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Continuity credits for 2014 – 2015

As you know, we use our continuity credit programs to help maintain a balance between the lowest long-term cost of risk for members and the financial strength of the mutual. We work closely with our members and brokers to collect enough premium to fund the losses of the membership and promote measured surplus growth to pave the way for positive treatment by our rating agency – Best’s. With a long-term history of excellent results, we've been able to maintain this balance and return more than $1.094 billion to our eligible members in credits of one kind or another.

Even though the 2013 bottom-line financial results were positive, and our overall loss experience was directionally positive, the five-year combined ratio for our flagship excess liability business is 147%. Taking this high ratio into consideration, combined with the relatively poor loss experience for our property business in the past three years, and the low rate of return on our conservative investment portfolio, the Board of Directors has decided to maintain the continuity credit programs at their current levels:

• The continuity credit for excess liability will remain suspended for the time being. After years of stubbornly high combined ratios, though, the combined ratio for this business finally dropped to 113% in 2013, versus 169% in 2012. Hopefully this trend will continue.

• Our D&O loss experience has been good in recent years, and the contribution to surplus has been positive, so we will maintain the current D&O continuity credit level at 2.0%.

• The property credit will remain at $2 million based on the ongoing effects of Superstorm Sandy losses, as well as two of the largest losses in the history of the mutual that occurred in 2013.

• The AEGIS London credit will remain unchanged at $1.0 million based on the Syndicate’s directionally positive results for the member business they write.

We are pleased to provide an ongoing level of credits and we know you recognize and appreciate the need to manage the credits in the context of the mutual’s overall financial results. The specific details that describe the individual credit amounts and how they can be applied to future renewals for your D&O and AEGIS London renewals will be mailed within the next few weeks. Those eligible for the member property credits will receive their notices later this summer.