2018 AT-A-GLANCE

2017 at a glance
$150.3 MILLION DIRECT WRITTEN PREMIUM
0.7% REVENUE GROWTH OVER 2017
10.6% PREMIUM RETENTION
11,015 POLICIES IN EFFECT
100 YEARS OF SERVICE FROM 18 EMPLOYEES WITH MILESTONE ANNIVERSARIES
0 PROFESSIONAL AND INSURANCE DESIGNATIONS EARNED
$21.3 MILLION NEW BUSINESS
$195.9 MILLION POLICYHOLDERS' SURPLUS
Steve D. Linkous

STEVEN D. LINKOUS
President and
Chief Executive Officer

We can take pride in fulfilling our mission to protect the financial wellbeing of those we serve.

Full of optimism and nostalgia from our 175th anniversary in 2017 and six consecutive years of profitability and growth, our storied company stood poised to take on 2018 with the same momentum and success. The severe and catastrophic weather that befell our policyholders in the first six months of the year, however, would impede our plans and prevent us from reaching our desired profitability objectives.

Losses incurred during January's regional ice and freezing temperatures, the coldest start to any year in Maryland in at least 146 years according to the National Weather Service, and the windstorms in March proved to be insurmountable as the year moved forward. Even with the second half of 2018 outperforming profitability targets, the early and sizable losses from the first two quarters led to a very disappointing net combined ratio of 115.0. Heavily impacting the ultimate results was the write-down of our IT legacy system replacement project, contributing 8.7 points to the combined. As statutory accounting considers IT systems as a non-admitted asset, this write-down had no impact on the policyholders' surplus. As 2018 came to a close, it reached out with one final “financial punch” as trade and political wars wreaked havoc on investment markets and drove major unrealized losses. While we must close the books on 2018 “as-is,” it is worth noting that markets rebounded in early-2019 to offset the losses by mid-February.

But if our long history has taught us anything, it is that the anomalies that are inherent in this industry and for a regional carrier do not define us and will not deter us from our long-term view of protecting our policyholders through strength. In expanding our regional footprint and market position, we achieved success through strong premium retention, robust new business revenue, and growth that exceeded our projections by 24%, coming in at 5.7% against a plan of 4.6%. Our five-year growth at 18% and our 10-year at 82% has outperformed the industry, allowing us to expand our team, products, and services.

Our company's consistent and significant growth for the last eight years has us surpassing our goal of $240M by 2024 well ahead of plan. Buoyed by that accomplishment, our leadership has embarked on an aggressive strategic vision that will have us fortifying our infrastructure for the next three years in preparation of our subsequent five-year plan for substantial profitable growth. We are spending significant time and energy examining our team resources, adding personnel to specific departments to increase depth of skill and improve service.

And we are listening. Listening to our employees' desire to be part of a vibrant workplace and make Harford Mutual the last place they work. Listening to their request for flexibility and remote work options. Listening to what motivates them to increase their industry knowledge with more education and designations.

While 2018 did not produce the financial performance we had planned, we achieved and can be proud of the numerous accomplishments mentioned. Tough years like this are part of the insurance business as a growing regional mutual carrier. Most importantly, we can take pride in fulfilling our mission to protect the financial wellbeing of those we serve, making our claim-impacted policyholders whole and allowing them to continue serving their own customers and employees. As 2018 came to a close, I had the opportunity to reflect on this challenging year while reading the memoir of legendary country music star Charlie Daniels.

“Walk onstage with a positive attitude. Your troubles are your own and not included in the ticket price. Some nights you have more to give than others, but put it all out there, every show. You're concerned with the people who showed up, not the ones who didn't. So, give them a show, and… never look at the empty seats.”

Our longstanding commitment and position of strength renews us as we walk onstage in 2019 with an enthusiastic attitude to continue delivering on our mission of insuring opportunity through a commitment of mutual success. With a clear strategic vision and an engaged team guided by our leadership and experienced board of directors, we remain focused, and… never worry about the “empty seats.”

EMPLOYEE RECOGNITION & ACHIEVEMENTS

Employee achievements can take the form of anniversary milestones reached, educational designations completed, or recognition from the industry and community. Harford Mutual employees excel in all those areas. In 2018, 18 employees reached a combined work anniversary of 340 years. Twenty-one employees completed professional designations ranging from insurance to project management to leadership. And, Tia Timpson was honored as the keynote speaker at the Harford County Commission on Disabilities' annual employment recognition luncheon.


