Your company’s results in 2008 dramatically improved in many regards. TNCRRG was nonetheless extremely challenged by negative circumstances that were – similar to 2007’s operational experience – totally unprecedented.

As we entered 2008, TNCRRG was confronted by a confluence of events and conditions that were potential threats to the very existence of your company, and at minimum, obstacles to its successful growth and development. More specifically, these were: 1) the actuarial requirement that TNCRRG post a record increase ($13.6M) to net IBNR (incurred but not reported) loss reserves at year-end 2007; 2) the “overhang” of successive accident years of much increased claim/loss frequency and severity, which largely persisted throughout 2008; 3) the collapse of the investment market, which led to a record unrealized capital loss that severely depleted TNCRRG surplus by year’s-end; 4) an enduring “soft” insurance market, which significantly constrained TNCRRG’s ability to raise rates without risking its competitiveness; and 5) new competitive programs that adversely affected TNCRRG’s excess layer renewal results, and therefore, related earned premium income and reinsurance ceding commission income results.

The most critical consequence of the interaction of these five elements was a severe erosion of TNCRRG’s surplus by the end of 2008. By contrast, TNCRRG’s operational income improved dramatically year-over-year, from a 2007 operating loss of $16.485M to a 2008 operating profit of $3.449M.

While the Board and I are pleased with this operating income turn-around, it should be noted that it was generated primarily via net realized gains on the sale of investments that we made throughout 2008, as we rebalanced the TNCRRG investment portfolio (reducing equity exposure and increasing our fixed-income exposure), to decrease the portfolio’s volatility.

When perceived as a “financial scorecard,” at year-end 2008, TNCRRG’s cash position and liquidity were excellent, with no uncollectible receivables, all expenses fully accrued (and the vast majority already paid); and absolutely no debt whatsoever; its reserve strength (both IBNR and case reserves) was excellent; its year-over-year Operating Profit movement and magnitude were outstanding; and its Loss and Expense ratio trends were dramatically improved (Operating Year basis).

And yet, all was not well for several reasons. These were: a severe depletion of surplus in the last two year period; a difficult to surmount investment portfolio unrealized loss; and seriously negative loss development trends.

The Board and management had already begun responding to these and the challenges identified previously, initiating proactive counter-measures, as early as January 2008. These measures were enhanced, and additional measures were introduced, throughout 2008. The Board and management refer to this comprehensive undertaking as the TNCRRG Remediation Plan, which identifies these objectives: 1) stabilize company operations and results; 2) protect the company from further surplus depletion; and 3) replenish surplus in the most prudent and expeditious manner possible. The Remediation Plan addresses the achievement of these objectives by incorporating and employing underwriting, investment, retention and reinsurance solutions.

More specifically, the plan entails these elements: 1) increasing buffer (primary layer) rates; 2) increasing excess layer rates; 3) identifying two new ratable exposure bases (outpatient clinic visits and daycare center clients) and applying newly created rates to each exposure; 4) revising the experience modification program, to shift relatively more of the cost of risk to those policyholders that have been contributing disproportionately to TNCRRG’s losses; 5) expanding the use of corridor deductibles, coverage sub-limits and other underwriting mechanisms;

6) expanding TNCRRG’s underlying claims-handling audit program; 7) rebalancing TNCRRG’s investment portfolio to reduce equity exposure and increase fixed income holdings as a portion of the portfolio, thus decreasing the portfolio’s volatility; 8) restructuring TNCRRG’s reinsurance placement structure to totally eliminate exposure to catastrophic claim/loss events; and 9) reducing TNCRRG’s retention per each and every loss from a maximum retention of $3.15M down to $1.15M (based upon a hypothetical full company policy limits loss of $14.75M).

Significantly, the Remediation Plan and associated business plan revision elements were submitted to TNCRRG’s regulators in the Vermont Department of Banking, Insurance, Securities and Health Care Administration at the end of December 2008. The plan was approved – in its entirety and without modification – by the end of the business day in which it had been submitted. Further, all elements of the Remediation Plan have already been fully effectuated and are presently at work to achieve the objectives described earlier.

Note also that the enclosed 2008 financial results have long ago been provided to our regulators in Vermont, and also to all the other state regulators via our statutory filings with the National Association of Insurance Commissioners (NAIC). Even in light of our results, TNCRRG: 1) has not been placed into, or had imposed upon it, any regulatory monitoring scheme or plan; 2) has not received any inquiries from regulators outside of Vermont; 3) has not received any type or nature of qualified opinion from its actuaries or auditors; 4) has not had its reinsurance program restricted in any way by our reinsurers; and 5) has already renewed all shareholder relationships (16) through May 2009.

We will continue to constantly monitor our results and will take whatever action is necessary to ensure a strong TNCRRG, and a return to long-term profitability for the company. The Board and management are confident that the TNCRRG Remediation Plan will ensure that result.

Meanwhile, TNCRRG operational results for 2008 reflect many highly positive accomplishments. These include:

1) four new excess placements with Endurance American Specialty Insurance Co., an A 15 Best rated carrier. This program was specifically pursued and effectuated in direct response to concerns expressed by many of our shareholders – and quite a few of our broker partners – regarding the difficulty of placing coverage excess of TNCRRG, because TNCRRG is not Best rated. This problem has been eliminated. The Endurance program provides $15M of limits (and on some risks up to $35M in limits), of essentially following form coverage that drops down over TNCRRG aggregated coverages, is very competitively priced, and will attach directly excess of TNCRRG;

2) provision of two TNCRRG Legal Defense Practice Workshops – TNCRRG’s highly lauded and exclusive service for the Church – one in Boston and one in Orlando; and

3) VIRTUS^® results in 2008 were again outstanding and can be reviewed in detail on page seven (7) of this report. National Catholic remains far and away the undisputed leader in the provision of safe environment programs for the Church. We provide a greater variety of highly awarded safe environment services, to more Catholic entities, in more places nationally, than any competitive program – by a very, very wide margin.

In closing, I want to thank all of our shareholders and other friends for your support, confidence and encouragement. You will not regret any of these. Rest assured that we will always do our very best to serve you and our Church.