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Continuity Credits

As you know, our Continuity Credit programs allow Members to share in the financial results of the Company. Since 1987, we've returned $900 million in continuity credits to our members - $215 million has been returned in just the last five years. Most often, our bottom line financial performance, i.e., surplus growth, is good. Last year it was not. This was due to the macro-investment climate, as well as some fairly significant losses, including Hurricane Ike, the California wildfires and the Midwest floods. These events were summarized in our recent mass email and will be reviewed in detail in our 2008 Annual Report, which is at the printers as this letter goes out. Last week, we reviewed all of our Credit programs with the Board of Directors, who approved the following credit declarations.

Due to the significant decrease in total surplus in 2008, the continued adverse development in excess liability losses and ongoing investment market volatility, the Board believes it is prudent to reduce the continuity credit levels. After carefully considering the membership's 2006 - 2008 excess liability losses and the necessity to restore surplus, the Board agrees it is appropriate not to have a continuity credit for excess liability. However, the Board has approved continuity credits at 2.5% for D&O members, whose loss experience has been much more favorable over the most recent five years. This is a reduction from the 5% declared for both excess liability and D & O last year. These D&O credits total $14.0 million. The details regarding specific D&O credits will be sent in the coming weeks to eligible members along with materials that describe how they can be applied to future premiums.

In these difficult times, we believe the modification of this year's continuity credit program, combined with the underwriting and investment initiatives we've put in place during the past several months will enable us to begin to restore policyholder surplus and continue to provide you with the lowest overall, long-term cost of risk. We will of course be reviewing the level of continuity credits with a fresh eye a year from now.

The Board has also approved $1.0 million in premium credits for members who renew coverages placed through AEGIS London, reflecting the slightly positive 2008 underwriting results at the Syndicate. This is a reduction from the $2.5 million granted in 2008. Now in its fifth year, the AEGIS London premium credit program allows eligible members utilizing our syndicate to share in the positive underwriting results of the operation. We will advise each participating member of their 2009 London credit, and provide a detailed description of the program definitions and guidelines via letter within the coming weeks.

Additionally, the Board has approved $3.5 million in premium credits for members who renew coverages placed through our domestic property program. This reduced level, from $6.5 million in 2008, reflects the significant decrease in total surplus and property losses during the 2008 property credit cycle. Now in its seventh year, the property premium credit program allows eligible members to share in the positive underwriting results of the operation. We will advise each participating member of their 2009 property credit, and provide a detailed description of the program definitions and guidelines via letter in the coming weeks.