Manager's Report 2016

In 2016, we experienced excellent growth in business with an overall increase in our customer base. Our claim reports decreased both in number and severity. This decrease in claim payments is attributed to improved weather conditions and fewer winter storms during the 2016 winter season. The following is a brief summary of our results for 2016:

• Good growth in premium and market share.
• Reduction in operating expense ratio. Over the past number of years we have placed significant emphasis on reducing our operating expenses.
• Reduction in reinsurance cost due to improved claims experience with our reinsurer and an increase in liability reinsurance retention.
• Profit from insurance business of $3,356,000.
• Good return on investments yielding investment income of $3,244,000.
• Net income after tax of $5,175,000.
• Return on equity of 11%.

On May 31, 2017, I will be retiring from PEI Mutual after more than 32 years in a managerial capacity; first 16 years as Accountant/Controller and the last 16 years as Manager/CEO. Throughout this time I was fortunate to have worked with a dedicated team of staff, agents and directors. Together, we saw the company grow from:

• A premium base of $3,200,000 in 1984 to $22,800,000 in 2016.
• A surplus of $4,600,000 to $48,100,000.
• A staff compliment of 9 individuals to 25 individuals.
• A service agent base of 9 individuals to 15 individuals.

I have enjoyed my many years of working in a leadership capacity for this great Island Company and I want to take this opportunity to thank the staff, agents and directors for their hard work. I also want to thank our policyholders for their commitment to dealing with an "Island Owned and Operated" insurance company. It gets more difficult every year to compete in an international market and I am pleased that we are able grow our business annually on a profitable basis. Our main objective is to provide protection to our policyholders with excellent customer service at a competitive price and modern insurance product. We are local and your money does stay on PEI. If you have a question you can contact us via e-mail, telephone or by visit to our new office building in Summerside, PEI. Our telephones are answered in person and you do not have to deal with voice mail and be left wondering when your call will be returned. We strive to provide our customers personal service in an efficient manner.

Policyholders of PEI Mutual benefit by sharing in the Company profits through a "Mutual Rebate" which is given in years when the Company has good financial results. I am pleased to advise that our Board of Directors have approved a "Mutual Rebate" of approximately $2,700,000 (10%) in 2017. This year's "Mutual Rebate" will be given as a discount at time of renewal.

PEI Mutual is a 132 year old "Island" company that prides itself on providing "excellent" service to its valued policyholders. PEI Mutual is recognized as a "Top 101 Company in Atlantic Canada" as sponsored by Progress Magazine.

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

Thank you for choosing PEI Mutual as your insurance provider.

Terry Shea,

General Manager / CEO