Education Achievements 2018

AU
Stacy Mentzer

AINS
Greg Colelli
Tyler Ray
Bridgett Sadler
Daniel Gillen
Jenn Holbrook

ARM
Mike Borzatti
CJ D'Alessio
Kelly Dougherty
Alex Troutman

CIC
Stacey Pacoe
Tara Williams

CRM
Jennifer Brennen

CPCU
Charmian Hess
Tony Orbino
Lauren Paige
Josh Swimmer
Bryan Yekstat

Project Management
Professional Certification
Gail Bianco
Caty Hartley

Harford Leadership
Academy
Donna Stein

Service Milestones 2018

5 Years
Ian Magill
Stacey Rebbert

10 Years
Elaine Harrell
Sylvia Larocca
Stacy Mentzer
Ryan Smith

15 Years
Susan Chanski
Lisa Foehrkolb
Greta Hittle
Matt Moreau
Tish Rees

20 Years
Bill Wynne

30 Years
Ann Anders
Nikki Lembach
June Poole
Nancy Przybylski

35 Years
Cindy Blevins

40 Years
Gail Maschke

MAKING AN IMPACT

Making an Impact The Numbers

As a mutual insurance company, taking care of our insureds and agency partners is at the core of our business model. Naturally, with board and management leadership and involvement, that philosophy extends to our Corporate Social Responsibility commitment and our robust giving back program.

In 2018, Harford Mutual donated over $250,000 to nearly 100 local and regional non-profit organizations that combat poverty, educate our children, lift the marginalized, ensure a vibrant community, and preserve legacies.


Many of our company leaders volunteer as board or committee members for these organizations, donating their time and skill to supplement the cause.

The American Cancer Society
The Arc NCR
Boys & Girls Clubs of Harford and Cecil Counties
Harford Family House
Harford Community College Foundation
Mason-Dixon Community Services
Muscular Dystrophy Association
Sexual Assault/Spouse Abuse Resource Center — Harford County
Upper Chesapeake Health Foundation
United Way of Central Maryland

BUSINESS ENHANCEMENTS

Special Investigative Unit
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Special Investigative UnitHarford Mutual, like any responsible insurance company, is focused on loss prevention and reduction—including crime and fraud prevention—and cost containment. In 2018, we created a new Special Investigative Unit under the direction of Alan Dark that allows us to be proactive in our prevention and protection efforts, but also underwrite more complex and sophisticated risks knowing that we have this expertise on staff. In the first 120 days of the new unit, Dark implemented new training for all employees, reviewed over 150 claims, and submitted 13 cases for suspected fraud.

General Counsel & Compliance
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General Counsel & ComplianceGeneau M. Thames, Esq. (pictured on right) serves as our General Counsel and Director of Compliance with support from Paralegal Stephanie Hall. Together they lead Harford Mutual's strategies on Corporate Governance; Ethics & Safety; Employment Law; Legislative Oversight; Regulatory Compliance; and General Business matters. Responding to recent national workplace incidents, we have initiated several training protocols including ethics, active shooter, fraud, and cyber security. We've strengthened our relationships with the state level insurance commissioners and departments where we write business. And, we've increased our legislative support and advocacy with key insurance associations and legislators that will further the goals of the company and the industry.

Agency Automation
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Agency AutomationBrian Holloway, our Agency Automation Specialist, works as a liaison between our Agents, our Underwriters, and our IT Department to ensure that “ease of doing business” is a priority focus as we grow our company. Holloway trains new and existing agents on our agency portal, our RapidWrite rating system, and download and electronic funds transfer configuration. He chairs an Agency User Group to provide agency insight to our developers as we continue to build out our new agency interface. Holloway also explores new technologies for consideration and recommendation that will help our agents write business with Harford Mutual as efficiently as possible.

MOVING FORWARD

Flagship Agency Spotlight
L&W Insurance

Since becoming a Flagship Agency in 2010, you've grown from $1M in DWP to over $6M. To what do you attribute your growth? We conduct our business as a customer-centric organization. We align ourselves with the right carriers, like Harford Mutual, who fit our clients' needs. We plan for the future and work hard at creating a positive work environment.

What differentiates Harford Mutual from other carriers you work with? The company is very responsive to our needs. There is a willingness to listen and an ability to underwrite on an individual account basis.

What are your favorite things about working with Harford Mutual? Our most favorite would be ease of doing business. As the burden of quoting and marketing shifts more to the agency side, it is very important for us to have carrier partners like Harford Mutual who make this process easier for our staff. Secondly, we would go back to that differentiator of being responsive. Decision makers are a phone call away. We are always able to pick up the phone and call Harford Mutual leadership when there is a situation that needs management input.

Flagship Agency

1972 Appointed to Harford Mutual
2010 Honored as one of our 1st Flagship Agencies
2013 Surpassed $2 million in DWP
2015 Surpassed $5 million in DWP
2017 Surpassed $6 million in DWP

Fort Mill Ribbon Cutting

Demonstrating our commitment to our existing Southern Territory agents and insureds and in preparation of our planned growth in the region, Harford Mutual opened a new office in South Carolina.

