For purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), "FPIC," "we," "our," "us," and the "Company" refer to FPIC Insurance Group, Inc., together with its subsidiaries, unless the context requires otherwise. The following MD&A should be read in conjunction with the accompanying consolidated financial statements for the three months ended March 31, 2009, included in Part I, Item 1, as well as the audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC on March 4, 2009.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the following MD&A, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements: of our plans, strategies and objectives for future operations; concerning new products, services or developments; regarding future economic conditions, performance or outlook; as to the outcome of contingencies; of beliefs or expectations; and of assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as "believes," "expects," "may," "should," "would," "will," "intends," "plans," "estimates," "anticipates," "projects" and similar words or expressions. You should not place undue reliance on these forward-looking statements, which reflect our management's opinions only as of the date of the filing of this Quarterly Report on Form 10-Q. Factors that might cause our results to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to:

i) The effect of negative developments and cyclical changes in the MPL insurance business;
ii) The effects of competition, including competition for agents to place insurance, of physicians electing to self-insure or to practice without insurance coverage, and of related trends and associated pricing pressures and developments;
iii) Business risks that result from our size, products, and geographic concentration;
iv) The risks and uncertainties involved in determining the rates we charge for our products and services, as well as these rates being subject to or mandated by legal requirements and regulatory approval;
v) The actual amount of our new and renewal business;
vi) The uncertainties involved in the loss reserving process, including the possible occurrence of insured losses with a frequency or severity exceeding our estimates;
vii) The unpredictability of court decisions and our exposure to claims for extra contractual damages and losses in excess of policy limits;
viii) Developments in financial and securities markets that could affect our investment portfolio;
ix) Legislative, regulatory or consumer initiatives that may adversely affect our business, including initiatives seeking to lower premium rates;
x) The passage of additional or repeal of current tort reform measures, and the effect of such measures;
xi) Assessments imposed by state financial guaranty associations or other insurance regulatory bodies;

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FPIC Insurance Group, Inc.
Quarterly Report on Form 10-Q

xii) Developments in reinsurance markets that could affect our reinsurance programs or our ability to collect reinsurance recoverables;
xiii) The loss of the services of any key members of senior management;
xiv) Changes in our financial ratings resulting from one or more of these uncertainties or other factors and the potential impact on our agents' ability to place insurance business on our behalf;
xv) Other factors discussed elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2008, including Item 1A. Risk Factors and Item
7. Management's Discussion and Analysis of Financial Condition and Results of Operations, filed with the SEC on March 4, 2009.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. Forward-looking statements are made in reliance on the safe harbor provision of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended and, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Policies

The accounting policies considered by management to be critically important in the preparation and understanding of our financial statements and related disclosures are presented in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2008.

Impact of Recently Issued Accounting Pronouncements

As described in Item 1. Financial Statements, Note 1, Basis of Presentation and New Accounting Pronouncements under the heading "New Accounting Pronouncements," there are accounting pronouncements that have recently been issued. Note 1 describes the potential impact that these pronouncements are expected to have or have had on our consolidated financial statements.

Commitments and Contingencies

For information concerning commitments and contingencies to which we are subject, see Item 1. Financial Statements, Note 10, Commitments and Contingencies.

Business Overview

We operate in the MPL insurance sector of the property and casualty insurance industry. Our primary insurance products provide protection for physicians, dentists and other healthcare providers as individual practitioners or as members of practice groups. Our insurance protects policyholders against losses arising from professional liability claims and the related defense costs with respect to injuries alleged to have been caused by medical error or malpractice. Optional coverage is available for professional corporations under which physicians or dentists practice. Through our insurance subsidiaries, we are the largest provider of MPL insurance in Florida. Based on 2008 premium data published by SNL Financial LC, which is the latest available data, Florida is the fifth largest market for MPL insurance in the United States. Our insurance subsidiaries also provide MPL insurance in selected other states. We have chosen to focus on selected markets where we believe we have advantages in terms of our market knowledge, well-established reputation, significant market presence and resources.

