 
     Cash Equivalents -- For purposes of reporting cash flows, the Company
considers short-term investments purchased with an initial maturity of three
months or less to be cash equivalents.
 
     Investments -- The Company has classified its investments as available for
sale and has reported them at fair value, with unrealized gains and losses
excluded from earnings and reported, net of deferred taxes, as a component of
equity and other comprehensive income. Realized gains and losses are determined
using the specific identification method.
 
     Investment securities are exposed to various risks such as interest rate,
market and credit risk. Fair values of securities fluctuate based on the
magnitude of changing market conditions; significant changed market conditions
could materially affect the portfolio value in the near term. When a security
has a decline in fair value that is other-than-temporary, the Company reduces
the carrying value of the security to its current fair value.
 
     The Company evaluates investments for other-than-temporary impairment
whenever events or changes in circumstances, such as business environment, legal
issues and other relevant data, indicate that the carrying amount of an
investment may not be recoverable. Any resulting impairment loss is reported as
a realized investment loss. During each of the years ended December 31, 2004 and
December 31, 2003, the Company determined that an equity security experienced an
other-than-temporary impairment. Accordingly, the Company recorded a pre-tax
impairment loss of $15,000 and $135,000 during 2004 and 2003, respectively. In
the third quarter of 2004, the Company recorded a pre-tax impairment of $24,000
on a fixed-income security. The security was subsequently sold in the fourth
quarter.
 
     In the second quarter of 2002, the Company recorded a pre-tax impairment
loss of $557,000 on fixed-income securities. These securities were subsequently
sold during 2002.
 
     Goodwill -- In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of goodwill
ceased upon adoption of SFAS 142 on January 1, 2002.
 
     NCRIC's goodwill asset resulted from the 1999 acquisition of three
businesses, which now operate as divisions of the Practice Management Services
Segment. NCRIC Group, Inc. completed its initial goodwill impairment testing
under SFAS 142 as of March 31, 2002 and tests goodwill for impairment on a
quarterly basis. The goodwill asset was not impaired as of the date of
implementation of SFAS 142, nor was it impaired as of December 31, 2004.
Goodwill is reported net of accumulated amortization of $909,000 as of December
31, 2004 and 2003.
 
     Deferred Policy Acquisition Costs -- Commissions and premium taxes
associated with acquiring insurance that vary with and are directly related to
the production of new and renewal business are deferred and amortized over the
terms of the policies to which they relate. Deferred policy acquisition costs
totaled approximately $2.7 million and $2.4 million as of December 31, 2004 and
2003, respectively, and are reported as a component of other assets. Since
NCRIC's insurance policies are generally written for a term of one year, the
entire year-end balance is amortized in the following year. Amortization of
acquisition costs is reported as a component of underwriting expense.
 
                                       C-64

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Property and Equipment -- Fixed assets are recorded at cost and reported as
a component of other assets. Depreciation is recorded using the straight-line
method over estimated useful lives ranging from three to five years for computer
software and equipment and furniture and fixtures and ten years for leasehold
improvements. The balances of fixed assets of $2.6 million and $2.1 million as
of December 31, 2004 and 2003, respectively, are net of accumulated depreciation
of $3.0 million and $2.5 million. Depreciation expense for the years ended
December 31, 2004, 2003, and 2002 was $646,500, $559,800, and $457,700.
 
     Liabilities for Losses and Loss Adjustment Expenses -- Liabilities for
losses and loss adjustment expenses are established on the basis of reported
losses and loss adjustment expenses and a provision for losses incurred but not
reported. These amounts are based on management's estimates and are subject to
risks and uncertainties. As facts become known, adjustments to these estimates
are reflected in earnings.
 
     The Company protects itself from excessive losses by reinsuring certain
levels of risk in various areas of exposure. Amounts recoverable from
reinsurance are estimated in a manner consistent with the liability for loss and
loss adjustment expenses associated with the reinsured loss.
 
     Income Taxes -- The Company uses the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for tax consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities. The Company files a consolidated Federal income tax return.
 
     Impairment of Long-Lived Assets -- The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. During the years ended
December 31, 2004 and 2003, the Company did not find it necessary to record a
provision for impairment of assets.
 
     Use of Estimates -- The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Significant accounts subject to management
estimates are reinsurance recoverable, liabilities for losses and loss
adjustment expenses, retrospective premiums accrued under reinsurance treaties,
retrospective premiums accrued under risk-sharing programs and impairment of
goodwill.
 
     Concentrations of Credit Risk -- Financial instruments that potentially
expose the Company to concentrations of risk consist principally of cash
equivalent investments, investments in securities and reinsurance recoverables.
Concentrations of credit risk for investments are limited due to the large
number of such investments and their distributions across many different
industries and geographical areas. Concentrations of credit risk for reinsurance
recoverables are limited due to the large number of reinsurers participating in
the program.
 
     Litigation -- The Company is subject to claims arising in the normal course
of its business. Management does not believe that any such claims or assessments
will have a material effect on the Company's financial position, results of
operations or cash flows, except for the premium collection litigation discussed
in Note 14.
 
     Revenue Recognition -- Premium revenue is earned pro rata over the terms of
the policies. The portion of premiums that will be earned in the future are
deferred and reported as unearned premiums. Premiums received prior to the term
of policy coverage are excluded from premium revenue and reported as advance
premium.
 
                                       C-65

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company writes policies under certain retrospectively rated programs.
Premium revenue related to these contracts is earned based on the contractual
terms and estimated losses under those contracts. Earned premiums are premiums
written reduced by premium refunds accrued. Premium refunds are accrued to
reflect the risk-sharing program results on a basis consistent with the
underlying loss experience.
 
     Practice management revenue is recognized as services are performed under
terms of management and other contracts. Revenue is generally billed in the
month following the performance of related services.
 
     Stock-based Compensation -- As of December 31, 2004 and 2003 the Company
has a stock option plan, which is described more fully in Note 10. NCRIC Group,
Inc. accounts for compensation cost using the intrinsic value based method
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees.
Accordingly, no compensation expense was recognized since the stock options
granted were at an exercise price equal to the fair market value of the common
stock on the date the options were granted.
 
     The Company's pro forma net income per share information using the fair
value method and the Black-Scholes valuation model follows (in thousands):
 


                                                             2004      2003     2002
                                                            -------   -------   -----
                                                                       
Net (loss) income as reported.............................  $(7,120)  $(4,218)  $ 742
  Add: Compensation expense from stock award plans, net of
     related tax effect...................................      280       198     102
  Less: Total stock-based employee compensation, net of
     related tax effect...................................   (1,535)      (67)    (37)
                                                            -------   -------   -----
Pro forma net (loss) income...............................  $(8,375)  $(4,087)  $ 807
                                                            =======   =======   =====
(Loss) earnings per share -- Basic as reported............  $ (1.12)  $ (0.65)  $0.11
     Basic pro forma......................................  $ (1.32)  $ (0.63)  $0.12
     Diluted as reported..................................  $ (1.12)  $ (0.65)  $0.11
     Diluted pro forma....................................  $ (1.32)  $ (0.63)  $0.12

 
     New Accounting Pronouncements -- In July 2004, the Emerging Issues Task
Force of the Financial Accounting Standards Board (FASB) reached a consensus
with respect to guidance to be used in determining whether an investment within
the scope of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments, is other than temporarily impaired.
The guidance was to be applied in other-than-temporary impairment evaluations
made in reporting periods beginning after June 15, 2004. In September 2004, the
FASB issued, and the Company adopted, FSP EITF Issue 03-1-1, which deferred the
effective date of the impairment measurement and recognition provisions
contained in EITF 03-1 until final guidance is adopted. The disclosure
requirements of EITF 03-1 were previously adopted by the Company as of December
31, 2003 for investments accounted for under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. For all other investments
within the scope of EITF 03-1, the disclosures are effective and have been
adopted by the Company as of December 31, 2004. As this accounting guidance
develops, we will continue to review it to assess any potential impact to our
fixed income portfolio and our asset management policy.
 
     In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS 123R.) This statement replaces Statement No. 123, Accounting for
Stock-Based Compensation and supercedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance. The statement
requires the adoption of a fair-value-based method of accounting for share-based
transactions with employees. Adoption is required by the first interim or annual
period after June 15, 2005. The
 
                                       C-66

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Company is in the process of evaluating the requirements of SFAS 123R to comply
with the new pronouncement by the third quarter of 2005.
 
2.  SECOND STEP CONVERSION AND PUBLIC OFFERING
 
     On June 24, 2003, a plan of conversion and reorganization was approved by
the members of NCRIC, A Mutual Holding Company and by the shareholders of NCRIC
Group, Inc. In the conversion and related stock offering, the Mutual Holding
Company offered for sale its 60% ownership interest in NCRIC Group. As a result
of the conversion and stock offering, the Mutual Holding Company ceased to
exist, and NCRIC Group, Inc. became a fully public company.
 
     In the conversion and stock offering, 4,143,701 shares of the common stock
of NCRIC Group, Inc. were sold to Eligible Members, Employee Benefit Plans,
Directors, Officers and Employees and to members of the general public in a
Subscription and Community Offering priced at $10.00 per share. The Subscription
stock offering period expired on June 16, 2003. All stock purchase orders
received in the offering were satisfied.
 
     As part of the conversion, 2,778,144 shares were issued to the former
public stockholders of NCRIC Group, Inc. The exchange ratio was 1.8665 new
shares for each share of NCRIC Group, Inc. held by public stockholders as of the
close of business on June 25, 2003. Accordingly, after the conversion, the
Company had 6,921,845 shares outstanding immediately following the offering. For
the earnings per share calculations, the share amounts for periods prior to the
conversion and stock offering have been revised to reflect the share exchange
ratio applied in the conversion. The issuance of the shares of common stock in
the subscription and community offering and in the exchange offering to existing
stockholders was registered on Form S-1 filed with the SEC (No. 333-104023),
which registration statement was declared effective on May 14, 2003.
 
     The net proceeds of the offering have been deployed as follows:
 
     - 75% has been added to the capital of NCRIC, Inc.;
 
     - 9% has been used to provide loans to the employee stock ownership plan
       and stock award plan to fund the purchase of shares of common stock in
       the offering; and
 
     - the remaining amount has been retained for general corporate purposes.
 
     The reconciliation of gross to net proceeds is as follows (in thousands):
 

                                                           
Gross offering proceeds.....................................  $41,437
Less: Offering expenses.....................................   (1,924)
                                                              -------
  Net proceeds..............................................   39,513
  ESOP loan.................................................   (2,072)
  Stock Award Plan loan.....................................   (1,657)
                                                              -------
Net proceeds as adjusted....................................  $35,784
                                                              =======

 
                                       C-67

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The composition of shares after the second step conversion and public
offering is as follows (in thousands):
 

                                                           
Issued in the conversion and stock offering.................  4,144
Issued to existing public shareholders of NCRIC Group.......  2,778
                                                              -----
  Total shares issued June 25, 2003.........................  6,922
ESOP loan shares............................................   (270)
Stock Award Plan loan shares................................   (179)
                                                              -----
  Net shares outstanding as of June 25, 2003................  6,473
                                                              =====

 
3.  INVESTMENTS
 
     The following tables show the cost or amortized cost and fair value of
investments (in thousands):
 


                                              COST OR      GROSS        GROSS
                                             AMORTIZED   UNREALIZED   UNREALIZED
                                               COST        GAINS        LOSSES     FAIR VALUE
                                             ---------   ----------   ----------   ----------
                                                                       
As of December 31, 2004
U.S. Government and agencies...............  $ 37,355      $  211      $  (253)     $ 37,313
Corporate..................................    48,184         603         (407)       48,380
Tax-exempt obligations.....................    42,571       1,124         (166)       43,529
Asset and mortgage-backed securities.......    50,322          89         (634)       49,777
                                             --------      ------      -------      --------
                                              178,432       2,027       (1,460)      178,999
Equity securities..........................    20,679       2,660          (31)       23,308
                                             --------      ------      -------      --------
Total......................................  $199,111      $4,687      $(1,491)     $202,307
                                             ========      ======      =======      ========

 


                                              COST OR      GROSS        GROSS
                                             AMORTIZED   UNREALIZED   UNREALIZED
                                               COST        GAINS        LOSSES     FAIR VALUE
                                             ---------   ----------   ----------   ----------
                                                                       
As of December 31, 2003
U.S. Government and agencies...............  $ 29,328      $   75      $  (118)     $ 29,285
Corporate..................................    41,773         247         (720)       41,300
Tax-exempt obligations.....................    35,329       1,907          (78)       37,158
Asset and mortgage-backed securities.......    55,446         186         (631)       55,001
                                             --------      ------      -------      --------
                                              161,876       2,415       (1,547)      162,744
Equity securities..........................    10,269       1,373          (29)       11,613
                                             --------      ------      -------      --------
Total......................................  $172,145      $3,788      $(1,576)     $174,357
                                             ========      ======      =======      ========

 
                                       C-68

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The amortized cost and fair value of debt securities at December 31, 2004
and 2003 are shown by maturity (in thousands). Actual maturities will differ
from contractual maturities because borrowers may have the right to prepay
obligations with or without prepayment penalties.
 


                                               DECEMBER 31, 2004        DECEMBER 31, 2003
                                             ----------------------   ----------------------
                                              COST OR                  COST OR
                                             AMORTIZED                AMORTIZED
                                               COST      FAIR VALUE     COST      FAIR VALUE
                                             ---------   ----------   ---------   ----------
                                                                      
Due in one year or less....................  $  8,091     $  8,084    $  1,912     $  1,923
Due after one year through five years......    49,124       49,074      39,363       39,886
Due after five years through ten years.....    44,107       44,516      45,918       46,483
Due after ten years........................    26,788       27,549      19,237       19,451
                                             --------     --------    --------     --------
                                              128,110      129,223     106,430      107,743
Equity securities..........................    20,679       23,308      10,269       11,613
Asset and mortgage-backed securities.......    50,322       49,776      55,446       55,001
                                             --------     --------    --------     --------
Total......................................  $199,111     $202,307    $172,145     $174,357
                                             ========     ========    ========     ========

 
     Proceeds from bond maturities and redemptions of available-for-sale
investments during the years ended December 31, 2004, 2003, and 2002, were $67.9
million, $138.6 million, and $39.0 million, respectively. Gross gains of
$917,000, $3,441,000, and $1,437,000, and gross losses of $442,000, $1,511,000,
and $1,568,000, were realized on security sales, redemptions and impairments
during years ended December 31, 2004, 2003, and 2002, respectively.
 
     Net investment income consists of the following (in thousands):
 


                                                                FOR THE YEAR ENDED
                                                                   DECEMBER 31,
                                                             ------------------------
                                                              2004     2003     2002
                                                             ------   ------   ------
                                                                      
U. S Government and agencies...............................  $1,072   $  654   $  255
Corporate..................................................   2,329    1,794    3,038
Tax-exempt obligations.....................................   1,628    1,462    1,290
Asset and mortgage-backed securities.......................   2,229    2,313    1,178
Equity securities..........................................     479      124      431
Short-term investments.....................................      30       91      103
                                                             ------   ------   ------
Total investment income earned.............................   7,767    6,438    6,295
Investment expenses........................................    (511)    (430)    (380)
                                                             ------   ------   ------
Net investment income......................................  $7,256   $6,008   $5,915
                                                             ======   ======   ======

 
     At December 31, 2004, our portfolio included total gross unrealized gains
of $4.7 million, or 2.3% of the $202.3 million carrying value of the portfolio,
and total unrealized losses of $1.5 million, or less than 1% of the carrying
value of the portfolio. The total unrealized losses are comprised of six equity
securities and 191 fixed maturity securities, including 12 Treasury Note issues,
179 corporate debt and municipal bonds (all of which are investment grade), with
lengths of time to maturity ranging from one to 44 years. All of the fixed
maturity securities are meeting and are expected to continue to meet all
contractual obligations for interest payments.
 
     At December 31, 2004, the aggregate fair value of the securities with
unrealized losses was $112.8 million, or 99% of the amortized cost of those
securities of $114.3 million. The largest single security with an unrealized
loss at December 31, 2004 relates to a FNMA pool which matures in 2018 and
 
                                       C-69

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
carries a coupon rate of 5.0%. The unrealized pre-tax loss relating to this
security is approximately $115,000 based on the fair value of $4.5 million at
December 31, 2004. Unrealized losses related to other securities are not
individually significant, nor is there any concentration of unrealized losses
with respect to the type of security or industry.
 
     The following table displays characteristics of the securities with an
unrealized loss in value as of December 31, 2004. No concentrations of
industries exist in these securities.
 


