Oil spills were the story of the year for 2004. We had 24 claims reported costing PEI Mutual approximately $1,700,000. Over the past five years, we had 121 oil spill claims reported at a cost of $4,500,000. Approximately 73% of these oil spills were from oil tanks located outside a building.

In 2003, we started an oil tank contest to promote policyholders having their oil tank installation brought up to provincial standards. To date, we have awarded seven prizes of $1,000 each, and plans are to continue with four more $1,000 draws in 2005. Information on this contest is on the last page of the Annual Report.

We thank our policyholders who have updated their oil installation to provincial standards and urge all our policyholders to do so as soon as possible. Provincial regulations require that all oil installations meet provincial standards by September 2006.

There has been a great deal of media attention given to insurance company profits for 2004. The insurance industry in Canada has realized a 20% return on equity. Much of this return was realized on the automobile line of business and PEI Mutual does not sell automobile insurance. PEI Mutual’s return on equity for 2004 was 5% which is a bit lower than where it should be. PEI Mutual is owned by its policyholders and does not have the shareholders that the other insurance companies have, who expect a return on their investment (dividend). PEI Mutual must earn a profit which is sufficient to support premium growth. This profit is added to our equity and is held to keep our company strong for future generations of policyholders.

Our rate increases in the past number of years have been minimal and there are no planned rate increases in 2005. Our income in past years has been sufficient to grow our surplus and keep the company in the excellent financial standing it enjoys today.

Our goal at PEI Mutual is to provide excellent service. Our agents are busy servicing the needs of customers throughout PEI. Our head office staff process the work of our agents, service policyholders on the phone and process insurance claim payments to policyholders. We settle claims as quickly as possible and it is not uncommon to have a claim cheque in the mail the day after the claim is reported. I thank all our staff and service agents for their dedicated service to our policyholders.

Computer technology is an ever growing facet in all businesses and PEI Mutual is no exception. Technology allows for efficiency and we aim to be efficient. We keep abreast of change and our systems are to modern standards. At present we have 35% of our policyholders paying their insurance premium electronically on-line. We are pleased to have such a large percentage of our policyholders using this service.

PEI Mutual was honored to receive the Community Enhancement Award at the Greater Summerside Chamber of Commerce Business Awards Banquet in 2004. This award was given in recognition of both the company and employee contributions to community. We are proud of PEI Mutual’s annual contributions to hospitals, exhibitions, Special Olympics and many more Island organizations. Since its centennial year in 1985, PEI Mutual has awarded 400 scholarships to high school graduates totaling $200,000. PEI Mutual displays its community spirit by sponsoring programs such as Community Showcase on Eastlink TV and the Eric MacEwen Show on CFCY. PEI Mutual has been the title sponsor of the PEI Mutual Provincial Summer and Winter Games for the past eight years.

Management & staff show commitment to the community through contributions to charities such as the United Way and by volunteering as members of the Board of Directors on organizations such as the Chamber of Commerce, Summerside Regional Development Corporation, Slemon Park Corporation and the Insurance Institute of PEI.

PEI Mutual has been a “Top 101 Company in Atlantic Canada “ for the past 7 years, as awarded by Progress Corp. Policyholders of PEI Mutual benefit by sharing in the company’s profits through a “Mutual Rebate” which is given in years when the company has good financial results. A “Mutual Rebate” has been paid to the policyholders for 14 of the last 20 years. The total amount refunded to the policyholders in those 14 years was $11,950,000. I am pleased to advise that we will be giving a “Mutual Rebate” of 5% in 2005. This “Mutual Rebate” will be given as a discount at time of renewal.

PEI Mutual is an Island company owned by its policyholders with its head office on PEI. Decisions are made promptly on PEI. Thank you for choosing PEI Mutual as your insurance provider.

Terrence Shea,

General Manager