Located at 951 Market Street, Suite 201 in Fort Mill, SC, the office is ideally located to support our southern agency plant and will serve as home base for our Business Development Manager-Southern Territory, our southern state Production Underwriters, our dedicated southern Loss Control Specialist, and our on-site Underwriters. It will also provide us with the base we need to plan future expansion in the territory as our agent relationships grow and prosper.

We celebrated our new office with a ribbon cutting ceremony and open house on March 21 welcoming our appointed agents, local businesses, representatives from the South Carolina Insurance Commission, and the Fort Mill Chamber of Commerce, as well as employees based in our southern states and a contingent of leaders from our headquarters in Bel Air, Harford County, Maryland.

The Fort Mill office will be at the center of our strategy to strengthen our relationships with our currently appointed agents and build new ones as we expand in the region and work to reach our 2019 DWP goal of $52.2M and $10.5M in new business.

Georgia Spotlight

We opened for business in Georgia in February 2018. Production Underwriter Sheila Tucker came on board in March, and we appointed our first agency in May. We are focusing on mid-size agencies who want to partner with us and can provide new business opportunities for all three of our business units, Foundation (accounts <$50,000), Middle Market (accounts from $50,000 - $250,000), and Large Accounts (accounts >$250,000). We are concentrating our initial agency prospecting activity in Athens, Gainesville, Atlanta, and the northwestern Georgia region.

Blanchard & Calhoun is one of our Georgia agencies that has truly partnered with Harford Mutual and is steadily growing a profitable book of business. We are confident they are on their way to being our first Georgia Flagship agency.

FINANCIAL HIGHLIGHTS

CONDENSED CONSOLIDATED STATUTORY FINANCIAL REPORT (in thousands)

STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND SURPLUS as of 12/31/2018 12/31/2017
Bonds $289,496 $281,633
Common Stocks 117,162 129,992
Preferred Stocks 5,064 0
Real Estate 4,691 4,807
Cash and Short-Term Investments 43,214 30,560
Premiums and Agents' Balances 55,368 52,336
Other Assets 4,627 7,694
Total Admitted Assets $519,622 $507,022
Unpaid Losses and Loss Adjustment Expenses $177,681 $154,401
Unearned Premiums 97,857 92,747
Other Liabilities 22,138 27,850
Total Liabilities 297,676 274,998
Total Policyholders' Surplus 221,946 232,024
Total Liabilities and Surplus $519,622 $507,022
STATEMENTS OF INCOME for the years ended 12/31/2018 12/31/2017
Net Premiums Earned $181,255 $169,501
Losses and Loss Adjustment Expenses 137,932 103,469
Other Underwriting Expenses 72,346 62,900
Net Underwriting Gain [2018 ($13,114) excluding IT system write-down] (29,023) 3,132
Investment Income 15,384 10,456
Other Income 42 141
Income Tax (Expense) (783) (3,360)
Net Income [2018 $1,529 excluding IT system write-down] $(14,380) $10,369
*Result excluding accelerated depreciation of future information technology project expenses into calendar year 2018.

BOARD OF DIRECTORS

CLARENCE C. BOYLE JR.
Retired President, Boyle Buick GMC Truck

JAMES J. KENNEDY
Retired President and CEO, Ohio Mutual Insurance Group

ATWOOD COLLINS III
Executive Vice President, M&T Bank Corporation

STEPHEN T. SCOTT
Chairman
Retired Principal, Investment Counselors of Maryland

STEVEN D. LINKOUS
President and CEO, Harford Mutual Insurance Companies

ABIGAIL E. SMITH
President, Abigail E. Smith Associates, P.A.

ALBERT J. MEZZANOTTE JR.
Partner, Whiteford, Taylor & Preston, LLP

SPENCER M. ROMAN
Retired President and COO, AAA Mid-Atlantic Insurance Group

DONALD C. FRY
President and CEO, Greater Baltimore Committee

OFFICERS

KENNETH G. THOMPSON Assistant Vice President and Controller

JEFFREY S. RINK Senior Vice President

KAREN L. MASHINSKI Vice President and Chief Financial Officer

STEVEN D. LINKOUS President and Chief Executive Officer

TIMOTHY F. BAUM Vice President and Chief Information Officer

JUNE A. POOLE Vice President and Treasurer

FRANK P. KELLNER III Vice President, Claims and Corporate Secretary

Harford Mutual

OUR MISSION

Provide insurance products that allow our policyholders to conduct their business with the knowledge that they are protected by a financially strong insurer. We strive for profitable growth through our commitment to individualized customer service and by providing the independent agent with a stable market for quality insurance products.