I am extremely pleased to report that your company’s results in 2009 dramatically improved virtually ‘across the board.’ TNCRRG either significantly — or very significantly — improved in regard to essentially every financial metric utilized to assess and evaluate insurance company operations. To understand the full impact and import of this positive progression, it is useful for us to revisit the circumstances and results of TNCRRG operations in 2007 and 2008.

Accordingly, as we entered 2009, 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 had largely persisted throughout 2008; 3) the collapse of the investment market, which led to a record unrealized capital loss that severely further depleted TNCRRG surplus by year-end 2008; 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, during 2008.

The most critical consequence of the interaction of these five elements was a severe erosion of TNCRRG’s surplus by the end of 2008. More specifically, TNCRRG surplus – its operational ‘safety net’ and ‘emergency cushion’ – had declined precipitously from $23,447,654 at year-end 2007, to $9,656,332 by year-end 2008! Additionally, this depletion of surplus was accompanied by a difficult to surmount investment portfolio unrealized loss and seriously negative loss development trends.

The Board and management had already begun responding to these challenges, 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 long ago been fully effectuated and are presently at work to achieve the objectives described earlier.