                                         TOTAL SECURITIES                      EQUITY SECURITIES
                                -----------------------------------   -----------------------------------
LENGTH OF TIME IN               AMORTIZED                UNREALIZED   AMORTIZED                UNREALIZED
UNREALIZED LOSS POSITION          COST      FAIR VALUE      LOSS        COST      FAIR VALUE      LOSS
------------------------        ---------   ----------   ----------   ---------   ----------   ----------
                                                             (IN THOUSANDS)
                                                                             
Less than 1 year..............  $ 54,279     $ 53,708      $  571       $244         $235         $ 9
Over 1 year...................    59,998       59,078         920        402          380          22
                                --------     --------      ------       ----         ----         ---
Total.........................  $114,277     $112,786      $1,491       $646         $615         $31
                                ========     ========      ======       ====         ====         ===

 
     The following table displays the maturity distribution of those fixed
maturity securities with an unrealized loss in value as of December 31, 2004:
 


                                                            FIXED MATURITY SECURITIES
                                                       -----------------------------------
                                                       AMORTIZED                UNREALIZED
                                                         COST      FAIR VALUE      LOSS
                                                       ---------   ----------   ----------
                                                                 (IN THOUSANDS)
                                                                       
During one year or less..............................  $  7,990     $  7,982      $    8
Due after one year through five years................    40,023       39,592         431
Due after five years through ten years...............    21,382       20,998         384
Due after ten through twenty years...................    12,338       12,043         295
Due after twenty years...............................    31,898       31,556         342
                                                       --------     --------      ------
                                                       $113,631     $112,171      $1,460
                                                       ========     ========      ======

 
4.  LIABILITIES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
 
     Liabilities for unpaid losses and loss adjustment expenses (LAE) represent
an estimate of the ultimate net cost of all losses that are unpaid at the
balance sheet date and are based on the loss and loss adjustment expense factors
inherent in the Company's experience and expectations. Estimation factors used
by the Company reflect current case-basis estimates, supplemented by industry
statistical data, and give effect to estimates of trends in claim severity and
frequency. These estimates are continually reviewed, and adjustments, reflected
in current operations are made as deemed necessary.
 
     Although the Company believes the liabilities for losses and loss
adjustment expenses are reasonable and adequate for the circumstances, it is
possible that the Company's actual incurred losses and loss adjustment expenses
will not conform to the assumptions inherent in the determination of the
liabilities. Accordingly, the ultimate settlement of losses and the related loss
adjustment expenses may vary from the amounts included in the financial
statements.
 
                                       C-70

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Activity in the liabilities for losses and loss adjustment expenses is
summarized as follows (in thousands):
 


                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2004       2003       2002
                                                       --------   --------   --------
                                                                    
BALANCE, Beginning of the year.......................  $125,991   $104,022   $ 84,560
  Less reinsurance recoverable on unpaid claims......   (44,673)   (42,412)   (29,624)
                                                       --------   --------   --------
NET BALANCE..........................................    81,318     61,610     54,936
  Incurred related to:
     Current year....................................    53,158     44,588     24,063
     Prior years.....................................    17,152      5,885      2,766
                                                       --------   --------   --------
       Total incurred................................    70,310     50,473     26,829
                                                       --------   --------   --------
  Paid related to:
     Current year....................................     3,457      4,383      1,491
     Prior years.....................................    34,520     26,382     18,664
                                                       --------   --------   --------
       Total paid....................................    37,977     30,765     20,155
                                                       --------   --------   --------
  NET BALANCE........................................   113,651     81,318     61,610
  Plus reinsurance recoverable on unpaid claims......    39,591     44,673     42,412
                                                       --------   --------   --------
  BALANCE, End of the year...........................  $153,242   $125,991   $104,022
                                                       ========   ========   ========

 
     Incurred losses related to prior years represents development of net losses
incurred in prior years. This development results from the re-estimation and
settlement of individual losses not covered by reinsurance, which generally are
losses under $500,000 for losses reported prior to 2003 and under $1 million for
losses reported in 2003 and 2004. The 2004 change in incurred losses related to
prior years stems primarily from the reestimation of losses incurred initially
in 2003 but also from the losses reported initially in 2002 and 2001. The 2003
change stems from adverse development on losses, primarily those reported
initially in 2002 and 2001 in Virginia, as well as from a change in estimate of
the amount of reinsurance recoverable. The 2002 change is primarily reflective
of adverse loss development for the 2001 and 2000 loss years, partially offset
by favorable development in the 1999 and 1996 loss years. The change in
development over the three-year period ended December 31, 2004, reflects a
continuing increase in severity caused by the growing size of plaintiff verdicts
and settlements.
 
5.  TRUST PREFERRED SECURITIES
 
     On December 4, 2002, the Company issued trust preferred securities (TPS) in
the amount of $15,000,000 in a pooled transaction to unrelated investors. The
Company estimates that the fair value of the TPS issued approximates the
proceeds of cash received at the time of issuance. The Company contributed
$13,500,000 of the funds raised to the statutory surplus of its insurance
subsidiaries.
 
     The TPS have a maturity of thirty years, and bear interest at an annual
rate equal to three-month LIBOR plus 4.0%, payable quarterly beginning March 4,
2003. Interest is adjusted on a quarterly basis provided that prior to December
4, 2007, this interest rate shall not exceed 12.5%. The Company may defer
payment of interest on the TPS for up to 20 consecutive quarters. The TPS are
callable by the Company at par beginning December 4, 2007.
 
     The average interest rate was 5.54%, 5.31% and 5.42% and interest of
$857,000, $826,000 and $62,000 was incurred for the years ended December 31,
2004, 2003 and 2002, respectively. Issuance costs of
 
                                       C-71

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
$451,000 were incurred related to the TPS and included in other assets. Issuance
costs are being amortized over 30 years as a component of other expense.
 
     The Company formed NCRIC Statutory Trust I for the purpose of issuing the
TPS. The gross proceeds from issuance were used to purchase Junior Subordinated
Deferrable Interest Debentures (the Debentures), from the Company. The
Debentures are the sole assets of the NCRIC Statutory Trust I. The Debentures
have a maturity of 30 years, and bear interest at an annual rate equal to
three-month LIBOR plus 4.0%, payable quarterly beginning March 4, 2003. Interest
is adjusted on a quarterly basis provided that prior to December 4, 2007, the
interest rate shall not exceed 12.5%. The Debentures are callable by the Company
at par beginning December 4, 2007. The Debentures are unsecured obligations of
the Company and are junior in the right of payment to all future senior
indebtedness of the Company. The Debentures and related investment in NCRIC
Statutory Trust I have been eliminated in consolidation.
 
6.  REINSURANCE AGREEMENTS
 
     The Company has reinsurance agreements that allow the Company to write
policies with higher coverage limits than it is individually capable or desirous
of retaining by reinsuring the amount in excess of its retention. The Company
has both excess of loss treaties and quota share treaties.
 
     The Company is liable in the event the reinsurers are unable to meet their
obligations under these contracts. NCRIC, Inc. holds letters of credit executed
by reinsurers in the amount of $6.2 million and $1.3 million at December 31,
2004 and 2003, respectively. Such letters of credit are issued as security
against ceded losses recoverable in the future.
 
     The effect of reinsurance on premiums written and earned for the years
ended are as follows (in thousands):
 


                                                          DECEMBER 31
                                ---------------------------------------------------------------
                                       2004                  2003                  2002
                                -------------------   -------------------   -------------------
                                WRITTEN     EARNED    WRITTEN     EARNED    WRITTEN     EARNED
                                --------   --------   --------   --------   --------   --------
                                                                     
Direct........................  $ 87,229   $ 80,992   $ 71,365   $ 61,023   $ 51,799   $ 44,113
Ceded
  Current year................   (14,694)   (14,531)   (11,162)   (12,833)   (18,409)   (14,429)
  Prior year..................         1          1       (926)      (926)       406        406
                                --------   --------   --------   --------   --------   --------
Total ceded...................   (14,693)   (14,530)   (12,088)   (13,759)   (18,003)   (14,023)
                                --------   --------   --------   --------   --------   --------
Net premiums before renewal
  credits.....................  $ 72,536   $ 66,462   $ 59,277   $ 47,264   $ 33,796   $ 30,090
                                ========   ========   ========   ========   ========   ========

 
7.  INCOME TAXES
 
     Deferred income tax is created by temporary differences that will result in
net taxable amounts in future years due to the differing treatment of certain
items for tax and financial statement purposes.
 
                                       C-72

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities consist of the
following (in thousands):
 


                                                              AS OF DECEMBER 31,
                                                              -------------------
                                                                2004       2003
                                                              --------   --------
                                                                   
Deferred tax assets:
  Unearned premiums.........................................  $ 2,921    $ 2,367
  Discounted loss reserves..................................    4,721      3,805
  Net operating loss carryforwards..........................    2,054        127
  Alternative minimum tax credits...........................      639         --
  Allowance for doubtful accounts...........................       70        640
  Other.....................................................      433        210
                                                              -------    -------
                                                               10,838      7,149
Valuation allowance.........................................     (127)      (127)
                                                              -------    -------
                                                               10,711      7,022
Deferred tax liabilities
  Unrealized gain on investments............................   (1,087)      (753)
  Deferred policy acquisition costs.........................     (924)      (802)
  Depreciation and amortization.............................     (296)       (64)
  Other.....................................................       --        (96)
                                                              -------    -------
                                                               (2,307)    (1,715)
                                                              -------    -------
Net deferred tax assets.....................................  $ 8,404    $ 5,307
                                                              =======    =======

 
     The income tax benefit consists of the following (in thousands):
 


                                                           FOR THE YEAR ENDED DECEMBER 31,
                                                          ---------------------------------
                                                            2004        2003        2002
                                                          ---------   ---------   ---------
                                                                         
Federal:
  Current...............................................   $(1,375)    $(1,919)    $ 2,214
  Deferred..............................................    (3,407)       (831)     (2,501)
                                                           -------     -------     -------
                                                            (4,782)     (2,750)       (287)
State:
  Current...............................................         2          50         (28)
  Deferred..............................................       (24)          6          (7)
                                                           -------     -------     -------
                                                               (22)         56         (35)
                                                           -------     -------     -------
     Total benefit......................................   $(4,804)    $(2,694)    $  (322)
                                                           =======     =======     =======

 
                                       C-73

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Federal income tax benefit differs from that calculated using the
established corporate rate primarily due to nontaxable investment income, as
follows (in thousands):
 


                                                        FOR THE YEAR ENDED DECEMBER 31,
                                             -----------------------------------------------------
                                                   2004               2003              2002
                                             ----------------   ----------------   ---------------
                                                        % OF               % OF              % OF
                                                       PRETAX             PRETAX            PRETAX
                                             AMOUNT    INCOME   AMOUNT    INCOME   AMOUNT   INCOME
                                             -------   ------   -------   ------   ------   ------
                                                                          
Federal income tax at statutory rates......  $(4,054)    34%    $(2,350)    34%    $ 142      34%
Tax-exempt income..........................     (454)     4        (425)     6      (374)    (89)
Dividends received.........................      (97)     1         (25)    --       (87)    (21)
Other......................................     (199)     1         106     (1)       (3)     (1)
                                             -------     --     -------     --     -----     ---
Income tax benefit at effective rates......  $(4,804)    40%    $(2,694)    39%    $(322)    (77)%
                                             =======     ==     =======     ==     =====     ===

 
     At December 31, 2004, the Company had regular federal net operating loss
carryforwards of approximately $6.0 million which will begin to expire in 2018.
Since a portion of these losses are subject to certain limitations under the
Internal Revenue Code, a valuation allowance of $127,000 was established to
offset the deferred tax asset associated with these net operating loss
carryforwards.
 
8.  EARNINGS PER SHARE
 
     The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
 


                                                           FOR THE YEAR ENDED DECEMBER 31,
                                                           --------------------------------
                                                             2004        2003        2002
                                                           ---------   ---------   --------
                                                                          
Net (loss) income........................................   $(7,120)    $(4,218)    $  742
                                                            =======     =======     ======
Weighted average common shares outstanding -- basic......     6,357       6,486      6,639
Dilutive effect of stock options.........................        --          --        140
                                                            -------     -------     ------
Weighted average common shares outstanding -- diluted....     6,357       6,486      6,779
                                                            -------     -------     ------
Net (loss) income per common share:
Basic....................................................   $ (1.12)    $ (0.65)    $ 0.11
                                                            =======     =======     ======
Diluted..................................................   $ (1.12)    $ (0.65)    $ 0.11
                                                            =======     =======     ======

 
     Earnings per share is calculated by dividing the net income by the weighted
average shares outstanding for the period. Incremental shares are not included
in 2004 and 2003 because they would be anti-dilutive. The share amounts for
periods prior to the conversion and stock offering have been revised to reflect
the share exchange ratio applied in the conversion.
 
9.  COMMITMENTS
 
     NCRIC entered into an operating lease for office space located in
Washington, D.C., effective on April 15, 1998. The lease terms are for ten years
with a monthly base rent of $35,000 and a 2.0% annual escalator. During 2003,
the Company entered in to an operating lease for additional office space in
Washington, D.C. The lease term is for 54 months with a monthly base rent of
$14,000 and a 2.5% annual escalator. The Company also maintains office space in
Wilmington, Delaware, Lynchburg and Richmond, Virginia as well as in Greensboro,
North Carolina.
 
                                       C-74

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     As of December 31, 2004, the future minimum annual commitments under
noncancellable leases are as follows:
 

                                                           
2005........................................................  $  917,000
2006........................................................     896,000
2007........................................................     883,000
2008........................................................     269,000
                                                              ----------
                                                              $2,965,000
                                                              ==========

 
     Rent expense during the years ended December 31, 2004, 2003, and 2002 was
$950,000, $721,000, and $634,000, respectively.
 
     NCRIC has established seven letters of credit to secure specified amounts
of appellate bonds for cases, which are in the Commonwealth of Virginia or
District of Columbia appellate process. As of December 31, 2004, and 2003 these
letters of credit totaled $11.2 million and $4.8 million, respectively.
 
     The Company and its subsidiaries have entered into four employment
agreements with certain key employees. These agreements include covenants not to
compete and provide for aggregate annual compensation of $966,400 through
December 31, 2005.
 
     NCRIC MSO, Inc. (NCRIC MSO), the practice management services segment of
NCRIC Group, Inc. provides medical practice management services primarily to
private practicing physicians. In June 2001, NCRIC MSO borrowed $1,971,000 from
SunTrust Bank to finance payments made in accordance with the purchase of
HealthCare Consulting, Inc., HCI Ventures, LLC, and Employee Benefits Services,
Inc. In September, 2002, the Company pledged securities to collateralize this
loan lowering the interest rate from a floating rate of LIBOR plus two and
three-quarter percent to plus one and one-half percent. The term of the loan is
3 years. The balance of the loan was paid in May of 2004. The interest rate at
the time of the payoff was 2.68%, and 2.67% as of December 31, 2003. Principal
and interest payments were paid on a monthly basis until payoff.
 
10.  BENEFIT PLANS
 
     Defined Contribution Plans -- NCRIC sponsors a defined contribution 401(k)
profit-sharing plan. Employees who are 21 years or older and have completed 30
days of service are eligible for participation in the plan. Employees may elect
to contribute up to 15% of total compensation, and all employee contributions
are 100% vested. Effective January 1, 2002, the NCRIC and MSO plans were merged
into NCRIC Group, Inc.'s plan. The Company is not required to make matching
contributions to the plan, but may make discretionary contributions. Total
contributions to the plan by the Company for the years ended December 31, 2004,
2003, and 2002, were $411,500, $374,000, and $328,000, respectively.
 
     Stock Option Plan -- NCRIC Group, Inc. has a stock option plan for
directors and officers of the Company and its subsidiaries. The options have
terms of ten years and an exercise price equal to the fair market value of the
common stock at the date of grant. For the stock options granted in 2003, on
July 7, 2004, the Board of Directors accelerated the vesting of the stock
options to that date. The options were originally scheduled to vest during the
period from August, 2004 to August, 2008. On the accelerated vesting date, the
$10.00 per share market value of NCRIC stock was less than the strike price of
the options, which ranges from $10.86 to $11.00 per share.
 
     NCRIC Group accounts for compensation cost using the intrinsic value based
method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation expense was recognized since the stock
options granted were at an exercise price equal to the fair market value of the
common stock on the date the options were granted. Statement of Financial
Accounting
 
                                       C-75

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Standards No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure, requires disclosure of the pro forma net income and earnings per
share as if the Company had accounted for its stock options under the fair value
method defined in that Statement.
 
     The acceleration of vesting eliminates future compensation expense the
Company would otherwise recognize in its future income statements with respect
to these options after FASB Statement No. 123R, Share-Based Payment, becomes
effective in 2005. The pro forma note disclosure in Note 1 includes the maximum
amount of expense which would have been reported in future years.
 
     A summary of the status of the stock option plans as of December 31, 2004
and changes during each of the three years then ended are presented below. As a
part of the stock offering completed during 2003, the number and exercise price
of existing stock options granted to officers and directors of the Company and
its subsidiaries were converted at the exchange ratio of 1.8665.
 


