It is with pleasure on behalf of our Board of Directors of PEI Mutual that we are able to report to you, our valued policyholders, another successful year. Gross premiums written for 2004 were up $781,000 over last year representing a growth rate of 7.4%. Although we did not have any drastic weather related claims our gross claims were up in 2004 caused by some major fire losses and oil spill claims.

Although claims were up, the prudent management capabilities of our management team enabled us to end the year on a very positive note with a healthy surplus. We at PEI Mutual will continue to strive and offer insurance to all of our policyholders at a very competitive level and in doing so will continue to develop new markets and underwriting techniques to better serve you in the future. As you know, the insurance industry is always facing challenges in today’s market place, and for PEI Mutual it is no different. With all this aside it was very rewarding to serve as President of PEI Mutual in 2004 and at this time I would like to extend my heart felt thanks to my fellow Board members for their dedication and commitment throughout the year.

On a sad note, one of our Directors, John Furness, passed away this year after serving us since 1992. Condolences are passed on to his family from the PEI Mutual family. As a result of John’s passing, the Board was required to choose a new member to fill his vacancy and as such, we are very pleased to extend a very warm welcome to Jim Doyle of Mount Stewart, as PEI Mutual’s newest Board member.

In closing, I would like to thank management, agents and staff for the professionalism and dedication used in carrying out their duties on a day to day basis.

Claude Dorgan,

President