YES. We frequently say yes at MagMutual,

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3 YES. We frequently say yes at MagMutual, and that is unusual for an insurance company. Yet, it defines us. Since our founding more than 30 years ago, we have viewed the industry from a physician s point of view your view. It is a perspective that has led to us saying yes more than any other professional liability insurer: yes to keeping our promises; yes to always putting you first; yes to protecting you and standing by you wherever healthcare takes you. It s also a perspective that has made us the largest physician owned and led mutual insurer based in the Southeast and the fifth largest in the U.S. We not only understand our policyholders, we look forward to saying yes to them as often as possible.

4 YES: We keep our promises. We are physician owned, led and focused. We started MagMutual on a promise: that our physicians are not just our policyholders, they are also our owners. Thirty years later led by our physician Board of Directors and Claims Committees our mission has remained unchanged. Your interests drive every decision we make. Our resources ultimately become an investment into products and services that help our doctors practice good medicine. They also are used to support physicians in their time of need. In 2011, we launched our Doctor2Doctor program. Open to all policyholders, it provides peer support for physicians facing the stress of litigation. Already, one-third of physicians presently going to trial have opted to participate in and benefit from this program. Additionally, in 2013 we will launch the MagMutual Institute for Patient Safety, led by our Chief Medical Officer, a nationally recognized expert in the field. This institute will offer educational programs in risk management and patient safety. It will also continue developing educational opportunities for physicians to earn Continuing Medical Education (CME) credits. These are just a few of MagMutual s programs and services designed to provide you with what you need, when you need it.

5 YES: You always come first. Over $120 million in dividends and our Owners Circle program help prove the point. At MagMutual, we are always looking for ways to give back what we can. Our more than 17,500 policyholder-owners share in our financial success. Since inception, we ve paid out more than $120 million in dividends to our policyholders. Over the last five years, MagMutual has returned more dividends than any other medical professional liability carrier in the Southeast. Moreover, our dividends are consistent with a mutual insurance company s ability to distribute benefits to its member insureds. We also give back through our Owners Circle program, which provides distributions to qualified physicians upon their retirement, disability or death. Announced in 2012, Owners Circle is now worth a potential $100 million in funds for payment to eligible policyholders-owners. Thanks to our financial strength and competitive premiums, we continue to deliver the industry-leading product at the lowest sustainable cost possible.

6 YES: We are financially strong. We look after this company because it s yours. At MagMutual, we take the physician-owned structure of our company seriously. Our priority is to be a good steward of your money; our investment history and financial stability prove the point. While it s MagMutual s balance sheet, it s still your money. Our responsibility to you is to achieve the maximum return while minimizing the risk. We can proudly report that in spite of a challenging year and a demanding marketplace which continues to experience predatory pricing by competitors, we remain financially strong. To that end, we keep what we need as a reserve to ensure the value of your ownership in MagMutual will continue to grow. Our assets total $1.5 billion, with more than $670 million in surplus. Our A.M. Best rating is A (Excellent). We promise to make prudent, sound investments. Our solid financial position underpins our ability to pay out annual dividends and keep premiums stable. It also allows us to invest in services and programs for your continued benefit. Best of all, it means we can shield you from the financial uncertainties a lawsuit can bring.

7 YES: We protect your assets, reputation and peace of mind. Our evidence is our defense record. Our only goal is to do what s right for you, your practice and your patients. Why trust your reputation to anything less? MagMutual has successfully managed approximately 59,000 allegations against policyholder-owners. That experience has given us the expertise needed to provide the best defense for our members. Simply put: when we go to trial, you should expect to win. We understand that the practice of medicine involves judgment calls. But in no other profession are those calls so severely judged and second guessed. We will aggressively protect the difficult decisions that you make every day you practice medicine. On average, a physician will spend over 10% of a career burdened by the weight of an open, unresolved malpractice claim. We share the load until the burden is removed. We believe you get what you pay for, and with MagMutual that means you get the best. If your case does go to trial, rest assured that a local expert defense team will represent you backed by our local claims representatives and attorneys. You can also get help from our innovative Doctor2Doctor peer support program, which brings peace of mind by giving physicians facing a lawsuit the opportunity to talk with doctors who have previously faced similar situations. Of course, the best thing is to prevent claims from occurring in the first place. That s why we re investing heavily in our brand-new Institute for Patient Safety.