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FPIC Insurance Group, Inc.
Quarterly Report on Form 10-Q

Recent Trends and Other Developments

(Comparisons are made for first quarter 2009 to the comparable period in 2008 unless otherwise indicated)

- Our national and Florida policyholder retention was 97 percent compared to 95 percent national retention and 96 percent Florida retention for the comparable period in 2008.
- As a result of the continuation of favorable loss trends, we recognized favorable net loss development related to previously established reserves of $4.0 million for the three months ended March 31, 2009 compared to $4.5 million for the same period in 2008. As the result of the decline in premiums earned resulting from the drop in Florida premium rates, our current accident year loss ratio for 2009 increased to 71 percent from 67 percent in 2008.
- Lower rates in our Florida market, offset to some extent by growth in professional liability policyholders, resulted in a 12 percent decline in net premiums written.
- Consolidated revenues were 12 percent lower primarily as a result of lower Florida premium rates, as well as lower net investment income.
- Net investment income was 7 percent lower as the result of a decline in average invested assets and a lower yield on cash and cash equivalents partially offset by a slight increase in the average yield on fixed income securities.
- Our expense ratio was 24 percent compared to 22 percent for the prior year's quarter. The higher ratio was primarily due to lower net premiums earned, as well as a lesser impact from the recovery of previous insurance guaranty fund assessments.
- Book value per common share grew 4 percent from December 31, 2008 to $34.53 as of March 31, 2009. The statutory surplus of our insurance subsidiaries as of March 31, 2009 was $236.7 million and the ratio of net premiums written to surplus was 0.7 to 1.
- On April 20, 2009, A.M. Best affirmed the A- (Excellent) financial strength rating of our insurance subsidiaries with a stable outlook.
- On March 20, 2009, Fitch Ratings affirmed the A- (Strong) insurer financial strength rating and stable outlook of our insurance subsidiaries.
- On a trade date basis, we repurchased 315,188 shares of our common stock during the three months ended March 31, 2009 at an average price of $37.30 per share and as of March 31, 2009, had remaining authority from our Board of Directors to repurchase 637,614 more shares under our stock repurchase program. Through May 1, 2009, we have repurchased an additional 87,473 sharesof our common stock, on a trade date basis, at an average price of $33.30 per share and had remaining authority from our Board of Directors to repurchase an additional 550,141 shares as of that date.

Form 10-Q: 19

FPIC Insurance Group, Inc.
Quarterly Report on Form 10-Q

Results of Operations: Three Months Ended March 31, 2009 compared to Three Months Ended March 31, 2008

Net income was $8.4 million for the three months ended March 31, 2009, or $1.07 per diluted common share, a decrease of 23 percent and 9 percent, respectively, compared to $10.8 million, or $1.18 per diluted common share, for the three months ended March 31, 2008. The decline in net income is primarily the result of a decline in net premiums earned and net investment income and a higher combined ratio in the current year. See the discussion below for additional information.

Information concerning written premiums and policyholders is summarized in the tables below:

                                                            For the Quarter Ended
(in thousands)                                                    Percentage
                                            March 31, 2009          Change         March 31, 2008
Direct premiums written (1)                 $        45,604                -12 %            51,855
Assumed premiums written                                  -                  0 %                 -
Ceded premiums written                               (6,345 )               13 %            (7,269 )
Net premiums written (1)                    $        39,259                -12 %            44,586


                                                 As of            Percentage            As of
                                            March 31, 2009          Change         March 31, 2008
Professional liability policyholders in
force                                                13,829                  3 %            13,380
Professional liability policyholders in
force under alternative risk arrangements               211                160 %                81
Total professional liability
policyholders in force                               14,040                  4 %            13,461

(1) Includes $1.5 million and $1.3 million of premiums associated with alternative risk arrangements for the three months ended March 31, 2009 and 2008, respectively. Management fees for such arrangements are included in other income.

Direct premiums written and net premiums written both declined 12 percent for the three months ended March 31, 2009 compared to the same period in 2008, primarily as the result of lower premium rates in our Florida market, offset to some extent by an increase in professional liability policyholders. Our national and Florida policyholder retention was 97 percent for the three months ended March 31, 2009, compared to 95 percent national retention and 96 percent Florida retention for the comparable period in 2008.

Net premiums earned declined 13 percent for the three months ended March 31, 2009 compared to the same period in 2008. The decline in net premiums earned for the three months ended March 31, 2009 is primarily the result of lower rates in our Florida market and a prior shift in business mix to lower risk specialties that is now being reflected in net premiums earned.

