The insurance industry has recently become the focus of increased scrutiny by regulatory and law enforcement authorities, as well as class action attorneys and the general public, relating to allegations of improper special payments, price-fixing, bid-rigging, improper accounting practices and other alleged misconduct, including payments made by insurers to producers and the practices surrounding the placement of insurance business.

More recently, there has been increased scrutiny of the use of finite reinsurance and other reinsurance arrangements. Many state insurance departments have distributed questionnaires to insurance companies and to producers seeking information on the compensation arrangements used to pay producers for the production of new insurance business and the renewal of in-force insurance policies, and the disclosures that are made to insurance purchasers regarding such compensation arrangements.

The property and casualty insurance industry is affected by recurring industry cycles know as “hard” and “soft” markets. A soft cycle is characterized by intense competition resulting in lower pricing and increased commissions paid to distribution sources in order to compete for business A hard market, generally considered a beneficial industry trend, is characterized by reduced competition that results in higher pricing and lower commissions paid to acquire business. The hard market conditions significantly intensified after the September 11, 2001 terrorist attacks.

Educators offers employer sponsored fee for service and managed care dental plans through its producers, including voluntary plans. Multiple variations of these products are available which offers different degrees of coverage, affordability and flexibility. Managed care dental plans are accessed through two unaffiliated dental Preferred Provider Organizations, or PPOs, one of which operates in the greater Philadelphia, Pennsylvania market (including Philadelphia’s Pennsylvania suburbs and Southern New Jersey) and the other in the greater Washington, D.C. market (including Washington’s Maryland and Virginia suburbs).

Short term disability products are designed to provide income to a claimant during the claimant’s recovery from non work-related injury or illness. Educators offers standard short term disability plans, as well as voluntary short term disability plans. These short term disability plans pay flat amounts (weekly benefits of up to $1,500 for standard plans and of up to $500 for voluntary plans) or a percentage of weekly earnings (50% or 70% for standard plans, and 60% or 66 2/3% for voluntary plans).

Long term disability products are designed to replace a portion of a claimant’s income in the event of disability, due to injury or illness that keeps the claimant out of work over a predefined, extended period of time. Educators offers employer-sponsored, long term disability plans. These include plans that award preset amounts (from $6,000 to $10,000, depending on group size) or a preset percentage (50 to 70%) of an individual claimant’s monthly earnings.

Term life insurance products, which may include coverage in the event of accidental death or dismemberment, provide a specified benefit amount to claimant-designated parties in the event of claimant death or dismemberment. Educators offers term life products, available in a wide variety of plans, with different degrees of coverage, affordability and flexibility.

All states require employers to provide workers’ compensation benefits to their employees for injuries and occupational diseases arising out of employment, regardless of whether such injuries or disease result from the employer’s or the employee’s negligence. Guaranteed cost products charge a fixed premium based upon rate filings filed with and approved by the Department. Policyholder dividend plans charge a fixed premium based upon rate filings approved by the Department, but the customer may receive a dividend based upon favorable loss experience during the policy period.

Alternative market products are offered to individual customers and trade associations. Commercial umbrella products were first offered by EAIG in 2004, as part of a product diversification strategy. Commercial umbrella coverage provides catastrophic protection in excess of an insured’s commercial automobile, general liability and employers liability coverages subject to the limits of the policy.

Educators’ consolidated net loss totaled $1.1 million for the six months ended June 30, 2005, compared to consolidated net income of $1.3 million for the six months ended June 30, 2004.

EHCs’ total operating revenues increased to $44.6 million for the six months ended June 30, 2005, compared to $37.8 million for the same period in 2004.

EHCs’ net income of $4.9 million for the six months ended June 30, 2005, compared to consolidated net income of $2.8 million for the same period in 2004.