8 YES: Wherever you practice, we ll be there. Whether you are a hospital, an employed physician or an independent practice we stand by you. No matter how much things change, one thing remains a constant at MagMutual: wherever your practice career takes you, we will follow you. Change is nothing new to medicine, nor to MagMutual. Once again, we are adapting our product offerings to address your needs. Not only are we insuring hospitals, but we are providing more hospital-based services. Our new risk financing programs have been geared to the complex healthcare liabilities that patient care confronts in the ever-evolving business of medicine. In addition, legislation is routinely introduced throughout the Southeastern states which if made law could alter your medical practice and the inherent exposures associated with your profession. Our attorneys track legislative changes in each of the states we serve. If the legislation is made law, we update affected insurance policies. You can be sure they will always reflect the realities of your medical practice today and in the future.

9 YES: We continuously work to improve the environment in which you practice. At MagMutual, we focus on changing legislative and judicial outcomes as well as supporting the medical societies to which you belong. By influencing the forces outside of your practice and immediate control, we ll make your environment as conducive as possible to the practice of good medicine. Our country is undergoing a dramatic shift in how we practice and provide medicine. MagMutual wants to make sure physicians are well-served and protected during these uncertain times. We invest and stay actively involved in monitoring and influencing legislative activity fighting or supporting individual bills at both the federal and state levels. We have made significant investments in support of tort reform in all states in which we serve. Just one example: our 2012 financial contribution to the North Carolina Medical Society helped overturn legislation and pass tort reform a significant victory for that state s medical community. We also actively support and promote the election and retention of fair and impartial judges. Another avenue to improved working environments is through our partnership and support of medical societies. The Medical Relations Committee of MagMutual s Board of Directors spends millions of dollars annually to support your specialty and statewide medical societies. We have also established the MagMutual Foundation. Coming in 2013, this separate, nonprofit entity will give grants in support of improving medicine and innovation in patient safety.

10 YES: We re the right insurance company for you. Because this is your company, every time we say yes, it benefits you. Why become a MagMutual owner? Here are six sound reasons: More stability We adapt our products to changes in your practice environment. Less stress We influence and work to change your external environment for the better. More understanding We understand your needs, the intricacies you face, and the products and services that can best help you. Winning representation We provide you with the best defense possible. Better return We give back to you personally through dividends and other programs. No worries We invest in the company to keep it monetarily strong and safeguard you financially. These are the things MagMutual does better than anyone. They are the things that make MagMutual the right medical professional liability insurer for you.

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12 We welcome the opportunity to discuss your company and specific needs. For more information, visit MagMutual.com Piedmont Road NE Bldg Atlanta, GA MagMutual.com

13 The Power of 2012 Annual Report

14 Proxy voting available online MagMutual is offering online proxy voting as an easy, immediate way to have your voice heard. Visit MagMutualVoting.com to view the annual report, proxy and annual meeting notice, and to vote online. Please have your Voting Control ID number provided on the enclosed ballot to vote. Insurance products and services are issued and underwritten by MAG Mutual Insurance Company and its affiliates.

