President's Report 2006

2006 has been a very successful year for PEI Mutual to the extent that the Board of Directors has been able to declare a Special Mutual Rebate in the amount of $1.3 million. This refund has been distributed to our 29,000 policyholders by way of cheque and is this is in addition to the 10% Mutual Rebate that will be repeated again in 2007 at time of policy renewals.

On a less positive note is the cost of continuing oil spill losses, which amounted to $1.5 million during the past year. This in spite of past efforts by the Company and policyholders to lessen the risk by equipment upgrades and increased diligence. Outside oil tanks continue to be a large contributor to the problem and this must be addressed. To PEI Mutual’s credit, our remedial cleanup procedure is stellar and endorsed by our Reinsurers but also very expensive. This has resulted in an unusual number of claims against our reinsurance coverage and as policyholders we realize this cannot continue without the consequence of higher reinsurance premiums in the future. While oil spill losses occur across the nation, Prince Edward Island is unique in that we have the highest population density per square kilometer and are among the largest users of home heating oil. The risks are great and in the end policyholders will have to be a big part of the solution.

Board governance is a major issue of review for organizations with public involvement and consumes a lot of time in this post Enron era. PEI Mutual is not immune to this fact and has felt the sting of change from other organizations with which we have dealings. The Board of Directors and our Management team have completed our own governance review that spanned approximately eighteen months and took a huge effort in gathering information and determining its relevance to our Company. In the process, both old and new governance systems were examined, some being very similar to ours and others vastly different. On occasion external expertise and advice was necessary to move the review along.

While change for the Maritime Mutual system of governance is likely inevitable, it seems inadvisable for our Company to venture into major overhaul in advance of proposals under consideration by the Maritime governments. It is evident from our review that a lot of our past application of governance principles are quite acceptable and even recommended in modern governance models. In the end, our consultant’s advice was to fine tune our procedures, make some minor changes and stay the course for the time being.

Since the last annual meeting Blair Wood has tendered his resignation from the Board. I wish to acknowledge Blair’s many years of service and thank him for his valued contribution to the governance process.

Further, I am pleased to advise that Brian Annear of Lower Montague has been nominated to fill the vacancy in Zone 9. Brian brings youth and business talent to the board table and will be a valued addition to the Board of Directors.

A successful year at PEI mutual is not by accident. Everyone plays an important part. I wish to express appreciation to our valued policyholders and acknowledge the diligent work of our office Staff, Agent force, Management team and fellow Directors. Thank you!

Percy Affleck,