A STORY OF STRENGTH; A PROVEN MODEL THAT WORKS

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2 A STORY OF STRENGTH; A PROVEN MODEL THAT WORKS Dear Policyholder, There is an old saying that Storms make trees take deeper roots. Nothing could be closer to the truth in The external environment in the insurance industry was unstable. Market variation was never more erratic. Market volatility was a constant. Cost pressures knocked ill-prepared firms into insolvency. Marketplace stakeholders held back from commitment and insurance reserves dropped quickly to the bottom line to create the appearance of annual success. Your company, Healthcare Underwriters Group of Florida (HUFL), led by a committed and tenacious Board, prepared itself for the worst by digging deeply into its roots of conservatism, management excellence, and committed insured/owner base to find solid ground. Your company was prepared for further economic adversity by continuing to develop effective distribution channels for its insurance, developing deep insight into the needs of our clients/owners, and insuring that their needs were met. In addition, HUFL developed new customer segments with clearly differentiated and innovative products that drove growth while at the same time increased processing speed and flexibility in responding to market opportunities, market barriers and competitive threats. All of these attributes of HUFL helped to sustain and grow your firm successfully during this challenging time. HUFL successfully achieved a Financial Stability Rating (FSR) of A (A Prime), Unsurpassed, from Demotech, Inc, which completely removed the barrier to selling into large physician practices, hospital-affiliated physician groups, and large agencies because of their E&O policy restrictions. The A rating has also now increased our market opportunities by 30 percent. Innovative programs such as the Capital Utilization Program now reduces (for very large groups) the capital requirement barrier, so HUFL s insurance program can add more physicians. HUFL had an exceptional 2011 despite the soft market and overzealous competitors. We are still concluding the year-end audit and will have a full report ready for the Annual Subscribers meeting scheduled for June 7, In 2011, your company paid another dividend of $1,000,000 to its insureds/owners, which is the fourth consecutive year that cash dividends were paid; now bringing the total to $3,150,000. In addition, your company added 15.3% new policyholders. Already this year, HUFL is at 100% of its budget for new physician insureds with an extensive pipeline of activities that will mature in the next few months and will likely surpass 2011 in the successes it enjoyed in Steven D. Shapiro, M.D. Healthcare Underwriters Group Chairperson Steven L. Salman, MBA, J.D. Healthcare Underwriters Group Chief Executive Officer

3 FINDING THE RIGHT PHYSICIANS AND DEFENDING THEM. When asked to summarize HUFL s approach to selecting lawyers to defend its policyholders, William Ludwig, JD, Chief Claims Officer said, We begin the defense of every case with the assumption that it will either be dismissed or tried to verdict. We use only experienced lawyers who prepare to win, not lawyers who prepare to settle. Preparing to win is a philosophy that has served our policyholders well. Since its inception, HUFL has closed cases in about half the time required by other carriers and has spent 40% less for indemnity than industry averages. The reasons for this success are simple. HUFL has remained true to its mission by hiring only the best professional liability defense lawyers. Those lawyers are specialists who are not only experts in malpractice law but who also understand medicine, possess exceptional courtroom skills, and have the tenacity and courage to try a complicated case to verdict. Combining that level of talent and experience with active participation of the insured physician and input from a claims committee of practicing clinicians has given HUFL a formula for success. HUFL has zero tolerance for nuisance claims and will never pay simply to avoid the cost of defense. Your company was created with the promise to its policyholders that we are here to protect your reputation from non-meritorious claims regardless of cost. That is exactly what we continue to do. The result year-to-year has continued to be that, in the overwhelming majority of cases, HUFL s insured physician has been exonerated; and no payment has been made to the plaintiff or the plaintiff s lawyer. Net Written Premium to Policyholder Surplus HUFL Industry Benchmark: <1.5 HUFL A.M. Best Comp 1 Risk-based Capital Industry Benchmark: > 300% A.M. Best Comp 1 1 The A.M. Best Composite represents companies rated A or higher by A.M. Best for 2010 and reflects HUFL 2011 data. 897% % % 1000% 1500% Companies compete on price only when they have failed to achieve a meaningful differentiation based on performance, value and perception..5 Ronald Goff VP and Chief Sales/Marketing Officer

