Manager's Report 2008

PEI Mutual is an Island Company, owned and operated by Islanders. In 2010 we will be celebrating our 125th anniversary. The success that PEI Mutual has experienced is a testament to the diligent work of our employees and the leadership of our Board of Directors. A large number of our employees have been with the Company for over 20 years. Our agents, Peter Johnston and Bruce Simpson; and office staff, Vicky Waite, Thelma Cote and Rose Kelly have been with the Company for approximately 30 years. In the past 30 years, our premiums have grown from $2 million to $14 million and our surplus has grown from $2 million to $32 million. Today, PEI Mutual is a financially sound, Island owned company contributing significantly to our Island economy. I thank the staff, agents and directors for their dedication to the success of PEI Mutual.

Our financial results for 2008 gave us a net income after tax of $804,000. Our experience has deteriorated in 2008 compared to our results for the past five years. Gross claims were up 19% over 2007 with an increase in the number of claims reported by 26%. Damages resulting from water, freezing and sewer backup amounted to $1,621,000, 18% of our total claim payments in 2008. Ten years ago, water, freezing and sewer backup claims represented 3% of total claim payments. There has been a gradual increase in these types of claims over the past years. Oil escape claims continue to be a major cause of loss with claim payments of over $1 million in 2008. We have spent over $1 million in each of the past three years as a result of oil escapes. Ten years ago, claims resulting from oil escape were almost non existent. Over the past seven years, our agents have been working with policyholders to have oil installations improved.

PEI Mutual has an investment portfolio totaling $41,000,000. These investments are managed by our controller, Rudy Smith and myself. Investment markets have plummeted in 2008 and PEI Mutual's investment portfolio was negatively affected. Fortunately, our investment policy limits the amount of risk that we can assume in purchasing investments and, as a result, our exposure was limited. Our return on investments realized for 2008 was 5.66%

Three of our employees have volunteered their time to benefit associations connected to PEI Mutual. Blair Campbell, our Corporate Secretary, has accepted an invitation to be a member of the Board of Directors of the Canadian Association of Mutual Insurance Companies, a trade association of property and casualty insurance companies formed as mutuals. Rudy Smith, our Controller, is the President of the Greater Summerside Chamber of Commerce. Stan Gallant, our Systems Analyst, has accepted a position on the Statistics Committee for the Ontario Mutual Insurance Association. The knowledge gained by Blair, Rudy and Stan from their involvement in these organizations will benefit PEI Mutual greatly.

One of the benefits of being a policyholder of PEI Mutual is that policyholders share in its financial success. Although 2008 was not a banner year, our Board of Directors felt the financial position of PEI Mutual warranted a Mutual Rebate to our policyholders. I am pleased to advise that a 10% Mutual Rebate has been approved by our Board of Directors for 2008. This rebate will be deducted off your premium due in 2009. Mutual Rebates have been given to policyholders in 20 of the past 26 years with a total payout of approximately $22,600,000.

Thank you for choosing PEI Mutual as your insurance provider.

Terry Shea,

General Manager