Message to Policyholders

The difficult and challenging economic landscape that unfolded before our nation and the world over the past year was a defining moment for individuals and organizations at all levels. Those who carelessly freed themselves from sound financial planning, established frameworks, and plain old common sense, discovered they were in the midst of a tempest they could not escape. Some found themselves clinging to monetary lifelines thrown to them as they struggled to keep their heads above water during perilous times brought on by their own actions or those they trusted. Others, like Harford Mutual, built upon solid fiscal responsibility, steadfast strategies, and a resolute foundation, continued forward in a cautious and deliberate manner, while taking advantage of our position of strength to exploit valuable opportunities.

I am very pleased to report that in 2009 Harford Mutual continued to maintain a level of stability and profitability that our agency partners and policyholders have come to expect and rely upon; a year-ending performance that dramatically increased the financial and organizational strength of the company. These are results of not only good fortune and calm weather, but most significantly from a commitment to mutual success that exists at every level within our organization.

Despite a retracting economy and a soft insurance marketplace, our continued market penetration led to premium revenue growth of 2.9 percent and 5.0 percent on a direct and net basis, respectively. A solid underwriting performance, which once again outpaced the industry and the majority of our peers, of a $6.2 million net gain, led to an overall pre-tax operating income of $16.2 million for the year. This result, combined with a strong recovery in the investment markets, led to an increase in our policyholders’ surplus of $20.6 million for the year, and to a record high of $142.6 million. Our 2009 recorded 92.2 combined loss and expense ratio is a phenomenal accomplishment, and is estimated to be 8 to 9 points below that of the industry. In further recognition of our company’s strength and ongoing superior execution, Harford Mutual’s A.M. Best financial rating of “Excellent” was elevated by a “Positive” future outlook.

We also embarked on a number of key initiatives developed in collaboration with our agency partners, employees, and policyholders to improve services and move the organization towards future success and growth opportunities. Many of the enhanced products and technologies are in direct response to the needs of our agents. In particular, agency council meetings brought forth a number of recommendations that were adopted with great success. One strong example of this was the introduction of RapidWrite, our online policy issuance system, which has led to sharp growth, specifically within our southern region. This, along with other advances in technology and the expanded presence of production underwriters in the field, has enhanced agency relationships, fostered revenue growth, and increased profitability.

The past year has also brought increased visibility for Harford Mutual as an employer of choice, both within our company headquarters and throughout the diverse regions we serve. While we have always strived to employ knowledgeable and skilled resources, our current employees are perhaps the most qualified of any in our long history. As an example, our commercial underwriters share over 230 years of industry experience, and over 90 percent of all employees have taken advantage of the professional development opportunities available through the company. I am exceedingly proud of our strong team within a participative culture that is dedicated to serving our clients’ needs and driven to help capture the opportunities ahead of us.

As a mutual insurance carrier, we are not dictated to by stockholders and market analysts attempting to maximize revenue growth at all costs and increase dividend yields. We, rightfully, listen to the needs of our policyholders in the security and protection of their financial well-being. Mutuality is inherent in our continued success, and one that could not have been experienced over the past year without the collaboration and guidance of our independent agency partners who counsel and support our clients through every insurance transaction.

While outlining our strong results and financial position is necessary and welcomed, this year’s annual statement also highlights multiple stories of mutual success at all levels. Our achievements, monetary or otherwise, are built upon and maintained by each individual success story; and, we never take any for granted, no matter how small they may appear

In looking forward, it is difficult, if not impossible, to predict what may lie ahead of us in the “new economy”. However, I can assure you that we will continue to maintain our steadfast commitment to mutual success, financial strength, and maximizing opportunities to advance the company in a responsible and deliberate manner. As we continue our mission and future endeavors, we are thankful for the expertise and sound counsel of our Board of Directors, the collaborative support of our independent agency partners, and the dedication and teamwork of our valued employees. We look forward to the next step in the company’s advancement, and I thank you for your continued support of Harford Mutual.