15 Message from the Chairman and President Saying YES to a bright future Review: More than 30 years ago, a group of doctors in the Southeast formed an insurance company where every decision made would benefit the physician. That meant every dollar made would either be returned in the form of policyholder dividends, provide the best defense imaginable or be invested to reduce the risks involved in the practice of medicine all while growing the value of the company they owned. They named their company MagMutual, and today, we are proud to be its custodians. Our mission has not changed: we exist to serve you our owners. As we see it, MagMutual owes its success to two things: 1) our all-physician Board, and 2) our constant focus on doing more for our medical professionals. Already, we have achieved much on your behalf. We have defended the practice and reputation of close to 59,000 policyholders against accusations, demands and lawsuits. We have litigated hundreds of trials (winning close to 90%) and have settled numerous incidents. Thanks to our dedication, determination and experience, there is no better protector of clinical judgment in the Southeastern U.S. $15 million policyholder dividend On March 27, 2013, MagMutual s Board of Directors approved a $15 million policyholder dividend. Since its inception, MagMutual has distributed more than $120 million in dividends to policyholders. The 2013 dividend will be returned to eligible policyholders of record as of the close of business April 1, The dividend will appear as a credit with renewals beginning June 1, Visit MagMutual.com for more details. The Power of Yes 1

16 Message from the Chairman and President Our experience provides us with unparalleled insight into the risks to patient safety. We have focused on developing courses, lectures, webinars and simulation exercises for minimizing those risks and increasing satisfaction in your practice. We have always worked, and will continue to work, tirelessly in tort reform efforts across all our states of operation. We will continue to make significant investment in this area. While we have made much progress, we recognize there is a lot left to do. Since our founding, we have returned more than $120 million to our policyholders in the form of dividends. This is equivalent to our giving back almost a fifth of MagMutual. We have also allocated significant capital to generate a sizeable balance for those who stay with us until they cease practicing medicine. This fund is now potentially worth over $100 million. No medical professional liability insurance company has given back more to its owners than MagMutual. Notwithstanding our significant investments in patient safety and litigation support, as well as the most generous dividend program in the industry, we have grown the strength and scope of your company well beyond what was envisaged 30 years ago. Today, your firm has an A.M. Best rating of A Excellent, which is the equivalent in financial strength to household names such as Liberty Mutual, Farmers Insurance, Fireman s Fund and American Family. As you will see in this report, our operating ratios, investment returns, claims performance, underwriting results and surplus growth have been remarkable. In short, we are bigger and stronger than at any other point in our history. MagMutual belongs to you, works for you and strives to make your daily life a little easier and better than it would be without us. Neil Morrell Preview: Our challenge today is capitalizing on our advantageous situation to the benefit of our members. This is particularly important now, as you face an unprecedented period of change and anxiety. Healthcare s economic model is shifting: the Affordable Care Act is starting to take effect, financial pressure is mounting and patient expectations continue to rise dramatically. It is only right that MagMutual the company you own begin to invest its skills, time and personal and financial resources more aggressively to help you better face these challenges. We will be making significant investments in our patient safety work, the way in which we interact with hospitals, our use of technology and our support for the dividend and Owners Circle programs. Increasingly, patient safety and its measurement directly influence what healthcare providers get paid. Moreover, they place an ever-increasing demand on your time and resources. We will help you better understand and respond to this pressure. Accordingly, in 2013 we created the position of Chief Medical Officer, a position filled by Mary Gregg, MD, FACS, MHA, a nationwide expert renowned in this field. Her success as Vice President of Quality and Patient Safety at Swedish Medical Center named a Top Hospital by The Leapfrog Group speaks for itself. We are thrilled to have Mary join MagMutual and lead our team in working with you to identify and address the main patient safety challenges particular to your specialty. An increasing number of our owners are becoming hospitalemployed physicians. Just as the manner of your practice may change, so will our support for you. Accordingly, we are starting to insure hospitals. This enables us to continue to partner with our physicians, regardless of where or how they practice medicine. It also helps us leverage the full benefits of an integrated patient safety approach and bring about the power of coordinated defense strategies. As healthcare changes, we will continuously protect you and your hospitals from the risks inherent to your profession. 2 MagMutual Insurance Company 2012 Annual Report