Net investment income declined 7 percent for the three months ended March 31, 2009 compared to the same period in 2008. The decline in net investment income is the result of a decline in average invested assets and a lower yield on cash and cash equivalents partially offset by a slight increase in the average yield on fixed income securities.

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  Table of Contents

Information concerning our loss ratio, underwriting expense ratio and combined
ratio is summarized in the table below.

                                                                     For the Quarter Ended
                                                              March 31, 2009        March 31, 2008
Loss ratio
Current accident year                                                    70.9 %                67.0 %
Prior accident years                                                    -10.4 %               -10.2 %
Calendar year loss ratio                                 A               60.5 %                56.8 %

Underwriting expense ratio                               B               23.7 %                22.4 %
Insurance guaranty fund recoveries                                       -1.0 %                -1.7 %
Underwriting expense ratio excluding
insurance guaranty fund recoveries                       C               24.7 %                24.1 %

Combined ratio (Sum of A+B)                                              84.2 %                79.2 %

Combined ratio excluding insurance guaranty fund
recoveries (Sum of A+C)                                                  85.2 %                80.9 %

Net losses and LAE decreased 8 percent for the three months ended March 31, 2009 compared to the same period in 2008. The continuation of favorable claim trends resulted in $4.0 million of favorable prior year development for the three months ended March 31, 2009 compared to $4.5 million for the three months ended March 31, 2008. The favorable development recognized in 2009 reflects reductions in our estimates of incident to claim development, payment frequency and payment severity. Lower net premiums earned offset by an increase in the corresponding provision for losses and LAE contributed to the decline in net losses and LAE in 2009.

Other underwriting expenses decreased 8 percent for the three months ended March 31, 2009 compared to the same period in 2008. The decrease in other underwriting expenses is primarily the result of lower fixed costs associated with compensation and benefits and lower variable costs for agent commissions and premium taxes as a result of lower premiums earned. These declines were slightly offset by lower recoveries on guaranty fund assessments in 2009 compared to the recoveries received during 2008.

Selected information concerning our direct professional liability insurance claim data is summarized in the table below.

                                                              For the Quarter Ended
(in thousands)                                                      Percentage
                                               March 31, 2009         Change        March 31, 2008
Net paid losses                                $        18,535               56 %            11,911
Less: Net paid losses on assumed business in
run-off                                                    481              234 %               144
Net paid losses excluding assumed business
in run-off                                              18,054               53 %            11,767

Net paid LAE                                            10,462              -20 %            13,048
Less: Net paid LAE on assumed business in
run-off                                                      -             -100 %                70
Net paid LAE excluding assumed business in
run-off                                                 10,462              -19 %            12,978

Net paid losses and LAE excluding assumed
business in run-off                            $        28,516               15 %            24,745

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  Table of Contents

                                                               For the Quarter Ended
                                                                     Percentage
                                            March 31, 2009             Change           March 31, 2008
Total professional liability claims
closed without indemnity payment                        149                     27 %                117
Total professional liability incidents
closed without indemnity payment                        147                     60 %                 92
Total professional liability claims and
incidents closed without indemnity
payment                                                 296                     42 %                209

Total professional liability claims with
indemnity payment                                        92                     42 %                 65

CWIP ratio on a rolling four quarter
basis(1)                                                 37 %                                        30 %

CWIP ratio, including incidents, on a
rolling four quarter basis (1)                           19 %                                        14 %

(1) The claims with indemnity payment ("CWIP") ratio is defined as the ratio of total professional liability claims with indemnity payment to the sum of total professional liability claims with indemnity payment and total professional liability claims closed without indemnity payment.

                                                              For the Quarter Ended
                                                                   Percentage
                                             March 31, 2009          Change           March 31, 2008
Total professional liability claims
reported during the period                               172                  -2 %                175
Total professional liability incidents
reported during the period                               263                  18 %                222
Total professional liability claims and
incidents reported during the period                     435                  10 %                397

Total professional liability claims and
incidents that remained open                           3,411                  -1 %              3,462