4 2011 HIGHLIGHTS Investment portofolio grew to $43.9million Statutory surplus grew to $22.3million Claims reserves at $18.2million $1.1million Amount saved insured physicians by defending through verdict at trial. 1,341% HUFL Risk Based Capital vs. A.M. Best Composite of 897% (Industry Benchmark: >300%).38 : 1 Net Written Premium to Policyholder Surplus Ratio (Industry Benchmark: <1.5 : 1)

5 2011 FINANCIAL SUMMARY HUFL Financial Summary (Statutory) 12/31/ /31/ /31/ /31/ /31/2007 Direct Premiums Written $8,077,858 $8,835,638 $9,139,244 $9,703,666 $10,345,345 Assets Cash and Invested Assets $43,926,665 $42,644,279 $42,161,285 $36,375,724 $32,539,731 Other Assets $1,908,445 $1,318,106 $1,212,375 $1,910,914 $1,830,354 Total Admitted Assets $45,835,110 $43,962,385 $43,373,660 $38,286,638 $34,370,085 Liabilities and Surplus Total Liabilities $23,516,047 $23,267,143 $23,989,865 $21,771,340 $19,166,626 Statutory Surplus $22,319,063 $20,695,242 $19,383,795 $16,515,298 $15,203,459 Total Liabilities and Surplus $45,835,110 $43,962,385 $43,373,660 $38,286,638 $34,370,085 Important features that set HUFL apart: Direct Premiums Written Statutory Surplus 4Owned exclusively by Florida doctors 4Governed by Florida doctors 4Achieved a Financial Stability Rating (FSR) of A (A Prime), Unsurpassed, from Demotech, Inc. 4Owner-policyholders elect board members on an annual basis 4Aggressive defense against claims 4ZERO tolerance of nuisance claims 4Peer review of claims by physician committee 4Underwriting committee comprised of insured physicians 4Managed by an experienced team of insurance professionals 4Non-profit 4Non-assessable 4Financially strong and stable 4Protected by reinsurers rated A or better 4100% committed to Florida doctors 4Licensed by the Florida Office of Insurance Regulation 4Domiciled in Florida 4Protecting physicians in Florida is HUFL s only business 4Loss reserves certified by independent actuary

6 YOUR HUFL LEADERSHIP TEAM Elected Board (The Subscribers Advisory Committee (Board) is comprised of actively practicing HUFL insureds/ owners.) Steven D. Shapiro, M.D. Chairperson Dermatology, Palm Beach Siva P. Bellam, M.D. Vice Chairperson Medical Oncology & Hematology, Port St. Lucie Edward J. Feller, M.D. President Gastroenterology, Miami Scot N. Ackerman, M.D. Treasurer Radiation Oncology, Jacksonville Alicia Rodriguez-Jorge, M.D. Secretary Internal Medicine, Miami Kenneth J. Budowsky, M.D. Pediatrics, Hollywood James V. Talano, M.D. Cardiology, Naples Albert R. Taño, M.D. Neonatology, Coral Gables Management Team (Experienced medical liability insurance professionals) Steven L. Salman, MBA, JD Chief Executive Officer David W. Lester, CPA, CGMA VP - Chief Financial Officer Joshua M. Salman, MBA VP - Chief Operating Officer Morton C. Bell VP - Chief Underwriting Officer William C. Ludwig, JD VP - Chief Claims Officer Ronald J. Goff, MS VP - Chief Sales/Marketing Officer Thomas W. Mueller, CPA VP - Controller David W. McKenney Regional Vice President - Claims Theresa Zimmerman, RN, JD, ARM, CPHRM, DFASHRM Vice President of Risk Managment John R. Tanner, M.D., JD Consulting Risk Manager HUFL s best referrals come from its insured physicians. They know best who is qualified to share risk with them. If you would like to refer a physician, please contact Ronald Goff at rgoff@hugroups.com or at South Pine Island Road, Suite 300, Plantation, Florida Phone: Fax: rgoff@hugroups.com