17 The internet has had a huge impact on the practice of medicine, helping us communicate, research, learn and act. During 2013, we will be launching MagMutual s new website, focused on providing you with continual evidence-based information and advice, supporting your business. We will also be launching MagMutual apps from which you will receive invaluable information regarding legal, clinical and risk management developments as they happen. Furthermore, the administration of all your insurance needs will be much easier, quicker and completely automated. Financial pressure continues to mount on physicians and hospitals alike, arguably in a more sustained manner than ever before. In 2013, we will continue to ensure our premiums remain the most competitive possible. We will also continue issuing valuable dividends to our policyholders and have allocated a generous declaration to our Owners Circle program. If you take away only one thought from this annual report, it should be this: MagMutual belongs to you, works for you and strives to make your daily life a little easier and better than it would be without us. Whatever supports you, protects you, defends you, enriches you and sustains you, we will say Yes to. It is what we have always done and always will. Neil Morrell President and Chief Operating Officer Joseph S. Wilson, Jr., MD Chairman and Chief Executive Officer The Power of Yes 3

18 Financial Highlights MAG Mutual Insurance Company is rated A (Excellent) by A.M. Best December Physician Policyholder Owners 17,056 17,208 17,305 17,548 Total Admitted Assets $ 1,421,357,293 $ 1,480,735,959 $ 1,510,375,252 $ 1,543,671,903 Gross Written Premium $ 274,252,522 $ 295,757,596 $ 253,264,604 $ 239,563,167 Net Income $ 62,925,352 $ 68,972,906 $ 66,207,172 $ 43,712,858 Policyholders Surplus $ 471,385,906 $ 541,328,929 $ 610,096,938 $ 667,493,246 Claims Paid $ 177,121,981 $ 169,665,801 $ 166,600,148 $ 173,592,887 Claim Reserves (Net) $ 619,769,000 $ 620,075,000 $ 565,243,000 $ 550,321,000 Figures represent results for MAG Mutual Insurance Company prepared under Statutory Accounting Principles as promulgated by the National Association of Insurance Commissioners. PHYSICIAN POLICYHOLDER OWNERS 18,000 TOTAL ADMITTED ASSETS (IN MILLIONS) $1,800 12,000 17,056 17,208 17,305 17,548 $1,200 $1,421 $1,481 $1,510 $1,544 6,000 $ POLICYHOLDERS SURPLUS (IN MILLIONS) $750 CLAIMS PAID (IN MILLIONS) $200 $500 $250 $471 $541 $610 $667 $100 $177 $170 $167 $ MagMutual Insurance Company 2012 Annual Report

19 Condensed Statements of Admitted Assets, Liabilities and Surplus Condensed Statutory-Basis Audited Financial Statements MAG Mutual Insurance Company For the years ended December 31, 2012 and 2011 ADMITTED ASSETS December Cash and invested assets Bonds and stocks $ 1,334,848,235 $ 1,323,169,107 Cash, short-term investments and other invested assets 100,942,956 74,261,865 Total cash and invested assets 1,435,791,191 1,397,430,972 Agents balances in course of collection 62,379,420 63,678,751 Net deferred tax asset 24,716,883 27,024,505 Other assets 20,784,409 22,241,024 Total admitted assets 1,543,671,903 1,510,375,252 LIABILITIES AND POLICYHOLDERS SURPLUS December Reserves Reserves for losses and loss adjustment expenses 550,341, ,249,151 Unearned premiums 140,192, ,934,414 Total reserves 690,533, ,183,565 Funds held under reinsurance treaties 126,625, ,773,349 Deferred compensation and retirement plan 24,220,869 17,863,883 Other liabilities 34,798,218 48,457,517 Total liabilities 876,178, ,278,314 Special surplus funds 9,035,235 Surplus notes 60,000,000 60,000,000 Unassigned surplus 607,493, ,061,703 Total policyholders surplus 667,493, ,096,938 Total liabilities and policyholders surplus $ 1,543,671,903 $ 1,510,375,252 The Power of Yes 5

