Manager's Report 2007

Our 2007 financial year was average when compared to our past 10 years. 2006 was our best year in 25 years. Based on our success in 2006, the Board of Directors declared a Special Mutual Rebate of $1,240,000 to be paid in 2007. This rebate was paid in April, 2007 and deducted from our earnings for 2007, reducing our 2007 income by $1,240,000.

We experienced an increase in large losses in 2007 having 33 losses reported that were greater that $50,000. Claims relating to wood heat practices were significantly higher in 2007 representing 12% of our total payout for all claims.

PEI Mutual has an investment portfolio totaling $39,000,000. These investments are managed by our controller, Rudy Smith and myself. Our investment policy limits the amount of risk that we can assume in purchasing investments. Our return on investments realized for 2007 was 7.5%, a total of $2,800,000.

In 2007, Cam Trail, our service agent for West Prince County, retired after 27 years of service to PEI Mutual. Over these years, PEI Mutual experienced significant growth and Cam was instrumental in contributing to this growth. On behalf of everyone at PEI Mutual, I thank Cam for his hard work and long term service to our Company and wish him much happiness in his retirement years.

Randy Wedge from Palmer Road and Eddie Trail from Cascumpec were hired in 2007 as service agents for West Prince County. Randy is a graduate of Concordia University and has been employed in the sales and service industries for the past 10 years. Eddie is a graduate of The University of New Brunswick and has been employed in sales and service for the past 20 years. I welcome both Randy and Eddie to our team.

PEI Mutual is an Island company owned by its policyholders with its Head Office located on PEI. Decisions are made promptly on PEI. In profitable years, we give Dividends or Mutual Rebates back to our policyholders either in the form of a cheque or as a reduction from premiums due in the following year. I am pleased to advise that a 10% Mutual Rebate has been approved by our Board of Directors for 2007. This rebate will be deducted off your premium due in 2008. Mutual Rebates have been given to policyholders in 19 of the past 25 years with a total payout of approximately $21,000,000.

PEI Mutual is an Island company which contributes greatly to our Island economy through contributions to local charities and organizations and through the employment of 33 full time permanent staff. PEI Mutual is 123 years old.

Providing excellent service to our policyholders is our key to success. I thank our team of dedicated employees and directors for their hard work.

Thank you for choosing PEI Mutual as your insurance provider.

Terry Shea,

General Manager