I am very pleased to advise that PEI Mutual experienced a good year financially and that we will provide our policyholders with a 10% Mutual Rebate of approximately $2,100,000 in 2013. This year's Mutual Rebate will be given as a discount at time of renewal.

PEI Mutual continues to grow on an annual basis. In 2012, the gross premium revenue of the company has grown by almost 7%. Each of our lines of insurance (farm, fishing, residential and commercial) has been profitable and our investment return was very good.

In the past 10 - 15 years, we have experienced growth in claims resulting from oil spills. In 2012, this trend has reversed and there has been a reduction in oil spill claims. Our statistics indicate that 80% of past oil spill claims resulted from outdoor single wall steel installations and that these tanks are failing between 6-10 years of age. In 2011, we implemented new requirements to have some of these tanks replaced earlier than the current tagged expiry date. Policyholders affected would have received information on this in the mail. In order to assist with the financial burden on our policyholders, we offered a $100 incentive to have outdoor steel oil installations converted to a non-corrosive oil tank or a non-petroleum based heat source. To date, over 1,500 policyholders have benefited from this incentive. I thank our policyholders for working with us to improve their oil installations. The $100 oil incentive program has been extended until December 31, 2013. Please visit our web site at www.peimutual.com or contact Head Office to obtain information on this program.

We have experienced an increase in claim occurrences caused by electrical wiring and water damage. We feel both these causes are indicative of changes in the way families operate their homes. The increased use of electricity to heat homes and the use of new home appliances have increased the demand on the electrical service. In 2012, we paid $1.1 million and in 2011 we paid $1.3 million on claims deemed to have been electrical in nature. The increase in water damage claims is attributable to the manner in which new homes are designed and used. Laundry facilities are now being placed on the upstairs level of the home resulting in significant damage to the dwelling when a water pipe bursts. Basements that were once left unfinished are now finished and furnished with very expensive materials and furnishings that are damaged when water migrates to the basement. In 2012, we paid claims of $1.14 million for 162 water escape claims.

It is our goal to have our policyholders adequately insured. When a claim occurs, we want our policyholders looked after. Our 14 agents throughout PEI have been finding it more difficult to make contact with policyholders and to have policyholders take the time to sit down and review their coverage. Please call Head Office to arrange a visit from your agent. It is in your best interest to have proper insurance coverage; as it is too late after a claim to determine that your protection is not as good as it could have been.

We are dedicated to providing excellent service to our policyholders who have experienced damages resulting from an insured loss. From our receptionist to our claim's manager, we strive to provide high quality, efficient service. When you phone PEI Mutual, you will be greeted by our highly trained, professional, friendly staff who are located at Head Office in Summerside. Please call 1-800-565-5441 to report a claim.

PEI Mutual is an Island company owned by its policyholders with its Head Office located in Summerside, PEI. Decisions are made promptly on PEI. We are in the business of providing service to our policyholders and it's our goal to give excellent service in an efficient manner. We are a 128 year old Island company owned and operated by islanders with decisions made locally. I thank our agents and staff for their hard work in achieving this goal.

Thank you for choosing PEI Mutual as your insurance provider.

Terry Shea,

General Manager