20 Condensed Statements of Income Condensed Statutory-Basis Audited Financial Statements MAG Mutual Insurance Company For the years ended December 31, 2012 and 2011 December Net premiums written $ 197,325,445 $ 214,402,354 Change in unearned premiums 5,742,399 7,666,899 Premiums earned 203,067, ,069,253 Losses and expenses Loss and loss adjustment expenses 145,289, ,131,062 Underwriting and administrative expenses 52,069,006 45,207,370 Total underwriting deductions 197,358, ,338,432 Net underwriting gain 5,709,196 71,730,821 Net investment income including net realized capital gains of $19,161,112 and $3,630,361 in 2012 and 2011, respectively 56,506,222 40,469,597 Other income 1,107, ,929 Net income before dividends, after tax on capital gains and before all other federal income taxes 63,323, ,007,347 Dividends to policyholders 15,136,126 16,722,225 Net income after dividends, capital gains and before all other federal income taxes 48,187,033 96,285,122 Federal income tax expense 4,474,175 30,077,950 Net income $ 43,712,858 $ 66,207,172 6 MagMutual Insurance Company 2012 Annual Report

21 Notes to Condensed Statutory-Basis Financial Statements ORGANIZATION MAG Mutual Insurance Company (the Company) is domiciled in the State of Georgia. The Company has no stockholders and no shares of capital stock as it is owned and controlled by its insured physicians and healthcare facilities, each of whom has one vote. The Company has one wholly owned insurance subsidiary, Professional Security Insurance Company (PSIC), two wholly owned noninsurance subsidiaries, MAG Mutual Insurance Agency, LLC (MMIA) and MAG Mutual Financial Services, LLC (MMFS) and a wholly owned insurance brokerage, Select Professional Underwriters, LLC (SPU). In previous periods, the Company owned 100% of MAG Mutual Healthcare Solutions, Inc. (MMHSI), a noninsurance subsidiary. On December 29, 2011, with an effective date of December 1, 2011, the Company sold its entire interest in MMHSI. The Company is primarily involved in the sale of commercial lines of property and casualty insurance including medical professional liability, business owners, workers compensation and general liability insurance. Medical professional liability insurance coverage to licensed physicians and healthcare facilities represents over 96% of the Company s premium volume. The Company is licensed in Georgia, Alabama, Arkansas, Florida, Indiana, Kentucky, Maryland, Mississippi, North Carolina, Ohio, South Carolina, Tennessee, Virginia and West Virginia. BASIS OF PRESENTATION The condensed financial information of MAG Mutual Insurance Company has been prepared in accordance with statutory accounting principles prescribed or permitted by the Georgia Department of Insurance (Statutory-basis) which is a basis of accounting other than accounting principles generally accepted in the United States of America (US GAAP). The effects on the financial statements of the variances between Statutory-basis accounting practices and US GAAP, although not reasonably determinable, are presumed to be material. Additionally, the preparation of financial information in conformity with Statutory-basis accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. In the opinion of management, all adjustments considered necessary for fair presentation, consisting of normal recurring adjustments, have been included. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed. AUDITED FINANCIAL STATEMENTS The accompanying condensed financial information of MAG Mutual Insurance Company has been prepared for purposes of this annual report. Accordingly, this document does not include all the information and notes required by Statutory-basis accounting principles for complete financial statements. The financial information of MAG Mutual Insurance Company shown herein has been derived from complete Statutory-basis financial statements which were audited by Johnson Lambert LLP, our independent auditors. Johnson Lambert LLP s opinion was issued as it relates to the Company s financial statements prepared using the accounting practices prescribed or permitted by the Insurance Department of the State of Georgia, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The information presented in the annual report should be read in conjunction with the full audited Statutory-basis financial statements, which include information and disclosures not included in this annual report. A complete set of audited Statutory-basis financial statements may be obtained from the Company upon request. The Power of Yes 7

