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October 2009 financial results

We are pleased to report some encouraging financial results for the year to date. In my February 2009 e-mail, I outlined the strategy for preserving the Company’s financial strength and planning for measured growth in the wake of the capital market meltdown and the catastrophic losses suffered by the membership. This strategy has yielded tangible results. Most importantly, member and broker support has been truly outstanding! Thank you.

The following are unaudited figures for the year to date as of October 31, 2009: Total surplus has grown this year by almost $70 million to $827 million, due in large part to the strengthening condition of the investment markets. The surplus is now 9% above where it was at year-end 2008. Gross written premium through October is $925 million, about $13 million better than we had planned. Premium increases in the excess liability line, where our loss experience has been poor for several years, as well as the strong performance of our London operations, have contributed to a positive result for the 2009 underwriting year.

Losses for the current accident year are basically what we expected. Our mid-year reserve review with our internal and external actuaries is now complete. All lines performed as expected or better, with the exception of excess liability. In this line, we felt it was necessary to increase our reserves by about $188 million through October, which includes the large losses related to wildfires and propane operations that we have previously discussed. As you know, we have taken action to avoid similar wildfire losses in the future by lowering our limit, implementing an aggregate limit and purchasing additional reinsurance. We have also exited the independent propane business.

Total investment returns are well ahead of plan – the year-to-date return is $224 million or 7.2%. These strong results have more than offset prior year excess liability loss experience and they have helped build our surplus, as indicated above, to a level about where we expected it to be at this time.

We are encouraged by these results and we are grateful for the ongoing understanding and support of our members – which is the essence of our mutual partnership. We hope to report more positive results for the year-end sometime in January and we look forward to restoring continuity credits as conditions allow.