                                                         WEIGHTED                 WEIGHTED
                                                         AVERAGE                  AVERAGE
                                                         EXERCISE                 EXERCISE
                                               SHARES     PRICE     EXERCISABLE    PRICE
                                               -------   --------   -----------   --------
                                                                      
December 31, 2001............................   74,000    $ 7.00       49,333      $ 7.00
  Vested.....................................       --    $   --       24,667      $ 7.00
                                               -------    ------      -------      ------
December 31, 2002............................   74,000    $ 7.00       74,000      $ 7.00
  Stock Conversion...........................   64,123    $ 3.75       64,123      $ 3.75
  Granted....................................  392,615    $10.90           --          --
  Exercised..................................  (10,359)   $ 3.75      (10,359)     $ 3.75
  Forfeited..................................   (3,453)   $ 3.75       (3,453)     $ 3.75
                                               -------    ------      -------      ------
December 31, 2003............................  516,926    $ 9.18      124,311      $ 3.75
  Vested.....................................       --        --      365,681      $10.90
  Exercised..................................  (16,574)   $ 3.75      (16,574)     $ 3.75
  Forfeited..................................  (72,514)   $10.90      (45,580)     $11.00
                                               -------    ------      -------      ------
December 31, 2004............................  427,838    $ 9.10      427,838      $ 9.10
                                               =======    ======      =======      ======

 
     The following table summarizes information for options outstanding and
exercisable at December 31, 2004:
 


                                                       OPTIONS OUTSTANDING AND EXERCISABLE
                                                       ------------------------------------
                                                                      WEIGHTED
                                                         NUMBER        AVERAGE     WEIGHTED
                                                       OUTSTANDING    REMAINING    AVERAGE
                                                           AND       CONTRACTUAL   EXERCISE
RANGE OF PRICES PER SHARE                              EXERCISABLE      LIFE        PRICE
-------------------------                              -----------   -----------   --------
                                                                          
$3.75 - $ 8.49.......................................    107,737        4.60        $ 3.75
$8.50 - $11.00.......................................    320,101        8.83        $10.90

 
     For pro forma disclosure purposes, the fair value of stock options was
estimated at the date of grant using a Black-Scholes option pricing model using
the following assumptions for grants made during 2003 and 1999, respectively:
risk free rate of return of 4.41% and 3.50%; no dividends granted during the
life of the option; volatility factors of the expected market price of the
Company's common stock ranging from .386 to .829 and .489 to .843; and an
expected life of the option of 9.15 and 10 years. The weighted average fair
value of the options granted during 2003 as of the grant date was $6.20. There
were no options granted in 2004.
 
                                       C-76

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Employee Stock Ownership Plan -- NCRIC Group, Inc. has an Employee Stock
Ownership Plan (ESOP) for employees who have attained age 21 and completed one
year of service. As part of the 1999 stock offering, the ESOP borrowed $1.0
million from NCRIC Group, Inc. to purchase 148,000 shares (276,247 shares on a
converted basis), which are held in a trust account for allocation among
participants as the loan is repaid. For shares allocated to the accounts of the
ESOP participants as the result of payments made to reduce the ESOP loan, the
compensation charge is based upon the average fair value of the shares over the
service period. Scheduled loan repayments on December 31, 2004, 2003, and 2002
have been made. During the years ended December 31, 2004, 2003, and 2002
contributions were made to the plan of $188,700, $207,200 and $162,800
respectively.
 
     Stock Award Plans -- The Company has established two Stock Award Plans
under which certain employees and directors may be awarded restricted common
stock vesting over a three to five year period. The trusts established under
each of the plans have borrowed funds from the Company to support the purchase
of NCRIC Group, Inc. common stock. All of the scheduled loan repayments have
been made. In September 2000, the Board of Directors granted 74,000 shares to
certain directors and officers under the original Plan. During August 2003, the
Board granted 159,120 shares under the 2003 Stock Award Plan. The Company
amortizes compensation expense equal to the fair value of the stock on the date
of award evenly over the vesting period. During the years ended December 31,
2004, 2003 and 2002, compensation expense related to the Stock Award Plans was
$424,900, $299,400 and $153,800, respectively.
 
     Executive Deferred Compensation Plan -- In 2003, NCRIC established a
deferred compensation plan which is a non-qualified, unfunded plan under which
the directors and officers of NCRIC Group may defer a portion of their
compensation. The Company will provide a match for deferrals of 5% of
compensation for officers. Deferred amounts are credited with interest at the
rate of 6% per year. The matching expense under this plan totaled $57,000 and
$49,000 for the years ended December 31, 2004 and 2003, respectively.
 
11.  STATUTORY ACCOUNTING AND DIVIDEND RESTRICTIONS
 
     The effects on these GAAP financial statements of the differences between
the statutory basis of accounting prescribed or permitted by the District of
Columbia Department of Insurance and Securities Regulation (DISR) and GAAP are
summarized below (in thousands):
 


                                                                 DECEMBER 31,
                                                         ----------------------------
                                                          2004      2003       2002
                                                         -------   -------   --------
                                                                    
POLICYHOLDERS' SURPLUS -- STATUTORY BASIS..............  $62,994   $70,372   $ 44,269
  Fair valuation of investments........................      536       904      2,806
  Deferred taxes.......................................   (1,932)   (1,771)     3,012
  Group stock issuance.................................    8,346     7,838      7,642
  Capital contribution.................................       --        --    (13,500)
  Non-admitted assets and other........................    2,071       636      3,588
                                                         -------   -------   --------
STOCKHOLDERS' EQUITY -- GAAP BASIS.....................  $72,015   $77,979   $ 47,817
                                                         =======   =======   ========
NET LOSS -- STATUTORY BASIS............................  $(8,984)  $(4,900)  $ (1,510)
  Deferred taxes.......................................    2,850       810      2,508
  GAAP consolidation and other.........................     (986)     (128)      (256)
                                                         -------   -------   --------
NET (LOSS) INCOME -- GAAP BASIS........................  $(7,120)  $(4,218)  $    742
                                                         =======   =======   ========

 
                                       C-77

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     As of December 31, 2004, 2003, and 2002, statutory capital and surplus for
NCRIC was sufficient to satisfy regulatory requirements. Each insurance company
is restricted under the applicable Insurance Code as to the amount of dividends
it may pay without regulatory consent.
 
12.  REPORTABLE SEGMENT INFORMATION
 
     NCRIC Group has one reportable segment: Insurance. The insurance segment
provides medical professional liability and other insurance. The reportable
segment is a strategic business unit that offers products and services and is
therefore managed separately. NCRIC Group evaluates performance based on profit
or loss before income taxes. In previous years, NCRIC Group reported a second
segment, Practice Management Services. As noted in the Form 10-K for the year
ended December 31, 2003, effective beginning in 2004, NCRIC Group no longer
reports this business as a separate segment. The Insurance segment revenue has
grown significantly over the past several years while the practice management
revenue has not experienced the same growth. As a result, the practice
management revenue constitutes less than 10% of consolidated revenues and,
therefore, no longer meets the GAAP criteria for segment reporting. The data
below has been reclassified to reflect this change in reportable segments.
Selected financial data is presented below for each business segment for the
year ended December 31 (in thousands):
 


                                                         2004       2003       2002
                                                       --------   --------   --------
                                                                    
Insurance
Revenues from external customers.....................  $ 67,229   $ 48,343   $ 31,023
Net investment income................................     6,844      5,749      5,877
Net realized investment gains (losses)...............       477      1,901       (131)
Loss and loss adjustment expenses....................    70,310     50,473     26,829
Depreciation and amortization........................     1,890      1,378        524
Segment (loss) profit before taxes...................    (9,738)    (4,844)     1,323
Segment assets.......................................   274,353    245,137    190,522
Segment liabilities..................................   202,712    168,465    138,297
Expenditures for segment assets......................     1,056        410        637

 
     The following are reconciliations of reportable segment revenues, net
investment income, assets, liabilities, and profit to the Company's consolidated
totals (in thousands):
 


                                                         2004       2003       2002
                                                       --------   --------   --------
                                                                    
Revenues:
Total revenues from external customers for reportable
  segment............................................  $ 67,229   $ 48,343   $ 31,023
  Other revenues.....................................     4,448      4,982      5,888
                                                       --------   --------   --------
  Consolidated total.................................  $ 71,677   $ 53,325   $ 36,911
                                                       ========   ========   ========

 


Net investment income:
                                                                    
     Total investment income for reportable
       segment.......................................  $  6,844   $  5,749   $  5,877
     Other investment income.........................       412        259         38
                                                       --------   --------   --------
  Consolidated total.................................  $  7,256   $  6,008   $  5,915
                                                       ========   ========   ========

 
                                       C-78

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 


Net realized investment gains (losses):
                                                                    
     Total realized investment gains (losses) for
       reportable segment............................  $    477   $  1,901   $   (131)
     Other realized investment gains (losses)........        (2)        29         --
                                                       --------   --------   --------
     Consolidated total..............................  $    475   $  1,930   $   (131)
                                                       ========   ========   ========
     Loss and loss adjustment expenses:
     Total loss and loss adjustment expenses for
       reportable segment............................  $ 70,310   $ 50,473   $ 26,829
     Other loss and loss adjustment expenses.........        --         --         --
                                                       --------   --------   --------
Consolidated total...................................  $ 70,310   $ 50,473   $ 26,829
                                                       ========   ========   ========
(Loss) profit before taxes:
     Total (loss) profit for reportable segment......  $ (9,738)  $ (4,844)  $  1,323
     Other losses, net...............................    (2,186)    (2,068)      (903)
                                                       --------   --------   --------
     Consolidated total..............................  $(11,924)  $ (6,912)  $    420
                                                       ========   ========   ========
Assets:
     Total assets for reportable segment.............  $274,353   $245,137   $190,522
     Other unallocated amounts.......................    18,546     17,409     12,165
                                                       --------   --------   --------
     Consolidated total..............................  $292,899   $262,546   $202,687
                                                       ========   ========   ========
Liabilities:
     Total liabilities for reportable segment........  $202,712   $168,465   $138,297
     Other liabilities...............................    18,172     16,102     16,573
                                                       --------   --------   --------
     Consolidated total..............................  $220,884   $184,567   $154,870
                                                       ========   ========   ========

 


Consolidated total.                                    $292,899   $262,546   $202,687
                                                                    
                                                       ========   ========   ========
Liabilities:
     Total liabilities for reportable segment........  $202,712   $168,465   $138,297
     Other liabilities...............................    18,172     16,102     16,573
                                                       --------   --------   --------
     Consolidated total..............................  $220,884   $184,567   $154,870
                                                       ========   ========   ========

 
13.  TRANSACTIONS WITH AFFILIATES
 
     NCRIC MSO rented an office building for one of its divisions from a
partnership whose partners are HealthCare Consulting senior executives. The
lease terminated October 31, 2002. For this property, NCRIC MSO paid
approximately $57,000 in rent for the year ended December 31, 2002.
 
     During 2004, 2003, and 2002, members of the Company's Board of Directors
paid NCRIC MSO approximately $199,000, $176,000 and $163,000, respectively, for
practice management related services.
 
14.  LITIGATION
 
     On February 13, 2004, a District of Columbia Superior Court jury returned a
verdict in favor of Columbia Hospital for Women Medical Center, Inc. (CHW) in
the premium collection litigation between NCRIC, Inc. and CHW. The verdict came
in a civil action stemming from NCRIC, Inc.'s efforts to
 
                                       C-79

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
collect payment for nearly $3 million in premiums that the Company alleges it is
owed by CHW under a contract with the hospital that expired in 2000. The jury
rejected the claim by NCRIC, Inc. and returned a verdict in favor of CHW
counterclaims. The jury awarded $18.2 million in damages to CHW.
 
     The verdict was entered as a judgment on February 20, 2004. On March 5,
2004, NCRIC filed post-trial motions for judgment as a matter of law and, in the
alternative, for a new trial. As a result of these post-trial motions, the
judgment is not final, and jurisdiction with respect to the verdict remains with
the trial judge. In connection with the filing of post-trial motions, NCRIC
secured a $19.5 million appellate bond and associated letter of credit. No
amounts have been drawn upon the letter of credit as of March 17, 2005. After
the post-trial motions have been ruled upon by the judge, any judgment will be
entered as final, but subject to appeal. No liability has been accrued in these
financial statements for any possible loss arising from this litigation because
the judgment is not yet final and remains with the trial judge and, NCRIC
believes that it has meritorious defenses and that it is not probable that the
preliminary judgment will prevail, nor is any potential final outcome reasonably
estimable at this time. Legal expenses incurred for this litigation for the
years ended December 31, 2004, 2003, and 2002 were $734,000, $399,000, and
$365,000. Expenses associated with securing the $19.5 million appellate bond and
associated letter of credit were $261,000 in 2004.
 
15.  SUBSEQUENT EVENT
 
     On February 28, 2005, the Company announced its Board had approved an
agreement to merge NCRIC Group, Inc. into ProAssurance Corporation in a
stock-for-stock transaction that values the Company at $10.10 per share, based
on the closing price of ProAssurance common stock on Friday, February 25, 2005.
Under the terms of the agreement each holder of common stock of the Company will
have the right to receive 0.25 of a share of ProAssurance common stock for each
share of NCRIC Group. This exchange ratio is subject to adjustment in the event
that the market price of the ProAssurance stock prior to the closing of the
transaction either exceeds $44.00 or is less than $36.00 such that the exchange
ratio would then be adjusted such that the value per NCRIC Group share would
neither exceed $11.00 nor be less than $9.00, respectively. The transaction is
subject to required regulatory approvals and a vote of NCRIC Group stockholders
and is expected to close early in the third quarter of 2005.
 
16.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
     The following is a summary of unaudited quarterly results of operations for
2004, 2003 and 2002. For the earnings per share calculations, the share amounts
for periods prior to the conversion and stock offering have been revised to
reflect the share exchange ratio applied in the conversion:
 


                                                             YEAR ENDED DECEMBER 31, 2004
                                                         -------------------------------------
                                                          FIRST    SECOND     THIRD    FOURTH
                                                         -------   -------   -------   -------
                                                                           
Premiums earned and other revenues.....................  $17,611   $16,860   $18,131   $19,075
Net investment income..................................    1,670     1,908     1,800     1,878
Realized investment gains (loss).......................      333        83       (72)      131
Net income (loss)......................................      522      (437)    1,097    (8,302)
Basic earnings (losses) per share of common stock......  $  0.08   $ (0.07)  $  0.17   $ (1.30)
Diluted earnings (losses) per share of common stock....  $  0.08   $ (0.07)  $  0.17   $ (1.30)

 
                                       C-80

                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 


                                                             YEAR ENDED DECEMBER 31, 2003
                                                         -------------------------------------
                                                          FIRST    SECOND     THIRD    FOURTH
                                                         -------   -------   -------   -------
                                                                           
Premiums earned and other revenues.....................  $13,177   $12,599   $13,954   $13,595
Net investment income..................................    1,322     1,389     1,657     1,640
Realized investment gains..............................      199     1,155       498        78
Net income (loss)......................................      514       542       370    (5,644)
Basic earnings (losses) per share of common stock......  $  0.08   $  0.08   $  0.06   $ (0.89)
Diluted earnings (losses) per share of common stock....  $  0.08   $  0.08   $  0.06   $ (0.89)

 


                                                               YEAR ENDED DECEMBER 31, 2002
                                                            ----------------------------------
                                                            FIRST    SECOND   THIRD    FOURTH
                                                            ------   ------   ------   -------
                                                                           
Premiums earned and other revenues........................  $8,339   $8,702   $9,478   $10,392
Net investment income.....................................   1,550    1,524    1,444     1,397
Realized investment (losses) gains........................     (36)    (574)       6       473
Net income (loss).........................................     534      198     (791)      801
Basic earnings (losses) per share of common stock.........  $ 0.08   $ 0.03   $(0.12)  $  0.12
Diluted earnings (losses) per share of common stock.......  $ 0.08   $ 0.03   $(0.12)  $  0.12

 
                                       C-81

 
                                                                      SCHEDULE I
 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
      SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
                               DECEMBER 31, 2004
 


                                                                                   AMOUNT AT
                                                                                 WHICH SHOWN IN
TYPE OF INVESTMENT                                        COST(1)     VALUE      BALANCE SHEET
------------------                                        --------   --------   ----------------
                                                                      (IN THOUSANDS)
                                                                       
Fixed Maturities:
United States Government and government agencies and
  authorities...........................................  $ 37,355   $ 37,313       $ 37,313
States, municipalities, and political subdivisions......    42,571     43,529         43,529
All other corporate bonds...............................    48,184     48,380         48,380
Asset and mortgage-backed securities....................    50,322     49,777         49,777
Redeemable preferred stocks.............................        --         --             --
                                                          --------   --------       --------
  Total fixed maturities................................   178,432    178,999        178,999
Equity securities:
Industrial, miscellaneous, and all other................    20,679     23,308         23,308
                                                          --------   --------       --------
  Total equity securities...............................    20,679     23,308         23,308
  Total investments.....................................  $199,111   $202,307       $202,307
                                                          ========   ========       ========

 
---------------
 
(1) Original cost of equity securities, and, as to fixed maturities, original
    costs reduced by repayments and adjusted for amortization of premiums or
    accrual of discounts.
 
                                       C-82

 
                                                                     SCHEDULE II
 
                NCRIC GROUP, INC. AND SUBSIDIARIES (PARENT ONLY)
 
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEET
                        AS OF DECEMBER 31, 2004 AND 2003
 


                                                               2004      2003
                                                              -------   -------
                                                               (IN THOUSANDS)
                                                                  
                                    ASSETS
INVESTMENTS:
     Investments in subsidiaries*...........................  $77,524   $82,920
     Bonds..................................................    6,636     7,403
                                                              -------   -------
       Total investments....................................   84,160    90,323
OTHER ASSETS:
  Cash and cash equivalents.................................      701       296
  Receivables...............................................       76        76
  Property and equipment, net...............................       --       895
  Due from subsidiaries*....................................    1,799     1,397
  Other assets..............................................    1,348       741
                                                              -------   -------
TOTAL ASSETS................................................  $88,084   $93,728
                                                              =======   =======

                     LIABILITIES AND STOCKHOLDERS' EQUITY

  Junior Subordinated Deferrable Interest Debentures........  $15,464   $15,464
  Other liabilities.........................................      605       285
                                                              -------   -------
TOTAL LIABILITIES...........................................   16,069    15,749
                                                              -------   -------
 
                             STOCKHOLDERS' EQUITY:
  Common stock..............................................       70        70
  Other stockholders' equity, including unrealized gains or
     losses on securities of subsidiaries...................   71,945    77,909
                                                              -------   -------
TOTAL STOCKHOLDERS' EQUITY..................................   72,015    77,979
                                                              -------   -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................  $88,084   $93,728
                                                              =======   =======

 
---------------
 
* Eliminated in consolidation.
 