22 MagMutual Leadership Inside front cover, from left: Catherine S. Andrews, MD, Main Street Family Physicians Acworth, GA; Matt Mitcham, Senior Vice President, Claims; Peter D. Steckl, MD, EmergiNet, LLC Atlanta, GA Page 3, from left: Joseph S. Wilson, Jr., MD, Chairman of the Board and Chief Executive Officer; Neil Morrell, President and Chief Operating Officer Page 4: C. Thomas Hopkins, MD, The Orthopaedic & Sports Injury Center Griffin, GA Page 5, from left: W. Scott Bohlke, MD, Bohler Family Practice, PC Brooklet, GA; David T. Stewart, Jr., MD, KWB Pathology Associates Tallahassee, FL; Joe Cregan, JD, Vice President and General Counsel; Michael E. Greene, MD Macon, GA Page 6, from left: Kirby D. Sims, Vice President, Information Technology; Carol Quaif, Senior Vice President, Allied Lines; S. Terry Smith, MD, South Carolina Oncology Associates Columbia, SC; Edward Lybrook, Senior Vice President, Regulatory Compliance and Product Development Page 8, from left: Johnathan Brutlag, President, Professional Security Insurance Company (PSIC); Benjamin H. Cheek, MD, OB/GYN Associates of Columbus Columbus, GA; H. Alexander Easley, III, JD, MD, SEAHEC OB/GYN Wilmington, NC; Larry Miller, Senior Vice President, Support Services Inside back cover, top, from left: John S. Antalis, MD, Dalton Family Practice Dalton, GA; Ed Lynch, Senior Vice President of Business Development; Joseph W. Griffin, Jr., MD, Augusta Gastroenterology Associates, Inc. Augusta, GA; J. Daniel Hanks, Jr., MD, FACR Rome, GA Inside back cover, bottom, from left: Jesse Lyons, President, Select Professional Underwriters, LLC (SPU); Sheila A. Robinson, MD, Metropolitan Atlanta Cardiology Associates, PC Atlanta, GA Outside back cover, from left: J. Price Corr, Jr., MD, Albany Surgical, PC Albany, GA; Marc Hammett, Chief Financial Officer Page 7, top, from left: Michael J. Bono, MD, FACEP, Emergency Physicians of Tidewater, PLC Norfolk, VA; Lisa Coppolino, Senior Vice President, Underwriting Page 7, bottom, from left: Jamie Sapp, Vice President, Healthcare & Marketing Strategies; E. Daniel DeLoach, MD, Savannah Plastic Surgery Savannah, GA; James B. Ball, Jr., MD Tampa, FL Indicates MagMutual physician board member For a full list of MagMutual staff and board committees, please visit MagMutual.com. 8 MagMutual Insurance Company 2012 Annual Report

23 About MagMutual MAG Mutual Insurance Company is one of the largest medical professional liability insurers for physicians in the United States. The following subsidiaries of MAG Mutual Insurance Company provide other products and services referenced in this report. MAG MUTUAL INSURANCE AGENCY, LLC (MMIA) is an insurance agency created to meet the medical liability, property and casualty insurance needs of the physicians and policyholders in the states we serve. MAG MUTUAL FINANCIAL SERVICES, LLC (MMFS) is a Georgia insurance agency that provides the medical community with a trusted and innovative resource for life, disability income, long-term care and group health insurance programs and financial planning services through alliances with selected partners. SELECT PROFESSIONAL UNDERWRITERS, LLC (SPU) is an insurance agency created to market MAG Mutual Insurance Company s insurance products. PROFESSIONAL SECURITY INSURANCE COMPANY (PSIC) is an Arizona domestic property and casualty insurer that was created to provide customized and excess and surplus lines insurance for physicians, large groups, hospitals, joint programs and complex risks requiring special underwriting. For more information about MagMutual or any of its companies, visit MagMutual.com.

24 3525 Piedmont Road NE Bldg Atlanta, GA MagMutual.com