Net paid losses and LAE, excluding assumed reinsurance contracts in run-off, increased 15 percent for the three months ended March 31, 2009 compared with the same period in 2008. This increase is due to a 53 percent increase in net paid indemnity partially offset by a 19 percent decrease in paid LAE. The increase in indemnity paid is primarily due to an increase in the number of claims with an indemnity payment. The average payment severity of our claims remains within our expectations. The number of reported claims and incidents for the three months ended March 31, 2009 was 10 percent higher than the comparable period in 2008; however, the number of reported claims was 2 percent lower. When adjusted for the relative composition of our book of business, the frequency of reported claims remains near historic lows and generally reflects the continued trend of lower frequency in newly reported claims and incidents in our Florida market that began in the fourth quarter of 2003. For the four quarters ended March 31, 2009, the CWIP ratio was 37 percent and the CWIP ratio, including incidents, was 19 percent, compared to 30 percent and 14 percent, respectively, for the four quarters ended March 31, 2008. The CWIP ratios remain within our expectations. Our inventory of open claims and incidents declined 1 percent during the last 12 months. It is not unusual for our claims data to fluctuate from period to period, and our claims data remains within our expectations.

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FPIC Insurance Group, Inc.
Quarterly Report on Form 10-Q

Interest expense on debt decreased 16 percent for the three months ended March 31, 2009 compared to the same period in 2008. The decrease in interest expense is primarily the result of the placement of interest rate swaps on our variable rate long-term debt, which effectively lowered our cost of debt compared with the prior period. These derivatives convert the variable interest rates being charged on our long-term indebtedness to fixed interest rates.

Income tax expense decreased 20 percent for the three months ended March 31, 2009 compared to the same period in 2008 primarily due to lower taxable income. Our effective tax rate was 33 percent and 32 percent for the three months ended March 31, 2009 and 2008, respectively.

Liquidity and Capital Resources

Liquidity is a measure of a company's ability to generate cash flows sufficient to meet short-term and long-term cash requirements of its business operations. As a holding company, our assets consist primarily of the stock of our subsidiaries and of other investments. The sources of liquidity available to us for the payment of operating expenses, taxes, debt-related amounts and other needs include management fees and dividends from our insurance subsidiaries. Management fees from our insurance subsidiaries are based on agreements in place with First Professionals Insurance Company and Anesthesiologists Professional Assurance Company, pursuant to which we provide for them substantially all management and administrative services. In accordance with limitations imposed by Florida law, our insurance subsidiaries are permitted to pay us dividends of approximately $24.6 million during 2009 without prior regulatory approval. We have received dividends of $12.5 million from our insurance subsidiaries during the three months ended March 31, 2009 in furtherance of our capital management initiatives.

For additional information concerning our liquidity and financial resources, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Sources of liquidity include cash from operations, sales of investments and financing arrangements. As reported in the consolidated statement of cash flows, net cash provided by operating activities was $2.8 million for the three months ended March 31, 2009 compared to $10.9 million for the three months ended March 31, 2008. The decline in net cash provided by operating activities is primarily due to higher loss and LAE payments.

Net cash provided by investing activities was $3.1 million for the three months ended March 31, 2009 compared to net cash used in investing activities of $6.7 million for the three months ended March 31, 2008. Net cash provided by investing activities increased during 2009 primarily as a result of transactions involving securities, which are dependent on our cash flows from operating activities and the management of our investment portfolio. Net sales and maturities of investments were $3.1 million for 2009 compared to net purchases of $6.7 million for 2008.

Net cash used in financing activities was $12.4 million for the three months ended March 31, 2009 compared to $9.6 million for the three months ended March 31, 2008. The increase in net cash used in financing activities for 2009 is primarily due to lower proceeds from common share issuances partially offset by lower share repurchases under our stock repurchase program.

As of March 31, 2009, we had cash and investments of $704.7 million. Included within cash and investments were cash and cash equivalents of $51.9 million and fixed income securities, available-for-sale, with a fair value of approximately $68.0 million with scheduled maturities during the next 12 months. We believe that our cash and investments as of March 31, 2009, combined with expected cash flows from operating activities and the scheduled maturities of investments, will be sufficient to meet our cash needs for operating purposes for at least the next 12 months.

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Quarterly Report on Form 10-Q

Capital Resources

Capital resources consist of funds deployed or available to be deployed to
support our business operations. We believe our financial strength generally
provides us with the flexibility and capacity to obtain funds externally through
debt or equity financing on both a short-term and long-term basis. Our ability
to access the capital markets, however, is dependent on, among other things,
market conditions. The following table summarizes the components of our capital
resources as of March 31, 2009 and December 31, 2008.

(in thousands)                               As of                  As of
                                         March 31, 2009       December 31, 2008
. . .