                  See notes to condensed financial statements.
                                       C-83

 
                NCRIC GROUP, INC. AND SUBSIDIARIES (PARENT ONLY)
 
          SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       CONDENSED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
 


                                                               2004      2003      2002
                                                              -------   -------   ------
                                                                    (IN THOUSANDS)
                                                                         
REVENUES:
  Net investment income.....................................  $   437   $   272   $   16
  Dividends from subsidiaries*..............................       --     1,000    1,750
  Other income..............................................       (2)       15        7
                                                              -------   -------   ------
     Total revenues.........................................      435     1,287    1,773
                                                              -------   -------   ------
EXPENSES:
  Interest expense..........................................       --       826       62
  Other operating expenses..................................    1,549       663      608
                                                              -------   -------   ------
     Total expenses.........................................    1,549     1,489      670
                                                              -------   -------   ------
(LOSS) INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
  SUBSIDIARIES..............................................   (1,114)     (202)   1,103
Equity in undistributed earnings of subsidiaries............   (6,006)   (4,016)    (361)
                                                              -------   -------   ------
NET (LOSS) INCOME...........................................  $(7,120)  $(4,218)  $  742
                                                              =======   =======   ======

 
---------------
 
* Eliminated in consolidation.
 
                  See notes to condensed financial statements.
                                       C-84

 
                NCRIC GROUP, INC. AND SUBSIDIARIES (PARENT ONLY)
 
          SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       CONDENSED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
 


                                                               2004       2003       2002
                                                              -------   --------   --------
                                                                     (IN THOUSANDS)
                                                                          
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income.........................................  $(7,120)  $ (4,218)  $    742
  Adjustments to reconcile net (loss) income to net cash
     flows from operating activities:
  Equity in undistributed earnings of subsidiaries..........    6,006      4,016        361
  Net realized investment losses (gains)....................        2         (8)        --
  Amortization and depreciation.............................       44        199        106
  Stock released for coverage of benefit plans..............      683        546        319
  Other changes in assets and liabilities:..................      186     (1,276)       639
                                                              -------   --------   --------
     Net cash flows (used in) provided by operating
       activities...........................................     (199)      (741)     2,167
                                                              -------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of investments..................................     (246)    (9,059)    (3,392)
  Sales, maturities and redemptions of securities...........    1,025      4,982         --
  Conversion of holding company.............................       --       (254)        --
  Investment in subsidiaries................................       --    (30,075)   (13,960)
  Purchases of property and equipment.......................       --        (89)      (175)
                                                              -------   --------   --------
     Net cash flows provided by (used in) investing
       activities...........................................      779    (34,495)   (17,527)
                                                              -------   --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from exercise of stock options...................       30         --         --
  Net proceeds from Junior Subordinated Deferrable Interest
     Debentures.............................................       --         --     15,464
  Net proceeds from public stock offering...................       --     35,783         --
  Payments to acquire treasury stock........................     (205)      (350)       (30)
                                                              -------   --------   --------
       Net cash flows (used in) provided by financing
          activities........................................     (175)    35,433     15,434
NET CHANGE IN CASH AND CASH EQUIVALENTS.....................      405        197         74
                                                              -------   --------   --------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................      296         99         25
                                                              -------   --------   --------
CASH AND CASH EQUIVALENTS, END OF YEAR......................  $   701   $    296   $     99
                                                              =======   ========   ========
SUPPLEMENTARY INFORMATION:
  Interest paid.............................................  $    --   $    830   $     --
                                                              =======   ========   ========

 
                  See notes to condensed financial statements.
                                       C-85

 
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
 
                NCRIC GROUP, INC. AND SUBSIDIARIES (PARENT ONLY)
              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
 
     The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes of NCRIC Group,
Inc. and Subsidiaries.
 
I.  REORGANIZATION
 
     On June 24, 2003, a plan of conversion and reorganization was approved by
the members of NCRIC, A Mutual Holding Company and by the shareholders of NCRIC
Group, Inc. In the conversion and related stock offering, the NCRIC, A Mutual
Holding Company offered for sale its 60% ownership interest in NCRIC Group, Inc.
As a result of the conversion and stock offering, NCRIC, A Mutual Holding
Company ceased to exist, and NCRIC Group, Inc. became a fully publicly-owned
company. See Note 2 of the Notes to the Financial Statements.
 
     On December 31, 1998, National Capital Reciprocal Insurance Company
consummated its plan of reorganization from a reciprocal insurer to a stock
insurance company and became a wholly owned subsidiary of NCRIC Group, Inc.
(Group) and converted into NCRIC, Inc. Group was organized in December 1998, as
part of the plan to reorganize the corporate structure.
 
II.  BASIS OF PRESENTATION
 
     In Group's financial statements, investment in subsidiaries is stated at
cost plus equity in undistributed earnings of subsidiaries since date of
reorganization plus unrealized gains and losses of subsidiaries' investments.
 
III.  INVESTMENTS
 
     See Investments in the Consolidated Financial Statements and in Note 3 of
the Notes to the Consolidated Financial Statements.
 
IV.  JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
 
     See Note 5 of the Notes to the Consolidated Financial Statements.
 
V.  COMPREHENSIVE INCOME
 
     See Comprehensive Income in the Consolidated Financial Statements.
 
VI.  INCOME TAXES
 
     Group and its eligible subsidiaries file a consolidated U.S. Federal Income
tax return. Income tax liabilities or benefits are recorded by each subsidiary
based upon separate return calculations.
 
     For further information on income taxes, see Income Taxes in Note 7 of the
Notes to the Consolidated Financial Statements.
 
VII.  ACCOUNTING CHANGES
 
     For information concerning new accounting standards adopted in 2004, 2003
and 2002, see Note 1 of the Notes to the Consolidated Financial Statements.
 
VIII.  SUBSEQUENT EVENT
 
     For information on the subsequent event, see Note 15 of the Notes to the
Consolidated Financial Statements.
 
                                       C-86

 
                                                                    SCHEDULE III
 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
                      SUPPLEMENTARY INSURANCE INFORMATION
                       DECEMBER 31, 2004, 2003, AND 2002
 


                                                        FUTURE POLICY                   OTHER
                                         DEFERRED         BENEFITS,                     POLICY
                                          POLICY       LOSSES, CLAIMS,                CLAIMS AND
                                        ACQUISITION       AND LOSS        UNEARNED     BENEFITS     PREMIUM
SEGMENT                                    COSTS          EXPENSES        PREMIUMS     PAYABLE      REVENUE
-------                                 -----------   -----------------   --------   ------------   -------
                                                                  (IN THOUSANDS)
                                                                                     
Insurance:
2004..................................    $2,717          $153,242        $40,790                   $66,462
2003..................................    $2,358          $125,991        $34,553       $  --       $47,264
2002..................................    $1,480          $104,022        $24,211       $  --       $30,098

 


                                                                    AMORTIZATION
                                                       BENEFITS,    OF DEFERRED
                                             NET       LOSSES AND      POLICY        OTHER
                                          INVESTMENT      LOSS      ACQUISITION    OPERATING   PREMIUMS
SEGMENT                                     INCOME      EXPENSES       COSTS       EXPENSES    WRITTEN
-------                                   ----------   ----------   ------------   ---------   --------
                                                                                
Insurance:
2004....................................    $7,256      $70,310        $5,840       $6,662     $87,229
2003....................................    $6,008      $50,473        $4,360       $6,003     $71,365
2002....................................    $5,915      $26,829        $2,890       $5,728     $51,799

 
                                       C-87

 
                                                                     SCHEDULE IV
 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
                                  REINSURANCE
             FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
 


                                                    CEDED TO     ASSUMED                PERCENTAGE
                                           GROSS      OTHER     FROM OTHER     NET      OF ASSUMED
PROPERTY AND LIABILITY INSURANCE          AMOUNT    COMPANIES   COMPANIES     AMOUNT      TO NET
--------------------------------          -------   ---------   ----------   --------   ----------
                                                               (IN THOUSANDS)
                                                                         
2004....................................  $80,992   $(14,530)                $ 66,462       0%
2003....................................  $61,023   $(13,759)     $  --      $ 47,264       0%
2002....................................  $44,113   $(14,023)     $  --      $ 30,090       0%

 
                                       C-88

 
                                                                      SCHEDULE V
 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
                       VALUATION AND QUALIFYING ACCOUNTS
                           DECEMBER 31, 2004 AND 2003
 


                                              BALANCE AT    CHARGED TO                BALANCE
                                             BEGINNING OF   COSTS AND                 AT END
DESCRIPTION                                      YEAR        EXPENSES    DEDUCTIONS   OF YEAR
-----------                                  ------------   ----------   ----------   -------
                                                              (IN THOUSANDS)
                                                                          
2004
Allowance for Doubtful Accounts............     $1,882         $108        $(136)     $1,854
2003
Allowance for Doubtful Accounts............     $1,924         $486        $(528)     $1,882

 
                                       C-89

 
                                                                     SCHEDULE VI
 
                       NCRIC GROUP, INC. AND SUBSIDIARIES
 
             SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
                              INSURANCE COMPANIES
             FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
 


                                     DEFERRED
                                      POLICY      RESERVE FOR UNPAID                 NET         NET
                                    ACQUISITION    CLAIMS AND CLAIM     UNEARNED   PREMIUMS   INVESTMENT
                                       COSTS      ADJUSTMENT EXPENSES   PREMIUMS    EARNED      INCOME
                                    -----------   -------------------   --------   --------   ----------
                                                               (IN THOUSANDS)
                                                                               
2004..............................    $2,717           $153,242         $40,790    $66,462      $7,256
2003..............................    $2,358           $125,991         $34,553    $47,264      $6,008
2002..............................    $1,480           $104,022         $24,211    $30,098      $5,915

 


                                                                    AMORTIZATION
                                      LOSS AND LOSS ADJUSTMENT      OF DEFERRED     PAID LOSS
                                      EXPENSES RELATED TO:(1)          POLICY       AND LOSS
                                   ------------------------------   ACQUISITION    ADJUSTMENT    PREMIUMS
                                   CURRENT YEAR     PRIOR YEAR         COSTS       EXPENSES(1)   WRITTEN
                                   ------------   ---------------   ------------   -----------   --------
                                                                                  
2004.............................    $53,158          $17,152          $5,840        $37,977     $87,229
2003.............................    $44,588          $ 5,885          $4,360        $30,765     $71,365
2002.............................    $24,063          $ 2,766          $2,890        $20,155     $51,799

 
---------------
 
(1) Loss and loss adjustment expenses shown net of reinsurance
 
                                       C-90

 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
     None
 
ITEM 9A.  CONTROLS AND PROCEDURES
 
     Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-14(e) under the Exchange Act) as
of December 31, 2004, the Evaluation Date. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures are effective to ensure
that information required to be disclosed in the reports that NCRIC Group, Inc.
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
 
     No change in the Company's internal control over financial reporting
occurred during the fourth quarter of 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
 
ITEM 9B.  OTHER INFORMATION
 
     None
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information included in NCRIC Group, Inc.'s Proxy Statement for its 2005
Annual Meeting of Shareholders is incorporated herein by reference.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     Information included in NCRIC Group, Inc.'s Proxy Statement for its 2005
Annual Meeting of Shareholders is incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS
 
     Information included in NCRIC Group, Inc.'s Proxy Statement for its 2005
Annual Meeting of Shareholders is incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     None.
 
ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
     Information included in NCRIC Group, Inc.'s Proxy Statement for its 2005
Annual Meeting of Shareholders is incorporated herein by reference.
 
                                       C-91

 
                                    PART IV
 
ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
 
     (a)(1) Financial Statements. The following consolidated financial
statements of NCRIC Group, Inc. and subsidiaries are included herein in
accordance with Item 8 of Part II of this report.
 

                                                                          
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Operations for the Years Ended December 31,
  2004, 2003 and 2002
Consolidated Statements of Stockholders' Equity for the Years Ended
  December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the Years Ended December 31,
  2004, 2003 and 2002
Notes to Consolidated Financial Statements for the Years Ended December 31,
  2004, 2003 and 2002

 
     (a)(2) Financial Statement Schedules. The following consolidated financial
statement schedules of NCRIC Group, Inc. and subsidiaries are included herein in
accordance with Item 8 of Part II of this report.
 


 
                                                                 
         Summary of Investments -- Other Than Investments in Related
         Parties
 I.
         Condensed Financial Information of Registrant
II.
         Supplementary Insurance Information
III.
         Reinsurance
IV.
         Valuation and Qualifying Accounts
 V.
         Supplemental Information Concerning Property-Casualty
         Insurance Companies
VI.

 
     (b) Reports on Form 8-K.
 
     On November 12, 2004 the Registrant filed a Current Report on Form 8-K,
pursuant to Item 12, to report the issuance of a press release announcing
earnings for the quarter ended September 30, 2004. The press release was
included as an exhibit to the Current Report.
 
     On December 17, 2004 the Registrant filed a Current Report on Form 8-K,
pursuant to Item 7.01, to provide clarification on the Registrant's targeted
ratio of net premiums to statutory surplus.
 
     (c) Exhibits.
 
     The following exhibits are filed as part of this report or are incorporated
by reference to other filings.
 

            
    3.1        Certificate of Incorporation of NCRIC Group, Inc.(1)

    3.2        Bylaws of NCRIC Group, Inc.(2)

   10.1        Stock Option Plan (3)

   10.2        Stock Award Plan (3)

   10.3        NCRIC Group, Inc. 2003 Stock Option Plan (4)

   10.4        NCRIC Group, Inc. 2003 Stock Award Plan (4)

   10.5        Employment Agreement between NCRIC Group, Inc., NCRIC Inc.,
               and R. Ray Pate, Jr. (5)

   10.6        Employment Agreement between NCRIC Group, Inc, NCRIC, Inc.
               and Rebecca B. Crunk (5)

   10.7        Consulting Agreement between NCRIC Group, Inc. and Stephen
               S. Fargis (6)

   10.8        Employment Agreement with William E. Burgess (2)

   10.9        Lease (3)

   10.10       Amendment to Lease (3)

 
                                       C-92


            

   10.11       Administrative Services Agreement (7)

   10.12       Tax Sharing Agreement (7)

   10.13       Agreement and Plan of Merger between NCRIC Group, Inc. and
               ProAssurance Corporation (8)

   21          Subsidiaries

   23.2        Consent of Independent Registered Public Accounting Firm

   31.1        Certification of Chief Executive Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002

   31.2        Certification of Chief Financial Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002

   32          Certification of Chief Executive Officer and Chief Financial
               Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
               2002

 
---------------
 
(1) Incorporated by reference to the Pre-Effective Amendment No. 1 to the
    Registration Statement on Form S-1 filed with the Commission on May 12,
    2003.
 
(2) Incorporated by reference to the Registration Statement on Form S-1 filed
    with the Commission on March 25, 2003.
 
(3) Incorporated by reference to the Registrant's Registration Statement on Form
    SB-2 (File No. 333-69537) filed with the Commission on December 23, 1998 and
    subsequently amended on April 15, 1999, March 12, 1999 and May 7, 1999.
 
(4) Incorporated by reference to the Registrant's Proxy Statement for the 2003
    Annual Meeting of Shareholders filed with the Commission on May 19, 2003.
 
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
    (File No. 0-25505), originally filed with the Commission on March 27, 2002.
 
(6) Incorporated by reference to the Registrant's Current Report on Form 8-K
    (File No. 0-25505), originally filed with the Commission on January 6, 2005.
 
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
    (File No. 0-25505), originally filed with the Commission on March 26, 2004.
 
(8) Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report
    on Form 8-K (File No. 0-25505), originally filed with the Commission on
    March 4, 2005, which incorporates the Agreement and Plan of Merger dated as
    of February 28, 2005 by reference to Exhibit 2.1 of the Current Report on
    Form 8-K of ProAssurance Corporation (File No. 001-16533), originally filed
    with the Commission on March 3, 2005.
 
     (d) Not applicable.
 
                                       C-93

 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                          NCRIC Group, Inc.
 
                                          By: /s/ R. Ray Pate, Jr.
                                            ------------------------------------
                                              R. Ray Pate, Jr.
                                              Vice Chairman, President and Chief
                                              Executive Officer
                                              (Duly Authorized Representative)
 
Date: March 21, 2005
 
     Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons in the capacities and on the dates
indicated.
 


              SIGNATURES                               TITLE                       DATE
              ----------                               -----                       ----
                                                                     

/s/ Nelson P. Trujillo                   Chairman of the Board of Directors   March 21, 2005
--------------------------------------
Nelson P. Trujillo, M.D.

