Message to Policyholders

In the midst of a turbulent worldwide economic and financial crisis, I am proud to report that Harford Mutual weathered the onslaught of the storm in 2008 and stands on a solid foundation as we navigate through the current U.S. recession. We remained resolute in our strategies to strengthen the company over the past year through managed profitable growth, sound underwriting, conservative financial principles, and continued infrastructure enhancements. This, combined with favorable experience and calm weather, ultimately allowed the company to report its fourth consecutive year of underwriting profit, with a net gain from underwriting operations of $8.6 million and a pre-tax operating income of $17.2 million.

While our industry saw experience deteriorate significantly from the prior year, Harford Mutual’s net incurred losses and loss adjustment expenses improved by 3.1% and 2.5% respectively. The soft commercial lines market and economic downturn in the second half of the year resulted in direct written premiums remaining flat overall. Despite an investment equity market realizing a 37% decline, our policyholders’ surplus ended the year at an extremely strong $122 million, buoyed by the company’s significant gains in overall operations. Our combined loss and expense ratio of 90.9% is an exceptional outcome and is far below an industry estimate of approximately 104%.

Harford Mutual not only saw a year of continued strong performance, but also a period of noteworthy institutional growth. With confidence in our disciplined underwriting to preserve overall financial performance, we continued to invest in leading technology, skilled human resources, enhanced products, and underserved markets. This allowed us to strengthen relationships with our agency partners and policyholders, while preparing for a stronger market in the future.

The successful introduction of our Internet-based rating and submission system, RapidWrite, is just one example of the investments we made to improve our efficiency and responsiveness with agents. Developed as a result of the input collected throughout the organization and agency plant, the system was extremely well-received and proved to be a major driver of new business in 2008, which saw a 33% increase from the prior year. The local presence of our production underwriters, as well as the invaluable feedback from our Agency Councils, allowed us to reinforce our position in all markets by better aligning our products and services with the ever-changing needs of the marketplace.

We remain true to our purpose of “safeguarding financial well-being through the management of risk,” while continuing to focus on the core essentials necessary to sustain our success into the future. We strongly believe that our underwriting discipline and proper risk selection will ensure that Harford Mutual continues to be there in our policyholders’ time of need.

As Harford Mutual moves forward securely in our 167th year of operation, we do so with a renewed spirit and outlook that are succinctly captured in our revised corporate logo and guiding principle, “Committed to Mutual Success.” We believe that both embody the fundamentals of our recent success, and represent the principles by which we have steadfastly maintained our policyholders’ security since our founding in 1842.

When the Great Depression began in 1929, Harford Mutual had been protecting the financial wellbeing of its policyholders for almost ninety years. Our 32nd president, Franklin Delano Roosevelt, who led the country out of those terrible and bleak times, said…

“The only limit to our realization of tomorrow will be our doubts of today.”

With a position of strength and this embodied spirit of optimism, we acknowledge the Board of Directors for their continued sound counsel and guidance; the professionalism and commitment of our independent agency partners; and the knowledge, expertise, and loyalty of our employees. We stand ready to turn the unique challenges that lie ahead into opportunities within our own “realization of tomorrow.” I thank you for your continued support of Harford Mutual.