Private passenger automobile insurance is heavily regulated in New Jersey. In many respects, the private passenger automobile insurance market in New Jersey is unique, in comparison with other states. This is due to a number of factors, including unusual regulatory conditions such as the “take all comers” requirement and the Automobile Insurance Urban Enterprise Zone (UEZ) Program. For many insurance companies, these factors present substantial challenges. In June 9, 2003, the New Jersey Automobile Insurance Competition & Choice Act, or AICC Act, was signed into law by the Governor of New Jersey to address the issues of auto insurance availability and capacity. The new legislation was designed to attract competition in the New Jersey auto insurance market, and to provide consumers with coverage choices.

It is believed the current conditions in the New Jersey property and casualty insurance market represent an attractive opportunity. According to estimates of the U.S. Bureau of Economic Analysis and Bureau of the Census, New Jersey had the second highest per capita personal income in 2003 of the 50 states. According to A.M. Best, private passenger auto direct written premiums in New Jersey for 2003 were $5.7 billion (ranking sixth among the states and having grown 26.5% since 1999). Total property and casualty direct written premiums in New Jersey for 2003 were $14.0 billion (ranking eighth among the states and having grown 41.9% since 1999).

The Company attempts to attract and retain policyholders who are better insurance risks with a “packaged” insurance product, which it refers to as the “High Proformance Policy” or “HPP”. HPP is a comprehensive and differentiated policy which may contain property and casualty coverages purchased by individuals as follows: private passenger automobile insurance, including bodily injury and property damage liability, uninsured motorist coverage, personal injury protection, extended medical payments, comprehensive fire and theft, collision, rental reimbursement, towing and labor, and miscellaneous electronic device and mobile telephone coverages; homeowners and condominium insurance coverage, including various endorsements for extended coverage for eligible property and liability exposures; personal excess (“umbrella”) liability insurance as an additional line of coverage; and personal specialty property lines covering jewelry, furs, fine arts, cameras, electronic data process equipment, boats, yachts and other high value items.

Policyholders may purchase HPP coverage that initially includes only either the private passenger automobile coverage or the homeowners coverage. The policyholder may add the other coverages at their convenience as their existing policies for this other coverage expire.

The Company also offers commercial lines insurance products including commercial automobile, commercial general liability, and commercial excess liability. Specifically, the Company underwrites commercial automobile liability and physical damage and commercial inland marine for risks insuring up to ten vehicles. In addition, the Company offers commercial liability, commercial inland marine and commercial excess liability to the commercial automobile policyholders. Predominantly, Proformance underwrites commercial automobile liability and physical damage for small to medium business “mainstreet” policyholders which the Company regards as high frequency/low severity risks.

The Company has recently initiated underwriting of a new commercial line of business designed to insure commercial property exposures on an “all risk” basis.

The Company distributes its products exclusively through licensed independent agents, many of whom are Partner Agents.

Investment income for the three months ended March 31, 2004 increased by $0.5 million, or 71.4%, to $1.2 million from $0.7 million for the three months ended March 31, 2003.

Net realized investment gain (loss) for the three months ended March 31, 2004 and 2003 were $0.7 million and $0.0, for the three months ended March 31, 2003.

Losses and loss adjustment expenses for the three months ended March 31, 2004 increased by $2.6 million, or 11.5%, to $25.3 million from $22.7 million for the three months ended March 31, 2003.

Net income after tax for the three months ended March 31, 2004 increased to $9.0 million from $7.2 million for the three months ended March 31, 2003