 
/s/ R. Ray Pate, Jr.                       Vice Chairman of the Board of      March 21, 2005
--------------------------------------     Directors, President and Chief
R. Ray Pate, Jr.                            Executive Officer (Principal
                                                 Executive Officer)

 
/s/ Rebecca B. Crunk                      Senior Vice President and Chief     March 21, 2005
--------------------------------------      Financial Officer (Principal
Rebecca B. Crunk                         Financial and Accounting Officer)

 
/s/ Vincent C. Burke                                  Director                March 21, 2005
--------------------------------------
Vincent C. Burke, III

 
/s/ Pamela W. Coleman                                 Director                March 21, 2005
--------------------------------------
Pamela W. Coleman, M.D.

 
/s/ Leonard M. Glassman                               Director                March 21, 2005
--------------------------------------
Leonard M. Glassman, M.D.

 
/s/ Luther W. Gray, Jr.                               Director                March 21, 2005
--------------------------------------
Luther W. Gray, Jr., M.D.

 
/s/ Prudence P. Kline                                 Director                March 21, 2005
--------------------------------------
Prudence P. Kline, M.D.

 
/s/ Stuart A. McFarland                               Director                March 21, 2005
--------------------------------------
Stuart A. McFarland

 
                                       C-94

 


              SIGNATURES                               TITLE                       DATE
              ----------                               -----                       ----
 
                                                                     

/s/ J. Paul McNamara                                  Director                March 21, 2005
--------------------------------------
J. Paul McNamara

 
/s/ Leonard M. Parver                                 Director                March 21, 2005
--------------------------------------
Leonard M. Parver, M.D.

 
/s/ Frank K. Ross                                     Director                March 21, 2005
--------------------------------------
Frank K. Ross

 
/s/ David M. Seitzman                                 Director                March 21, 2005
--------------------------------------
David M. Seitzman, M.D.

 
                                       C-95

 

                                                                      APPENDIX D

 

                    U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
 
                                   FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)


                     OF THE SECURITIES EXCHANGE ACT OF 1934


                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

 
                        COMMISSION FILE NUMBER: 0-25505
 
(NCRIC GROUP, INC. LOGO)
 
                               NCRIC GROUP, INC.
 


                                            
                   DELAWARE                                      52-2134774
       (State or Other Jurisdiction of                        (I.R.S. Employer
        Incorporation or Organization)                      Identification No.)


 

                  1115 30TH STREET, NW, WASHINGTON, D.C. 20007


               (Address of Principal Executive Offices)      (Zip Code)

 

                                  202-969-1866

                (Issuer's Telephone Number, Including Area Code)
 

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such filing
requirements for the past 90 days.  [X]

 

     Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).

 

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of May 6, 2005, there
were 6,909,782 shares of NCRIC Group, Inc. common stock outstanding.

 
                                       D-1

 

PART I FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

                       NCRIC GROUP, INC. AND SUBSIDIARIES

 

                     CONDENSED CONSOLIDATED BALANCE SHEETS

 



                                                               MARCH 31, 2005     DECEMBER 31, 2004
                                                              ----------------   -------------------
                                                                (UNAUDITED)
                                                              (IN THOUSANDS, EXCEPT FOR SHARE DATA)
                                                                           
                                               ASSETS
INVESTMENTS:
  Securities available for sale, at fair value:
     Bonds and U.S. Treasury Notes (Amortized cost $190,920
       and $178,432)........................................      $188,388             $178,999
     Equity securities (Cost $24,091 and $20,679)...........        26,372               23,308
                                                                  --------             --------
       Total securities available for sale..................       214,760              202,307
OTHER ASSETS:
  Cash and cash equivalents.................................         7,326               13,658
  Reinsurance recoverable...................................        45,122               44,846
  Goodwill, net.............................................         7,296                7,296
  Premiums and accounts receivable, net.....................         5,672                7,526
  Deferred income taxes, net................................         9,276                8,404
  Other assets..............................................        12,513                8,862
                                                                  --------             --------
TOTAL ASSETS................................................      $301,965             $292,899
                                                                  ========             ========

                                LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Losses and loss adjustment expenses:
     Losses.................................................      $110,072             $107,746
     Loss adjustment expenses...............................        45,875               45,496
                                                                  --------             --------
       Total losses and loss adjustment expenses............       155,947              153,242
  Other liabilities:
     Retrospective premiums accrued under reinsurance
       treaties.............................................           261                  351
     Unearned premiums......................................        53,663               40,790
     Advance premiums.......................................           366                5,520
     Reinsurance premiums payable...........................           430                  766
     Trust Preferred Securities.............................        15,000               15,000
     Other liabilities......................................         5,696                5,215
                                                                  --------             --------
TOTAL LIABILITIES...........................................       231,363              220,884
                                                                  --------             --------
STOCKHOLDERS' EQUITY:
  Common stock $0.01 par value -- 12,000,000 shares
     authorized; 6,909,782 and 6,892,517 shares issued and
     outstanding, respectively (net of 56,134 treasury
     shares)................................................            70                   70
  Preferred stock $0.01 par value -- 1,000,000 shares
     authorized, 0 shares issued............................            --                   --
  Additional paid in capital................................        49,286               49,161
  Unallocated common stock held by the ESOP.................        (2,444)              (2,478)
  Common stock held by the stock award plan.................        (1,151)              (1,218)
  Accumulated other comprehensive income....................          (166)               2,109
  Retained earnings.........................................        25,562               24,926
  Treasury stock, at cost...................................          (555)                (555)
                                                                  --------             --------
TOTAL STOCKHOLDERS' EQUITY..................................        70,602               72,015
                                                                  --------             --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................      $301,965             $292,899
                                                                  ========             ========


 

           See notes to condensed consolidated financial statements.

 
                                       D-2

 

                       NCRIC GROUP, INC. AND SUBSIDIARIES

 

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 



                                                               THREE MONTHS ENDED
                                                                    MARCH 31,
                                                              ---------------------
                                                                2005        2004
                                                              ---------   ---------
                                                                    UNAUDITED
                                                              (IN THOUSANDS, EXCEPT
                                                                 PER SHARE DATA)
                                                                    
REVENUES:
  Net premiums earned.......................................   $17,843     $16,150
  Net investment income.....................................     1,915       1,670
  Net realized investment gains.............................       302         333
  Practice management and related income....................     1,176       1,224
  Other income..............................................       178         237
                                                               -------     -------
     Total revenues.........................................    21,414      19,614
                                                               -------     -------
EXPENSES:
  Losses and loss adjustment expenses.......................    14,446      13,075
  Underwriting expenses.....................................     3,201       3,533
  Practice management and related expenses..................     1,345       1,234
  Interest expense on Trust Preferred Securities............       254         202
  Other expenses............................................     1,134         952
                                                               -------     -------
     Total expenses.........................................    20,380      18,996
                                                               -------     -------
INCOME BEFORE INCOME TAXES..................................     1,034         618
                                                               -------     -------
INCOME TAX PROVISION........................................       398          96
                                                               -------     -------
NET INCOME..................................................   $   636     $   522
                                                               =======     =======
OTHER COMPREHENSIVE (LOSS) INCOME...........................    (2,275)      1,636
                                                               -------     -------
COMPREHENSIVE (LOSS) INCOME.................................   $(1,639)    $ 2,158
                                                               =======     =======
Net income per common share:
Basic:
  Average shares outstanding................................     6,401       6,337
                                                               -------     -------
  Earnings Per Share........................................   $  0.10     $  0.08
                                                               =======     =======
Diluted:
  Average shares outstanding -- basic.......................     6,401       6,337
  Dilutive effect of stock options..........................       215         277
                                                               -------     -------
  Weighted average shares outstanding -- diluted............     6,616       6,614
                                                               -------     -------
  Earnings Per Share........................................   $  0.10     $  0.08
                                                               =======     =======


 

           See notes to condensed consolidated financial statements.

 
                                       D-3

 

                       NCRIC GROUP, INC. AND SUBSIDIARIES

 

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 



                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2005       2004
                                                              --------   --------
                                                                   UNAUDITED
                                                                (IN THOUSANDS)
                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................  $    636   $    522
  Adjustments to reconcile net income to net cash flows from
     operating activities:
     Net realized investment gains..........................      (302)      (333)
     Amortization and depreciation..........................       564        498
     Provision for uncollectible receivables................        (2)        87
     Deferred income taxes..................................       300       (367)
     Stock released for coverage of benefit plans...........       226        165
     Changes in assets and liabilities:
       Reinsurance recoverable..............................      (276)    (4,652)
       Premiums and accounts receivable.....................     1,856      3,069
       Other assets.........................................    (3,680)       237
       Losses and loss adjustment expenses..................     2,705      4,243
       Retrospective premiums accrued under reinsurance
        treaties............................................       (90)        67
       Unearned premiums....................................    12,873     14,407
       Advance premiums.....................................    (5,154)    (2,862)
       Reinsurance premiums payable.........................      (336)    (1,062)
       Other liabilities....................................       481      1,520
                                                              --------   --------
       Net cash flows provided by operating activities......     9,801     15,539
                                                              --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of investments..................................   (27,796)   (46,039)
  Sales, maturities and redemptions of investments..........    11,813     29,545
  Purchases of property and equipment.......................      (150)      (241)
                                                              --------   --------
       Net cash flows used in investing activities..........   (16,133)   (16,735)
                                                              --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of long-term debt...............................        --       (180)
                                                              --------   --------
       Net cash flows used in financing activities..........        --       (180)
                                                              --------   --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.....................    (6,332)    (1,376)
                                                              --------   --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..............    13,658      9,978
                                                              --------   --------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................  $  7,326   $  8,602
                                                              ========   ========
SUPPLEMENTARY INFORMATION:
  Cash paid for income taxes................................  $     --   $     --
                                                              ========   ========
  Interest paid.............................................  $    249   $    204
                                                              ========   ========


 

           See notes to condensed consolidated financial statements.

 
                                       D-4

 

                       NCRIC GROUP, INC. AND SUBSIDIARIES

 

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


          FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2005 -- UNAUDITED

 

1.  BASIS OF PREPARATION

 

     The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with instructions to Form 10-Q and therefore do not
include all disclosures necessary for a complete presentation under accounting
principles generally accepted in the United States of America. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation have been included.

 

     Operating results for the three-month period ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005. These condensed consolidated financial statements and notes
should be read in conjunction with the financial statements and notes included
in the audited consolidated financial statements of NCRIC Group, Inc. (NCRIC
Group) for the year ended December 31, 2004, which were filed with the
Securities and Exchange Commission on Form 10-K.

 

2.  REPORTABLE SEGMENT INFORMATION

 

     NCRIC Group has one reportable segment: Insurance. The insurance segment
provides medical professional liability and other insurance. The reportable
segment is a strategic business unit that offers products and services and is
therefore managed separately. NCRIC Group evaluates performance based on profit
or loss before income taxes. Selected financial data is presented for the
business segment at or for the three-month period ended March 31, 2005 and 2004
(in thousands):

 



                                                                AT OR FOR THE THREE
                                                              MONTHS ENDED MARCH 31,
                                                              -----------------------
                                                                 2005         2004
                                                              ----------   ----------
                                                                     
INSURANCE SEGMENT
Revenues from external customers............................   $ 18,021     $ 16,369
Net investment income.......................................      1,843        1,571
Net realized investment gains...............................        302          332
Losses and loss adjustment expenses.........................     14,446       13,075
Depreciation and amortization...............................        525          447
Segment profit before taxes.................................      2,168        1,317
Segment assets..............................................    285,219      263,824
Segment liabilities.........................................    214,226      184,614
Expenditures for segment assets.............................         76          149


 
                                       D-5


                       NCRIC GROUP, INC. AND SUBSIDIARIES

 

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

 

     The following are reconciliations of reportable revenues, net investment
income, net realized investment gains, losses and loss adjustment expenses,
profit before taxes, assets and liabilities to NCRIC Group's consolidated totals
(in thousands):

 



                                                                AT OR FOR THE THREE
                                                              MONTHS ENDED MARCH 31,
                                                              -----------------------
                                                                 2005         2004
                                                              ----------   ----------
                                                                     
Revenues from external customers:
  Total revenues for reportable segment.....................   $ 18,021     $ 16,369
  Other revenues............................................      1,176        1,242
                                                               --------     --------
  Consolidated total........................................   $ 19,197     $ 17,611
                                                               ========     ========
 
Net investment income:
  Total investment income for reportable segment............   $  1,843     $  1,571
  Other investment income...................................         72           99
                                                               --------     --------
  Consolidated total........................................   $  1,915     $  1,670
                                                               ========     ========
Net realized investment gains:
  Total realized investment gains for reportable segment....   $    302     $    332
  Other realized investment gains...........................         --            1
                                                               --------     --------
  Consolidated total........................................   $    302     $    333
                                                               ========     ========
 
Losses and loss adjustment expenses:
  Total losses and loss adjustment expenses for reportable
     segment................................................   $ 14,446     $ 13,075
  Other losses and loss adjustment expenses.................         --           --
                                                               --------     --------
  Consolidated total........................................   $ 14,446     $ 13,075
                                                               ========     ========
 
Profit before taxes:
  Total profit for reportable segment.......................   $  2,168     $  1,317
  Other losses..............................................     (1,134)        (699)
                                                               --------     --------
  Consolidated total........................................   $  1,034     $    618
                                                               ========     ========
 
Assets:
  Total assets for reportable segment.......................   $285,219     $263,824
  Other assets..............................................     16,746       17,178
                                                               --------     --------
  Consolidated total........................................   $301,965     $281,002
                                                               ========     ========
 
Liabilities:
  Total liabilities for reportable segment..................   $214,226     $184,614
  Other liabilities.........................................     17,137       16,086
                                                               --------     --------
  Consolidated total........................................   $231,363     $200,700
                                                               ========     ========


 
                                       D-6


                       NCRIC GROUP, INC. AND SUBSIDIARIES

 

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

 

3.  EARNINGS PER SHARE

 

     Earnings per share is calculated by dividing the net income by the weighted
average shares outstanding. The following table sets forth the computation of
basic and diluted earnings per share (in thousands except per share data):

 



                                                              AT OR FOR THE THREE
                                                                 MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2005       2004
                                                              --------   --------
                                                                   
Net income..................................................   $  636     $  522
                                                               ======     ======
Weighted average common shares outstanding -- basic.........    6,401      6,337
Dilutive effect of stock options and awards.................      215        277
                                                               ------     ------
Weighted average common shares outstanding -- diluted.......    6,616      6,614
                                                               ======     ======
Net income per common share:
Basic.......................................................   $ 0.10     $ 0.08
                                                               ======     ======
Diluted.....................................................   $ 0.10     $ 0.08
                                                               ======     ======


 

4.  MERGER

 

     On February 28, 2005, the Company announced that the Board of Directors had
approved an agreement to merge NCRIC Group, Inc. into ProAssurance Corporation
in a stock-for-stock transaction. Under the terms of the agreement each holder
of common stock of NCRIC Group will have the right to receive 0.25 of a share of
ProAssurance common stock for each share of NCRIC Group, subject to adjustment.
In the event that the market price of the ProAssurance stock prior to the
closing of the transaction either exceeds $44.00 or is less than $36.00, the
exchange ratio would be adjusted such that the value per NCRIC Group share would
neither exceed $11.00 nor be less than $9.00, respectively. The transaction is
subject to required regulatory approvals and a vote of NCRIC Group stockholders
and is expected to close early in the third quarter of 2005.

 

5.  LITIGATION

 

     On February 13, 2004, a District of Columbia Superior Court jury returned a
verdict in favor of Columbia Hospital for Women Medical Center, Inc. (CHW) in
the premium collection litigation between NCRIC, Inc. and CHW. The verdict came
in a civil action stemming from NCRIC, Inc.'s efforts to collect payment for
nearly $3 million in premiums that NCRIC alleges it is owed by CHW under a
contract with CHW that expired in 2000. The jury ruled against the claim by
NCRIC, Inc. and returned a verdict of $18.2 million in favor of CHW
counterclaims.

 

     The verdict was entered as a judgment on February 20, 2004. On March 5,
2004, NCRIC filed post-trial motions for judgment as a matter of law and, in the
alternative, for a new trial. As a result of these post-trial motions, the
judgment is not final, and jurisdiction with respect to the verdict remains with
the trial judge. No decision has yet been rendered on the post-trial motions. In
connection with the filing of post-trial motions, NCRIC secured a $19.5 million
appellate bond and associated letter of credit. The amount of the bond
represents the verdict plus a projection of post-trial interest. No amounts have
been drawn upon the letter of credit as of May 6, 2005. After the post-trial
motions have been ruled upon by the judge, any judgment will be entered as
final, but subject to appeal. No liability has been accrued in these financial
statements for any possible loss arising from this litigation because the
judgment remains

 
                                       D-7


                       NCRIC GROUP, INC. AND SUBSIDIARIES

 

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

 

with the trial judge, and NCRIC believes that it has meritorious defenses and
that it is not probable that the preliminary judgment will prevail, nor is any
potential final outcome reasonably estimable at this time.

 

     Expenses incurred for the trial portion of the litigation, reported as a
component of underwriting expenses, in the first quarter of 2005 and 2004 were
$50,000 and $503,000, respectively. Expenses incurred for post-trial costs,
reported as a component of other expenses, in the first quarter of 2005 and 2004
were $68,000 and $370,000, respectively. NCRIC Group, Inc. has indemnified
NCRIC, Inc., through an indemnification agreement, for post-trial costs expected
to be incurred and for any potential final judgment up to $5.5 million, on an
after-tax basis.

 

6.  OTHER COMPREHENSIVE INCOME

 

     Other comprehensive loss for the three-month period ended March 31, 2005
includes unrealized losses on available for sale investments, net of tax, of
$2,275,000. Other comprehensive income for the three-month period ended March
31, 2004 includes unrealized gains for available for sale investments, net of
tax, of $1,636,000.

 

7.  NEW ACCOUNTING GUIDANCE

 

     In July 2004, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus with respect to guidance to be used in
determining whether an investment within the scope of EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments, is other than temporarily impaired. The guidance was to be applied
in other-than-temporary impairment evaluations made in reporting periods
beginning after June 15, 2004. In September 2004, the FASB issued, and the
Company adopted, FSP EITF Issue 03-1-1, which deferred the effective date of the
impairment measurement and recognition provisions contained in EITF 03-1 until
final guidance is adopted. The disclosure requirements of EITF 03-1 were
previously adopted by the Company as of December 31, 2003 for investments
accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. For all other investments within the scope of EITF 03-1, the
disclosures are effective and have been adopted by the Company as of December
31, 2004. As this accounting guidance develops, we will continue to review it to
assess any potential impact to our fixed income portfolio and our asset
management policy.

 

     In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS 123R). This statement replaces Statement No. 123, Accounting for
Stock-Based Compensation and supercedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance. The statement
requires the adoption of a fair-value-based method of accounting for share based
transactions with employees. In April 2005, the Securities and Exchange
Commission deferred the effective date of SFAS 123R from the first interim or
annual period beginning after June 15, 2005 to the next fiscal year beginning
after June 15, 2005. The Company is in the process of evaluating the
requirements of SFAS 123R to comply with the new pronouncement by the first
quarter of 2006.

 
                                       D-8

 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION

 

     The following analysis of the consolidated results of operations and
financial condition of NCRIC Group should be read in conjunction with the
condensed consolidated financial statements and related notes included in this
Form 10-Q. References to "NCRIC" mean NCRIC Group and its subsidiaries.

 

GENERAL

 

     The financial statements and data presented in the Form 10-Q have been
prepared in accordance with accounting principles generally accepted in the
United States of America, GAAP, unless otherwise noted. GAAP differs from
statutory accounting practices used by regulatory authorities in their oversight
responsibilities of insurance companies.

 

     There have been no material changes to our accounting policies during the
quarter ended March 31, 2005. Following is a condensed summary of key financial
concepts and of those accounting policies which we believe to be the most
critical. That is, these are most important to the portrayal of our financial
condition and results of operations and they require management's most complex
judgments, including the need to make estimates about the effect of insurance
losses and other matters that are inherently uncertain.

 

     Premium income.  Gross premiums written represent the amounts billed to
policyholders. Gross premiums written are reduced by premiums ceded to
reinsurers and renewal credits in determining net premiums written. Net premiums
written are adjusted by any amount which has been billed but not yet earned
during the period in arriving at earned premiums. Extended reporting
endorsements premium is earned in the same period it is written.

 

     For several large groups of policyholders, we have had insurance programs
where the premiums are retrospectively determined based on losses during the
period. Under all of the current programs, the full premium level was determined
and billed at the inception of the policy term. The premium level could
potentially be reduced and a premium refund made if the program loss experience
is favorable through the period when all open program claims are resolved. At
policy renewal dates, these programs have been discontinued.

 

     Reserves for losses and loss adjustment expenses.  We write one line of
business, medical professional liability. Losses and LAE reserves are estimates
of future payments for reported claims and related expenses of adjudicating
claims with respect to insured events that have occurred in the past. The change
in these reserves from period to period is reflected as an increase or decrease
to our losses and LAE expense incurred.

 

     Medical professional liability losses and LAE reserves are established
based on an estimate of these future payments as reflected in our past
experience with similar cases and historical trends involving claim payment
patterns. Reserving for medical professional liability claims is a complex and
uncertain process, requiring the use of informed estimates and judgments.
Although we intend to estimate conservatively our future payments relating to
losses incurred, there can be no assurance that currently established reserves
will prove adequate in light of subsequent actual experience. Losses and LAE
expenses as stated in the statement of operations are reported net of
reinsurance recoveries.

 

     Reinsurance.  We manage our exposure to individual claim losses, annual
aggregate losses, and LAE through our reinsurance program. Reinsurance allows us
to obtain indemnification against a specified portion of losses associated with
insurance policies we have underwritten by entering into a reinsurance agreement
with other insurance enterprises or reinsurers. We pay or cede part of our
policyholder premium to reinsurers. The reinsurers in return agree to reimburse
us for a specified portion of any claims covered under the reinsurance contract.
While reinsurance arrangements are designed to limit losses from large exposures
and to permit recovery of a portion of direct losses, reinsurance does not
relieve us of liability to our insured policyholders. We monitor the
creditworthiness of reinsurers on an ongoing basis. We also routinely evaluate
for collectibility amounts recoverable from reinsurers. No allowance for
uncollectible reinsurance recoverable has been determined to be necessary.

 
                                       D-9

 

     Investment portfolio.  Our investment portfolio is composed principally of
fixed maturity securities classified as available-for-sale. All securities with
gross unrealized losses at the balance sheet date are evaluated for evidence of
other-than-temporary impairment on a quarterly basis. We write down to fair
value any security with an impairment that is deemed to be other than temporary
in the period the determination is made. The assessment of whether such
impairment has occurred is based on management's case-by-case evaluation of the
underlying reasons for the decline in fair value. The evaluation for
other-than-temporary impairments is a quantitative and qualitative process
involving judgments which is subject to risks and uncertainties. The risks and
uncertainties include changes in general economic conditions, the issuer's
financial condition and the effects of changes in interest rates.

 

     Goodwill.  In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of goodwill
ceased upon adoption of SFAS 142 on January 1, 2002.

 

     Our goodwill asset, $7.3 million as of March 31, 2005, resulted from the
1999 acquisition of three businesses which now operate as divisions of
ConsiCare, Inc. (formerly NCRIC MSO, Inc.), a subsidiary of NCRIC Group. We
completed our goodwill impairment testing under SFAS 142 and concluded that the
goodwill asset was not impaired as of the annual evaluation date, nor was it
impaired as of March 31, 2005.

 

     The basic steps involved in the goodwill impairment test are (1)
identification of the reporting unit to be tested; and (2) calculation of the
current fair value of the reporting unit and comparing it to the carrying value.
If the current fair value of the reporting unit exceeds the carrying value,
goodwill is not impaired. Because the acquired divisions are not publicly
traded, a discounted cash value calculation is used to determine the current
fair value of the unit.

 

     Estimates as to future performance of the divisions along with current
market value indicators provide the basis for determination of the current fair
value of the unit. There is no guarantee of either the accuracy of the estimate
of future performance of the divisions or of the accuracy of current market
value indicators, since the real test of market value is what a potential
acquirer is willing to pay.

 

     New accounting guidance.  In July 2004, the Emerging Issues Task Force of
the Financial Accounting Standards Board reached a consensus with respect to
guidance to be used in determining whether an investment within the scope of
EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, is other than temporarily impaired. The
guidance was to be applied in other-than-temporary impairment evaluations made
in reporting periods beginning after June 15, 2004. In September 2004, the FASB
issued, and NCRIC adopted, FSP EITF Issue 03-1-1, which deferred the effective
date of the impairment measurement and recognition provisions contained in EITF
03-1 until final guidance is adopted. The disclosure requirements of EITF 03-1
were previously adopted by NCRIC as of December 31, 2003 for investments
accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. For all other investments within the scope of EITF 03-1, the
disclosures are effective and have been adopted by NCRIC as of December 31,
2004. As this accounting guidance develops, we will continue to review it to
assess any potential impact to our fixed income portfolio and our asset
management policy.

 

     In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS 123R). This statement replaces Statement No. 123, Accounting for
Stock-Based Compensation and supercedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance. The statement
requires the adoption of a fair-value-based method of accounting for share based
transactions with employees. In April 2005, the Securities and Exchange
Commission deferred the effective date of SFAS 123R from the first interim or
annual period beginning after June 15, 2005 to the next fiscal year beginning
after June 15, 2005. The Company is in the process of evaluating the
requirements of SFAS 123R to comply with the new pronouncement by the first
quarter of 2006.

 
                                       D-10

 

OVERVIEW

 

     First quarter 2005 results reflect 1) the continued implementation of our
business plan and 2) expenses incurred for the proposed merger with ProAssurance
Corporation. Book value per share as of March 31, 2005 stood at $10.22 compared
to $10.45 at December 31, 2004, decreasing due to the decline in fair value of
the fixed-maturity component of the investment portfolio.

 

     As measured by premium, 40% of our policies have renewal dates in the first
quarter of the year. In the first quarter the overall retention rate was 84%, a
level slightly lower than experienced in recent years. We continue to see
economic pressures drive physicians to look for less costly coverage
alternatives, such as moving to a lower cost provider and alternative risk
financing. Primarily as a result of business lost to price competition, the
overall number of insurance policies in force went down during the quarter. The
policy count as of March 31, 2005 stands at 3,847 compared to 3,942 as of
December 31, 2004. The net policy count reduction is mainly attributable to two
groups of physicians that moved their coverage to competitors due to pricing.
Nevertheless, earned premiums grew due to the rate level increases and new
business written over the past 12 months.

 

     Claims frequency, as measured by the number of claims reported, rose
slightly in the first quarter of 2005 compared to the first quarter of 2004.
Development of losses reported in prior years is neutral in 2005.

 

     On March 4, 2005, A.M. Best downgraded the rating of NCRIC, Inc. from "A-"
to "B++" (Very Good) under review with negative implications. The "B++" rating
is A.M. Best's fifth highest rating out of its 15 possible rating
classifications. This action followed the February 28, 2005 announcement of
NCRIC Group, Inc.'s fourth quarter and year-end 2004 results. On February 28,
2005, we also announced a definitive agreement to merge with ProAssurance
Corporation. The rating will remain under review pending A.M. Best's review of
NCRIC, Inc.'s loss reserves, completion of the merger with ProAssurance and
discussions with management. Our goal is to restore the rating to its previous
level of "A-" once A.M. Best has more time to factor in the financial strength
provided by the proposed transaction with ProAssurance.

 

     The announcement of the downgrade occurred after the anniversary dates of
nearly all first quarter renewals. For this reason, premium written and earned
was basically unaffected by the rating change. In April, however, we saw two
groups of physicians terminate their coverage either solely because of the
rating or due to a combination of the downgrade and our relatively high premium
rates.

 

  THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31,
  2004

 

CONSOLIDATED NET INCOME

 

     Net income was $636,000 for the three months ended March 31, 2005 compared
to $522,000 for the three months ended March 31, 2004. Total revenue for the
quarter of $21.4 million was up 9% compared to the same quarter in 2004. The
higher revenue was partially offset by increases in loss and loss adjustment
expenses. Expenses related to the CHW litigation were lower by $755,000 in the
first quarter of 2005 compared to the first quarter of 2004. Additionally,
expenses of $649,000 related to the proposed merger transaction were incurred in
the first quarter of 2005.

 

     First quarter pre-tax income in our insurance segment increased to $2.2
million from $1.3 million for 2004. Insurance segment earnings improved
primarily due to $272,000 of higher investment income and $453,000 decrease in
expenses related to the trial portion of the litigation in the first quarter of
2005 compared to the first quarter of 2004.

 

NET PREMIUMS EARNED

 

     Net premiums earned increased by $1.6 million, or 10%, to $17.8 million
from $16.2 million for the three months ended March 31, 2005 and 2004,
respectively. The increase results primarily from the premium rates increases,
which average 18%, partially offset by $668,000 less premium for extended

 
                                       D-11

 

reporting endorsements. Extended reporting endorsements premium is earned in the
same period it is written. Additionally, net premiums earned for the first
quarter of 2005 increased by $247,000 from the March 31, 2004 level due to
unfavorable loss development in the hospital-sponsored retrospectively rated
programs in the first quarter of 2005. Under these programs, additional premiums
are either earned or returned based on a group's loss experience.

 

     Gross premiums written of $34.4 million for the three months ended March
31, 2005 compared to $34.3 million for the three months ended March 31, 2004
increased due to the rise in premium rates, plus new business written, partially
offset by the reduction in extended reporting endorsement premium and a
reduction in policies in force.

 

     The overall level of new business produced in the first quarter of 2005 is
lower than for the corresponding period in 2004, as expected. Since our product
is priced at the high end of the market, growth in business is constrained. We
believe our price level is required by the loss characteristics of the markets
in which we compete. We continue to maintain that pricing integrity is critical
to long-term viability. Following is a table displaying the new business
produced in the first quarter of 2005 and 2004.

 



                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2005       2004
                                                              --------   --------
                                                                   
Direct......................................................  $331,000   $395,000
Agent.......................................................   497,000    637,000


 

     The following chart illustrates the components of gross premium written by
state for the first quarter of 2005 compared to the same period in 2004 (amounts
in thousands):

 



                                                        THREE MONTHS ENDED MARCH 31,
                                                        -----------------------------
                                                            2005            2004
                                                        -------------   -------------
                                                                      
District of Columbia..................................  $16,914    49%  $16,290    48%
Virginia..............................................    7,208    21%    7,820    23%
Maryland..............................................    6,733    20%    6,342    18%
Delaware..............................................    1,916     5%    1,466     4%
West Virginia.........................................    1,583     5%    2,335     7%
                                                        -------   ---   -------   ---
                                                        $34,354   100%  $34,253   100%
                                                        =======   ===   =======   ===


 

     Premium collection litigation.  During 2000, it was determined that one of
our hospital-sponsored retrospective programs would not be renewed. In
accordance with the terms of the contract, we billed the hospital sponsor, CHW,
based on the actual accumulated loss experience of the terminated program.
Because the original 2000 bill was not paid when due, we initiated legal
proceedings to collect. As of March 31, 2005 the amount due to NCRIC for this
program was $2.9 million. No amount of net receivable was accrued due to the
pending litigation and questionable collectibility.

 

     On February 13, 2004, a District of Columbia Superior Court jury returned a
verdict in favor of CHW in the premium collection litigation between NCRIC, Inc.
and CHW. The verdict came in a civil action stemming from NCRIC, Inc.'s efforts
to collect payment for nearly $3 million in premiums that NCRIC alleges it is
owed by CHW under a contract with CHW that expired in 2000. The jury ruled
against the claim by NCRIC, Inc. and returned a verdict of $18.2 million in
favor of CHW counterclaims.

 

     The verdict was entered as a judgment on February 20, 2004. On March 5,
2004, NCRIC filed post-trial motions for judgment as a matter of law and, in the
alternative, for a new trial. As a result of these post-trial motions, the
judgment is not final, and jurisdiction with respect to the verdict remains with
the trial judge. No decision has yet been rendered on the post-trial motions. In
connection with the filing of post-trial motions, NCRIC secured a $19.5 million
appellate bond and associated letter of credit. The amount of the bond
represents the verdict plus a projection of post-trial interest. No amounts have
been drawn upon the letter of credit as of May 6, 2005. After the post-trial
motions have been ruled upon by

 
                                       D-12

 

the judge, any judgment will be entered as final, but subject to appeal. No
liability has been accrued in these financial statements for any possible loss
arising from this litigation because the judgment remains with the trial judge,
and NCRIC believes that it has meritorious defenses and that it is not probable
that the preliminary judgment will prevail, nor is any potential final outcome
reasonably estimable at this time. Expenses incurred for this litigation in the
first quarters of 2005 and 2004 were $62,000 and $761,000, respectively. The
expenses associated with the $19.5 million appellate bond and the associated
letter of credit, in the first quarters of 2005 and 2004 were $56,000 and
$112,000, respectively.

 

NET INVESTMENT INCOME

 

     Net investment income increased by $245,000 for the three months ended
March 31, 2005 compared to the first quarter of 2004 due to an increase in
average invested funds. The average effective yield was approximately 3.56% for
the three months ended March 31, 2005 and 3.55% for the three months ended March
31, 2004. The tax equivalent yield was approximately 3.97% for the first quarter
of 2005 and 3.94% for the first quarter of 2004.

 

NET REALIZED INVESTMENT GAINS

 

     Net realized investment gains of $302,000 and $333,000 in the first
quarters of 2005 and 2004, respectively, resulted from both fixed maturity and
equity security trades made in the course of routine portfolio management. In
the first quarter of 2005, there was no other-than-temporary impairment charge
recognized on any security. An equity security in which an other-than-temporary
impairment charge of $15,000 was recognized during the year ended December 31,
2004 was sold in 2005.

 

PRACTICE MANAGEMENT AND RELATED REVENUE

 

     Revenue for practice management and related services is comprised of fees
for the services for the following categories of services: practice management,
accounting, tax and personal financial planning, retirement plan accounting and
administration, and other services. First quarter revenue of $1.2 million is
essentially flat on a quarter-to-quarter comparison.

 

LOSSES AND LOSS ADJUSTMENT EXPENSES AND COMBINED RATIO RESULTS

 

     The increase in current year losses to $14.4 million for the first quarter
of 2005 reflects the rise in the cost of resolving claims combined with a slight
increase in the frequency of claims reported in the first quarter of 2005
compared to the number reported in the first quarter of 2004. The severity of
current losses incurred is greater in recognition of the increased loss trends
reported in the year-end reserve valuation. Development of losses reported in
prior years is neutral in 2005 reflecting favorable experience on claims closed
during the quarter offset by the continuing upward pressure of severity of
losses.

 

     Following is a summary of the ratios of losses and underwriting expenses
compared to net premiums:

 



                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                                                              2005       2004
                                                              -----     ------
                                                                  
Loss and LAE ratio..........................................  81.0%      81.0%
Underwriting expense ratio..................................  17.9%      21.8%
                                                              ----      -----
Combined ratio..............................................  98.9%     102.8%


 

     The combined ratio of 98.9% for the three months ended March 31, 2005
reflects the higher level of earned premiums in relation to the increase in loss
and loss adjustment expenses and the stable level of core underwriting expenses.
Reduced litigation expenses contributed 2.5 points of decrease in the
underwriting expense ratio.

 
                                       D-13

 

EXPENSES

 

     Underwriting expenses of $3.2 million for the three months ended March 31,
2005 decreased from $3.5 million for the three months ended March 31, 2004,
primarily due to the $453,000 reduction in litigation expense offset by higher
commissions and other expenses associated with the increased level of premium.

 

     Practice management and related expenses totaled $1.3 million for the three
months ended March 31, 2005 which represents a 9% increase over the expense
level for the first quarter of 2004. The increase stems largely from the
ConsiCare branding and related promotional expenses which are part of the
business development plan.

 

     Interest expense is on the Trust Preferred Securities. The rate is 400
basis points over the 3-month LIBOR.

 

     Other expenses include amounts for subsidiary and holding company
operations, which are not directly related to the issuance of medical
professional liability insurance or practice management operations. First
quarter 2005 expenses include costs associated with the proposed merger with
ProAssurance. Additionally, post-trial litigation expenses were $302,000 lower
in the first quarter of 2005 compared to the same quarter of 2004.

 

FEDERAL INCOME TAXES

 

     The effective tax rate for NCRIC, at 38% for the three months ended March
31, 2005 is higher than the statutory rate principally due to the tax treatment
of the merger expenses incurred, partially offset by nontaxable investment
income. The effective tax rate of 15% for the three months ended March 31, 2004,
is lower than the federal statutory rate principally due to nontaxable
investment income.

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

     Liquidity.  The primary sources of liquidity are insurance premiums, net
investment income, practice management and financial services fees, recoveries
from reinsurers and proceeds from the maturity or sale of invested assets. Funds
are used to pay claims, LAE, operating expenses, reinsurance premiums and taxes,
and to purchase investments.

 

     For the three months ended March 31, 2005, we had cash flows from
operations of $9.8 million compared to $15.5 million for the corresponding
period of 2004. The $5.7 million of decreased cash flow results primarily from
higher payments for claims and LAE partially offset by increased net premium
receipts. Because of the long-term nature of both the payments of claims and the
settlement of swing-rated reinsurance premiums due to the reinsurers, cash from
operations for a medical professional liability insurer like NCRIC can vary
substantially from period to period.

 

     Financial condition and capital resources.  Cash flow from operations and
the proceeds of maturing investments have primarily been invested in corporate
and tax-exempt securities. As of March 31, 2005, the carrying value of the
securities portfolio was $214.8 million. The portfolio was invested as follows:

 



                                                            AT MARCH 31,   AT DECEMBER 31,
                                                                2005            2004
                                                            ------------   ---------------
                                                                     
U.S. Government and agencies..............................       17%             18%
Asset and mortgage-backed securities......................       26              24
Tax-exempt securities.....................................       22              21
Corporate bonds...........................................       23              25
High-yield bond fund......................................        3               3
Equity securities.........................................        9               9


 

     At March 31, 2005, over 71% of the bond portfolio was invested in U.S.
Government and agency securities or had a rating of AAA or AA. For regulatory
purposes, 89% of the bond portfolio was rated

 
                                       D-14

 

"Class 1," which is the highest quality rated group as classified by the NAIC.
The accumulated other comprehensive loss totaled $166,000 at March 31, 2005,
compared to other comprehensive income of $2.1 million at December 31, 2004. At
March 31, 2005, the gross unrealized investment gains totaled $3.6 million and
the gross unrealized investment losses totaled $3.9 million, with no
concentration of unrealized loss in any security or industry.

 

     During 2001, ConsiCare, Inc. borrowed $1,971,000 from SunTrust Bank to
finance the contingent purchase payments from the 1999 acquisition of three
companies. The term of the loan was three years at a floating rate of LIBOR plus
one and one-half percent. This debt was fully repaid in May, 2004.

 

     In December, 2002, NCRIC Group issued trust preferred securities in the
amount of $15 million in a pooled transaction to unrelated investors. This debt
has a maturity of 30 years, and bears interest at an annual rate equal to
three-month LIBOR plus 4.0%, payable quarterly. Interest is adjusted on a
quarterly basis provided that prior to December 4, 2007, this interest rate
shall not exceed 12.50%. The debt is callable by NCRIC Group at par beginning
December 4, 2007. The interest rate as of March 31, 2005 was 6.94%.

 

EFFECTS OF INFLATION

 

     The primary effect of inflation is in estimating reserves for unpaid losses
and LAE for medical professional liability claims in which there is a long
period between reporting and settlement. The rate of inflation for malpractice
claim settlements can substantially exceed the general rate of inflation. The
actual effect of inflation on our results cannot be conclusively known until
claims are ultimately settled. Based on actual results to date, we believe that
losses and LAE reserve levels and our ratemaking process adequately incorporate
the effects of inflation.

 

FORWARD-LOOKING INFORMATION

 

     Certain statements made in this document are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1033 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking statements may be
identified by reference to a future period or periods, or by the use of
forward-looking terminology, such as "may," "will," "believe," "expect,"
"estimate," "anticipate," "continue," or similar terms or variations on those
terms, or the negative of those terms. These forward-looking statements are
subject to significant risks, assumptions and uncertainties, including, among
other things, the following important factors that could affect the actual
outcome of future events:

 

     - general economic conditions, either nationally or in our market area,
       that are worse than expected;

 

     - inflation and changes in the interest rate environment and performance of
       financial markets;

 

     - adverse changes in the securities markets;

 

     - changes in laws or government regulations affecting medical professional
       liability insurance and practice management and financial services;

 

     - NCRIC, Inc.'s concentration in a single line of business;

 

     - impact of managed healthcare;

 

     - uncertainties inherent in the estimate of loss and loss adjustment
       expense reserves and reinsurance;

 

     - price competition;

 

     - changes to our ratings assigned by A.M. Best;

 

     - the cost and availability of reinsurance;

 

     - our ability to successfully integrate acquired entities;

 
                                       D-15

 

     - changes in accounting policies and practices, as may be adopted by our
       regulatory agencies and the Financial Accounting Standards Board; and

 

     - changes in our organization, compensation and benefit plans.

 

     We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and wish to
advise readers that the factors listed above could affect our financial
performance and could cause actual results for future period to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

     Our investment portfolio is exposed to various market risks, including
interest rate and equity price risk. Market risk is the potential for financial
losses due to the decrease in the value or price of an asset resulting from
broad movements in prices. At March 31, 2005, fixed maturity securities comprise
88% of total investments at market value. U.S. Government and tax-exempt bonds
represent 44% of the fixed maturity securities. Equity securities, consisting
primarily of common stock, account for the remainder of the investment
portfolio. The investment in a mutual fund containing high-yield securities is
also classified with equity securities. We have classified our investments as
available for sale.

 

     Because of the high percentage of fixed maturity securities, interest rate
risk represents the highest exposure we have on our investment portfolio. In
general, the market value of our fixed maturity portfolio increases or decreases
in an inverse relationship with fluctuation in interest rates. During periods of
rising interest rates, the fair value of our investment portfolio will generally
decline resulting in decreases in our stockholders' equity. Conversely, during
periods of falling interest rates, the fair value of our investment portfolio
will generally increase resulting in increases in our stockholders' equity. In
addition, our net investment income increases or decreases in a direct
relationship with interest rate changes on monies reinvested from maturing
securities and investments of positive cash flow from operating activities.

 

     The value of our investment portfolio as compared to cost or amortized cost
is as follows (in thousands):

 



                                                  UNREALIZED (LOSS) GAIN    UNREALIZED GAIN AT
                                                    AT MARCH 31, 2005       DECEMBER 31, 2004
                                                  ----------------------   --------------------
                                                                     
Fixed maturity securities.......................         $(2,532)                 $  567
Equity securities...............................           2,281                   2,629
                                                         -------                  ------
Net.............................................         $  (251)                 $3,196
                                                         =======                  ======


 

     Generally, the longer the duration of the security, the more sensitive the
asset is to market interest rate fluctuations. To control the adverse effects of
the changes in interest rates, our investment portfolio of fixed maturity
securities consists primarily of intermediate-term, investment-grade securities.
Our investment policy also provides that all security purchases be limited to
rated securities or unrated securities approved by management on the
recommendation of our investment advisor. Approximately 64% of the portfolio is
Treasury or Agency related or rated AAA, the highest rating for a security.
Management of NCRIC, along with NCRIC's external investment managers, seeks to
maximize after-tax yields while minimizing portfolio credit risk.

 

     One common measure of the interest sensitivity of fixed maturity securities
is effective duration. Effective duration utilizes maturities, yields, and call
terms to calculate an average age of expected cash

 
                                       D-16

 

flows. The following table shows the estimated fair value of NCRIC's fixed
maturity portfolio based on fluctuations in the market interest rates.

 



                                                                      PROJECTED MARKET VALUE
YIELD CHANGE(BP)                                       MARKET YIELD       (IN THOUSANDS)
----------------                                       ------------   ----------------------
                                                                
-300.................................................          0.56%         $213,142
-200.................................................          1.56%          204,891
-100.................................................          2.56%          196,639
Current Yield**......................................          3.56%          188,388
100..................................................          4.56%          180,137
200..................................................          5.56%          171,885
300..................................................          6.56%          163,634


 
---------------
 

** Current yield is as of March 31, 2005.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

     Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-14(e) or 15d-14(e) under the Exchange Act)
as of March 31, 2005, the evaluation date. Based upon that evaluation, the chief
executive office and chief financial officer concluded that, as of the
evaluation date, our disclosure controls and procedures are effective to ensure
that information required to be disclosed in the reports that NCRIC Group, Inc.
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. There have been no significant changes in our
internal control over financial reporting that occurred during our most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

 

                           PART II. OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS.

 

     See Note 5 to the Condensed Consolidated Financial Statements included in
Part I, Item 1 of this Form 10-Q for information on pending litigation.

 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

 

     (a) Exhibits:

 


            
   31.1        Certification of Chief Executive Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002

   31.2        Certification of Chief Financial Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002

   32          Certification pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


 

     (b) Filings on Form 8-K during the quarter ending March 31, 2005:

 

          1) On January 6, 2005 the Company filed a Form 8-K pursuant to Item 5
     disclosing an advisory agreement with Stephen S. Fargis, who resigned as
     the Company's senior vice president and chief operating officer, as of
     December 31, 2004. The advisory agreement commenced on January 1, 2005 and
     shall expire June 30, 2006.

 
                                       D-17

 

          2) On March 4, 2005 the Company filed a Form 8-K pursuant to Item 5
     which included a press release dated February 28, 2005 announcing that
     ProAssurance Corporation (PRA) and NCRIC Group entered into an Agreement
     and Plan of Merger, which provides for the merger of NCRIC Group into NCP
     Merger Corporation, a newly formed wholly owned subsidiary of PRA. The
     transaction is subject to customary conditions, including the receipt of
     required regulatory approvals and approval by NCRIC stockholders.

 

          3) On March 30, 2005 the Company filed a form 8-K pursuant to Item 5
     which addressed a Schedule 13D filed by certain shareholders who had
     expressed concerns about the proposed merger transaction with ProAssurance
     Corporation and their intention to propose to the Company's Board of
     Directors that it release potential acquirers from certain confidentiality
     agreements. By letter dated March 29, 2005, NCRIC responded to this filing
     and stated that it does not believe the confidentiality agreements entered
     into with third parties precludes their ability to make additional
     proposals to the Board.

 
                                       D-18

 

                                   SIGNATURES

 

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

 


                              
                                 NCRIC Group, Inc.
 
May 9, 2005                      /s/ R. Ray Pate, Jr.
                                 --------------------------------------------------------
                                 R. Ray Pate, Jr.
                                 President & Chief Executive Officer
                                 (Duly Authorized Officer)
 
May 9, 2005                      /s/ Rebecca B. Crunk
                                 --------------------------------------------------------
                                 Rebecca B. Crunk, Sr.
                                 Vice President & Chief Financial Officer
                                 (Principal Financial Officer)


 
                                       D-19

 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 20.  INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     As permitted by Delaware law, the Registrant's certificate of incorporation
provides that the directors of the Registrant will not be held personally liable
for a breach of fiduciary duty as a director, except that a director may be
liable for (1) a breach of the director's duty of loyalty to the corporation or
its stockholders, (2) acts made in bad faith or which involve intentional
misconduct or a knowing violation of the law, (3) illegal payment of dividends
under Section 174 of the Delaware General Corporation Law; or (4) for any
transaction from which the director derives an improper personal benefit. The
Registrant's certificate of incorporation further provides that if Delaware law
is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Registrant shall be eliminated or limited to the fullest extent permitted by
Delaware law, as so amended.
 
     The by-laws of the Registrant provide that the Registrant will indemnify
any person involved in litigation brought by a third party or by or in the right
of the Registrant by reason of the fact that he or she is or was a director,
officer, employee or agent of the Registrant or is or was serving at the request
of the Registrant as a director, officer, employee or agent of another entity.
The Registrant will only indemnify such a person if that person acted in good
faith and in a manner he or she reasonably believed to be lawful and in the best
interests of the Registrant, except that the person will not be entitled to
indemnification in an action in which he or she is found to be liable to the
corporation unless the Delaware Court of Chancery deems indemnification under
these circumstances proper.
 
     The Registrant maintains in effect directors' and officers' liability
insurance which provides coverage against certain liabilities. The Registrant
has entered into indemnification agreements with each of its directors and
executive officers which requires the Registrant to use reasonable efforts to
maintain such insurance during the term of the agreement so long as the board of
directors in the exercise of its business judgment determines that the cost is
not excessive and is reasonably related to the amount of coverage and that the
coverage provides a reasonable benefit for such cost. The indemnity agreements
have terms that will automatically renew for successive one year terms each year
unless sooner terminated by Registrant on 60 days notice or upon the
indemnitee's termination as an officer, director or employee of Registrant or
its subsidiaries.
 
     The indemnity agreement requires the Registrant to indemnify the executive
officers and directors to the fullest extent permitted under Delaware law to the
extent not covered by liability insurance, including advances of expenses in the
defense of claims against the executive officer or director while acting in such
capacity. It is a condition to such indemnification that the indemnitee acted in
good faith and in a manner that he or she believed to be in or not opposed to
the interest of the Registrant or its stockholders, and with respect to a
criminal action had no reasonable cause to believe his or her conduct was
unlawful. Indemnification is not available from the Registrant:
 
          (a) in respect to remuneration that is determined to be in violation
     of law;
 
          (b) on account of any liability arising from a suit for an accounting
     of profits for the purchase and sale of Registrant's common stock pursuant
     to Section 16(b) of the Securities Exchange Act of 1934, as amended;
 
          (c) on account of conduct that is determined to have been knowingly
     fraudulent, deliberately dishonest or willful misconduct;
 
          (d) if indemnification is prohibited by the applicable laws of the
     State of Delaware;
 
          (e) if the indemnitee is found to be liable to the Registrant or its
     subsidiaries unless the Delaware Court of Chancery determines that the
     indemnitee is fairly and reasonably entitled to indemnification for
     expenses that the court deems proper; or
 
          (f) if a court should determine that such indemnification is not
     lawful.
 
                                       II-1

 
     The indemnity agreement requires the indemnitee to reimburse the Registrant
for all reasonable expenses incurred or advanced in defending any criminal or
civil suit or proceedings against the indemnitee if the Registrant determines
that indemnity is not available.
 
     The form of the indemnity agreement is included as an exhibit to this
Registration Statement. This summary of the indemnity agreement is qualified in
its entirety by reference to the terms and provisions of the form of the
indemnity agreement included herein as an exhibit.
 
     In addition, pursuant to the Merger Agreement, the registrant will
indemnify, defend and hold harmless all past and present officers, directors and
employees of NCRIC and its subsidiaries to the same extent they are indemnified
or have the right to advancement of expenses under NCRIC's certificate of
incorporation, bylaws and indemnification agreements, and to the fullest extent
permitted by law. The registrant will also use best efforts to provide
directors' and officers' liability insurance for a period of three years after
completion of the merger to the present and former directors and officers of
NCRIC and its subsidiaries with respect to acts and omissions occurring prior to
the completion of the merger, but the registrant has no obligation to expend
more than 300% of the current amount expended by NCRIC or its subsidiaries. This
summary of indemnification under the Merger Agreement is qualified in its
entirety by reference to the Merger Agreement which is included as an exhibit to
the registration statement.
 
ITEM 21.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
                                 EXHIBIT INDEX
 



  EXHIBIT                              DESCRIPTION
  -------                              -----------
            
    (2)(a)     Agreement and Plan of Merger, dated as of February 28, 2005,
               among ProAssurance, NCRIC and NCP Merger Corporation
               (included as Appendix A to the proxy statement-prospectus
               contained in this Registration Statement)
    (2)(b)     Exhibit A to the Merger Agreement -- Form of Consulting
               Agreement
    (3)(a)     Certificate of Incorporation of ProAssurance(1)
 

 
    (3)(b)     Certificate of Amendment to Certificate of Incorporation of
               ProAssurance(3)
 

 
    (3)(c)     First Restatement of the Bylaws of ProAssurance(4)
 

 
    (4)(a)     Purchase Agreement, dated July 1, 2003, between Registrant
               and the representatives of the initial purchasers of the
               Debentures (without exhibits) (5)
 

 
    (4)(b)     Indenture dated July 7, 2003, between and among Registrant
               and the initial purchasers of the Debentures (6)
 

 
    (4)(c)     Registration Rights Agreement, dated July 7, 2003, between
               and among Registrant and the initial purchasers of the
               Debentures (6)
 

 
    (4)(d)     ProAssurance Corporation Floating Rate Junior Subordinated
               Debenture due 2034 issued as on April 29, 2004 in original
               principal amount of $13,403,000 (7)
 

 
    (4)(e)     Indenture between ProAssurance Corporation and Wilmington
               Trust Company as Trustee dated as of April 29, 2004 (7)
 

 
    (4)(f)     Certificate for 13,000 Preferred Securities of ProAssurance
               Capital Trust I (Liquidation Amount $1,000 per Preferred
               Security) issued on April 29, 2004 (7)
 

 
    (4)(g)     Amended and Restated Declaration of Trust of ProAssurance
               Capital Trust I dated as of April 29, 2004 (7)
 

 
    (4)(h)     Preferred Securities Guarantee Agreement ProAssurance
               Capital Trust I dated as of April 29, 2004 (7)
 

 
    (4)(i)     ProAssurance Corporation Floating Rate Junior Subordinated
               Debenture due 2034 issued on May 26, 2004 in original
               principal amount of $22,682,000 (8)
 

 
    (4)(j)     ProAssurance Corporation Floating Rate Junior Subordinated
               Debenture due 2034 issued on May 12, 2004 in original
               principal amount of $10,310,000 (8)


 
                                       II-2

 



  EXHIBIT                              DESCRIPTION
  -------                              -----------
            
 

 
    (4)(k)     Amended and Restated Declaration of Trust of ProAssurance
               Capital Trust II dated as of May 12, 2004 (8)
 

 
    (4)(l)     Preferred Securities Guarantee Agreement ProAssurance
               Capital Trust II dated as of May 12, 2004 (8)
 

 
    (4)(m)     Indenture between ProAssurance Corporation and Wilmington
               Trust Company as Trustee dated as of May 12, 2004 (8)
 

 
       (5)     Opinion and consent of Burr & Forman LLP as to the validity
               of the securities being registered
 

 
    (8)(a)     Opinion and consent of Burr & Forman LLP regarding the
               federal income tax consequences of the merger
 

 
    (8)(b)     Opinion and consent of Luse Gorman Pomerenk & Schick, P.C.
               regarding the federal income tax consequences of the merger
 

 
 (10)(a-1)     Medical Assurance, Inc. Incentive Compensation Stock Plan
               (formerly known as the Mutual Assurance, Inc. 1995 Stock
               Award Plan) (9)
 

 
 (10)(a-2)     Amendment and Assumption Agreement by and between
               ProAssurance and Medical Assurance, Inc. (3)
 

 
 (10)(a-3)     Amendment and Assumption Agreement by and between Mutual
               Assurance, Inc. and MAIC Holdings, Inc. dated April 8, 1996
               (10)
 

 
   (10)(b)     Professionals Insurance Company Management Group 1996 Long
               Term Incentive Plan (11)
 

 
   (10)(c)     ProAssurance Corporation 2004 Equity Incentive Plan (12)
 

 
 (10)(d-1)     Release and Severance Agreement between Victor T. Adamo and
               ProAssurance (13)
 

 
 (10)(d-2)     Amendment to Release and Severance Compensation Agreement of
               Victor T. Adamo (14)
 

 
 (10)(d-3)     Release and Severance Agreement between Lynn M. Kalinowski
               and ProAssurance (15)
 

 
 (10)(d-4)     Release and Severance Agreement between Howard H. Friedman
               and ProAssurance (14)
 

 
 (10)(d-5)     Release and Severance Agreement between James J. Morello and
               ProAssurance (14)
 

 
 (10)(d-6)     Release and Severance Agreement between Frank B. O'Neil and
               ProAssurance (2)
 

 
 (10)(d-7)     Release and Severance Agreement between Edward L. Rand, Jr.
               and ProAssurance (16)
 

 
   (10)(e)     Employment Agreement of A. Derrill Crowe, as amended (14)
   (10)(f)     Form of Indemnification Agreement between ProAssurance and
               each of the following named executive officers and directors
               of ProAssurance:(2)
 

 
               Victor T. Adamo
 

 
               Lucian F. Bloodworth
 

 
               Paul R. Butrus
 

 
               A. Derrill Crowe
 

 
               Robert E. Flowers
 

 
               Howard H. Friedman
 

 
               Lynn M. Kalinowski
 

 
               John J. McMahon
 

 
               James J. Morello
 

 
               John P. North
 

 
               Frank B. O'Neil
 

 
               Ann F. Putallaz
 

 
               Edward L. Rand, Jr.
 

 
               William H. Woodhams
 

 
               Wilfred W. Yeargan, Jr.
 

 
 

 
   (10)(g)     ProAssurance Group Employee Benefit Plan which includes the
               Executive Supplemental Life Insurance Program (Article
               VIII)(4)


 
                                       II-3

 



  EXHIBIT                              DESCRIPTION
  -------                              -----------
            
 

 
   (10)(h)     ProAssurance Group 2004 Deferred Compensation Plan dated
               October 11, 2004, of which A. Derrill Crowe is the sole
               participant(4)
 

 
   (10)(i)     Executive Non-Qualified Excess Plan and Trust dated December
               1, 2004*
 

 
   (10)(j)     Development Agreement Between KERO Development LLC and
               MEEMIC Insurance Company dated November 18, 2004 (without
               Rider and Exhibits)(4)
 

 
      (21)     Subsidiaries of ProAssurance Corporation*
 

 
   (23)(a)     Consent of Ernst & Young LLP
 

 
   (23)(b)     Consent of Deloitte & Touche, LLP
 

 
   (23)(c)     Consent of Burr & Forman LLP (included in Exhibits 5 and
               8(a))
 

 
   (23)(d)     Consent of Luse Gorman Pomerenk & Schick, P.C. (included in
               Exhibit 8(b))
 

 
      (24)     Power of Attorney*
 

 
   (99)(a)     Consent of Sandler O'Neill & Partners L.P.
 

 
   (99)(b)     Consent of Cochran Caronia & Co.*
   (99)(c)     Form of Proxy to be used by NCRIC


 
---------------
 

  *  Previously Filed

 
 (1) Filed as an Exhibit to ProAssurance's Registration Statement on Form S-4
     (File No. 333-49378) and incorporated herein by reference pursuant to Rule
     12b-32 of the Securities and Exchange Commission ("SEC").
 
 (2) Filed as an Exhibit to ProAssurance's Annual Report on Form 10-K for the
     year ended December 31, 2002 (Commission File No. 001-16533) and
     incorporated herein by reference pursuant to SEC Rule 12b-32.
 
 (3) Filed as an Exhibit to ProAssurance's Annual Report on Form 10-K for the
     year ended December 31, 2001 (File No. 001-16533) and incorporated herein
     by reference pursuant to SEC Rule 12b-32.
 
 (4) Filed as an Exhibit to ProAssurance's Annual Report on Form 10-K for the
     year ended December 31, 2004 (File No. 001-16533) and incorporated herein
     by reference pursuant to SEC Rule 12b-32
 
 (5) Filed as an Exhibit to ProAssurance's Registration Statement on Form S-3
     (File No. 333-109972) and incorporated by reference pursuant to SEC Rule
     12b-32.
 
 (6) Filed as an Exhibit to ProAssurance's Quarterly Report on Form 10-Q for the
     period ended June 30, 2003 (File No. 001-16533) and incorporated by
     reference pursuant to SEC Rule 12b-32.
 
 (7) Filed as an Exhibit to ProAssurance's Quarterly Report on Form 10-Q for the
     quarter ended March 31, 2004 (File No. 001-16533) and incorporated herein
     by this reference pursuant to SEC Rule 12b-32.
 
 (8) Filed as an Exhibit to ProAssurance's Quarterly Report on Form 10-Q for the
     quarter ended June 30, 2004 (File No. 001-16533) and incorporated herein by
     this reference pursuant to SEC Rule 12b-32.
 
 (9) Filed as an Exhibit to MAIC Holding's Registration Statement on Form S-4
     (File No. 33-91508) and incorporated herein by reference pursuant to SEC
     Rule 12b-32.
 
(10) Filed as an Exhibit to MAIC Holding's Proxy Statement for the 1996 Annual
     Meeting (File No. 0-19439) is incorporated herein by reference pursuant to
     SEC Rule 12b-32.
 
(11) Filed as an Exhibit to Professionals Group's Registration Statement on Form
     S-4 (File No. 333-3138) and incorporated herein by reference pursuant to
     SEC Rule 12b-32.
 
(12) Filed as an Exhibit to ProAssurance's Definitive Proxy Statement (File No.
     001-165333) on April 16, 2004 and incorporated herein by reference pursuant
     to SEC Rule 12b-32.
 
                                       II-4

 
(13) Filed as an Exhibit to ProAssurance's Form 10-Q (File No. 001-16533) for
     the quarter ended June 30, 2001 and incorporated herein by reference
     pursuant to SEC Rule 12b-32.
 
(14) Filed as an Exhibit to ProAssurance's Registration Statement on Form S-3
     (File No. 333-100526) and incorporated herein by reference pursuant to SEC
     Rule 12b-32.
 
(15) Filed as an Exhibit to ProAssurance's Quarterly Report on Form 10-Q (File
     No. 001-16533) for the quarter ended September 30, 2001 and incorporated
     herein by reference pursuant to SEC Rule 12b-32.
 
(16) Filed as a Exhibit to ProAssurance's Current Report on Form 8-K for event
     occurring March 31, 2005 and incorporated by reference pursuant to SEC Rule
     12b-32.
 
ITEM 22.  UNDERTAKINGS
 
     The undersigned registrant hereby undertakes:
 
          (a) To file, during any period in which offers or sales are being
     made, a post-effective amendment to this registration statement:
 
          (1) To include any prospectus required by Section 10(a)(3) of the
     Securities Act of 1933.
 
          (2) To reflect in the prospectus any facts or events arising after the
     effective date of the registration statement (or the most recent
     post-effective amendment thereof) which, individually or in the aggregate,
     represent a fundamental change in the information set forth in the
     registration statement. Notwithstanding the foregoing, any increase or
     decrease in volume of securities offered (if the total dollar value of
     securities offered would not exceed that which was registered) and any
     deviation from the low or high end of the estimated maximum offering range
     may be reflected in the form of prospectus filed with the Commission
     pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
     price represent no more than 20 percent change in the maximum aggregate
     offering price set forth in the "Calculation of Registration Fee" table in
     the effective registration statement.
 
          (3) To include any material information with respect to the plan of
     distribution not previously disclosed in the registration statement or any
     material change to such information in the registration statement.
 
          (b) That, for the purpose of determining any liability under the
     Securities Act of 1933, each such post-effective amendment shall be deemed
     to be a new registration statement relating to the securities offered
     therein, and the offering of such securities at that time shall be deemed
     to be the initial bona fide offering thereof.
 
          (c) To remove from registration by means of a post-effective amendment
     any of the securities being registered which remain unsold at the
     termination of the offering.
 
          (d) For purposes of determining any liability under the Securities Act
     of 1933, each filing of the registrant's annual report pursuant to Section
     13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
     applicable, each filing of an employee benefit plan's annual report
     pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
     incorporated by reference in the registration statement shall be deemed to
     be a new registration statement relating to the securities offered therein,
     and the offering of such securities at that time shall be deemed to be the
     initial bona fide offering thereof.
 
          (e) That prior to any public reoffering of the securities registered
     hereunder through use of a prospectus which is a part of this registration
     statement, by any person or party who is deemed to be an underwriter within
     the meaning of Rule 145(c), the issuer undertakes that such reoffering
     prospectus will contain the information called for by the applicable
     registration form with respect to reofferings by persons who may be deemed
     underwriters, in addition to the information called for by the other items
     of the applicable form.
 
                                       II-5

 
          (f) That every prospectus (i) that it is filed pursuant to paragraph
     (1) immediately proceeding, or (ii) that purports to meet the requirements
     of Section 10(a)(3) of the Act and is used in connection with an offering
     of securities subject to Rule 415, will be filed as a part of an amendment
     to the registration statement and will not be used until such amendment is
     effective, and that, for purposes of determining any liability under the
     Securities Act of 1933, each such post-effective amendment shall be deemed
     to be a new registration statement relating to the securities offered
     therein, and the offering of such securities at that time shall be deemed
     to be the initial bona fide offering thereof.
 
          (g) Insofar as indemnification for liabilities arising under the
     Securities Act of 1933 may be permitted to directors, officers and
     controlling persons of the Registrant pursuant to the provisions described
     in Item 20 above, or otherwise, the Registrant has been advised that in the
     opinion of the Commission such indemnification is against public policy as
     expressed in the Securities Act of 1933 and is, therefore, unenforceable.
     If a claim for indemnification against such liabilities (other than the
     payment by the Registrant of expenses incurred or paid by a director,
     officer or controlling person of the Registrant in the successful defense
     of any action, suit or proceeding) is asserted by such director, officer or
     controlling person of the Registrant in the successful defense of any
     action, suit or proceeding) is asserted by such director, officer or
     controlling person in connection with the securities being registered, the
     Registrant will, unless in the opinion of its counsel the matter has been
     settled by controlling precedent, submit to a court of appropriate
     jurisdiction the question of whether such indemnification by it is against
     public policy as expressed in the Securities Act of 1933 and will be
     governed by the final adjudication of such issue.
 
          (h) To respond to requests for information that is incorporated by
     reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
     Form, within one business day of receipt of such request, and to send the
     incorporated documents by first class mail or other equally prompt means.
     This includes information contained in documents filed subsequent to the
     effective date of the Registration Statement through the date of responding
     to the request.
 
          (i) To supply by means of a post-effective amendment all information
     concerning a transaction, and the company being acquired involved therein,
     that was not the subject of and included in the registration statement when
     it became effective.
 
                                       II-6

 
                                   SIGNATURES
 

     Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto, duly
authorized, in the City of Birmingham, State of Alabama, on this the 20th day of
June   , 2005.

 
                                          PROASSURANCE CORPORATION
 
                                          By:     /s/ A. DERRILL CROWE
                                            ------------------------------------
                                              A. Derrill Crowe
                                              Chairman of the Board and
                                              Chief Executive Officer
 

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement on Form S-4 has been signed
by the following persons in the capacities and on the dates indicated.

 



                    SIGNATURE                                      TITLE                       DATE
                    ---------                                      -----                       ----
                                                                                  

               /s/ A. DERRILL CROWE                   Chairman of the Board and Chief      June 20, 2005
 ------------------------------------------------       Executive Officer (Principal
                 A. Derrill Crowe                     Executive Officer) and Director

 
             /s/ EDWARD L. RAND, JR.                 Chief Financial Officer and Senior    June 20, 2005
 ------------------------------------------------        Vice President of Finance
               Edward L. Rand, Jr.

 
               /s/ JAMES J. MORELLO                       Chief Accounting Officer         June 20, 2005
 ------------------------------------------------              and Treasurer
                 James J. Morello

 
               /s/ VICTOR T. ADAMO                                Director                 June 20, 2005
 ------------------------------------------------
                 Victor T. Adamo

 
             /s/ LUCIAN F. BLOODWORTH                             Director                 June 20, 2005
 ------------------------------------------------
               Lucian F. Bloodworth

 
                /s/ PAUL R. BUTRUS                                Director                 June 20, 2005
 ------------------------------------------------
                  Paul R. Butrus

 
              /s/ ROBERT E. FLOWERS                               Director                 June 20, 2005
 ------------------------------------------------
                Robert E. Flowers

 
*                                                                 Director                 June 20, 2005
------------------------------------------------
John J. McMahon, Jr.

 
              /s/ JOHN P. NORTH, JR.                              Director                 June 20, 2005
 ------------------------------------------------
                John P. North, Jr.

 
               /s/ ANN F. PUTALLAZ                                Director                 June 20, 2005
 ------------------------------------------------
                 Ann F. Putallaz



 



                    SIGNATURE                                      TITLE                       DATE
                    ---------                                      -----                       ----
 
                                                                                  

*                                                                 Director                 June 20, 2005
------------------------------------------------
William H. Woodhams

 
           /s/ WILFRED W. YEARGAN, JR.                            Director                 June 20, 2005
 ------------------------------------------------
             Wilfred W. Yeargan, Jr.

 
* Edward L. Rand, Jr.
 as attorney in fact

             /s/ EDWARD L. RAND, JR.                                                       June 20, 2005
------------------------------------------------