These principles served as guideposts in all operations by NJM Insurance Group throughout 2007. They are underlying philosophies that ring as true today as they did when NJM wrote its first policy in 1913.

Rounding

New Jersey Manufacturers Insurance Company (NJM), the corporate parent, was built on a foundation of value and operating exclusively for the benefit of our policyholders. Our subsidiaries – New Jersey Re-Insurance Company, New Jersey Casualty Insurance Company, New Jersey Indemnity Insurance Company and NJM Bank FSB – support this commitment.

This was a good year for NJM Insurance Group and its policyholders, as our renowned critical eye toward expenses helped deliver exceptional value for the dollar. One historic occurrence is the record amount of dividends – $235.6 million in 2007, including $131.4 million in Special Dividends sent to approximately 405,000 Personal Auto customers late in the year. The average policyholder received a Special Dividend check for $327.

NJM operates in the mutual fashion. In fact, the Company has returned more than $4.5 billion in policyholder dividends since 1918, representing the full underwriting gain and a sizable portion of investment income. Indeed, more than one-third of NJM's investment returns have been used for dividends over the past 10 years; the remainder is held in Surplus for Policyholders' Protection. As we depend on policyholders for our long-term success, it is fitting that they share in the proceeds of that achievement. We do not answer to stockholders whose push for quick profits could compromise what is best for the insurance consumer.

Intense competition ruled the New Jersey property/casualty business in 2007. Some Personal Auto insurers lavished policyholders' money on expensive advertising in search of a bigger slice of the market share pie. Competition also surged in commercial lines, as more carriers showed interest in writing Workers' Compensation and Commercial Auto policies.

The Group's voluntary book of business (excluding assigned risk) grew 0.9%, which tracks closely with national predictions for premium growth – overall change was essentially flat. This is largely because of the beneficial circumstance of reduced writings in the residual markets.

Direct premiums written reached $1,512.3 million in 2007, a slight increase of $2.2 million or 0.1%. Net premiums earned decreased to $1,475.6 million, down $15.3 million or 1.0%.

Very good growth was achieved by New Jersey Manufacturers Insurance Company, which is the preferred carrier and represents the preponderance of Group operations. Direct premiums written reached $1,317.2 million in 2007, an increase of $32.1 million or 2.5%. Net premiums earned reached $1,261.5 million, up by $56.7 million or 4.7%.

Considering the extensive marketing by other insurers in Personal Auto combined with business consolidations and competition that affected commercial lines, maintaining a solid marketplace presence is quite notable. NJM protects the interests of existing policyholders by maintaining disciplined underwriting standards when considering new applicants for coverage.

NJM also maintains a retention level that is the envy of its competitors. An average 96.7% of Personal Auto policyholders have opted to renew over the past five years. After consideration of life events, such as customers moving away from New Jersey or Pennsylvania or voluntarily giving up driving, the rate would be even higher. NJM's accomplishment is truly remarkable in comparison to the most recent national average retention rate of 89.2%, as reported by J.D. Power and Associates.

Personal Auto direct premiums for New Jersey Manufacturers Insurance Company grew by $19.0 million or 2.7% to reach $722.3 million. In Personal Auto across the entire Group, direct premiums written in 2007 saw an $8.8 million overall decrease, to stand at $794.5 million.

The lion's share of the Personal Auto change is attributable to the Group's position in the standard and residual markets. New Jersey Re-Insurance Company, which handles "take all comers" requirements in the voluntary market on behalf of NJM, saw its Personal Auto direct premiums written drop to $64.6 million, a reduction of $18.7 million or 22.5%. However, $9.0 million of that premium stayed "in the family" as 4,133 policyholders were "promoted" to NJM as their experience improved.

Another factor was the large reduction in exposures for New Jersey Indemnity Insurance Company, which underwrites assigned risk business on behalf of the Group. This was the third straight year of decrease, as many drivers found coverage in the voluntary market. This is not an unwelcome development, in that losses and expenses typically exceed the amount the State allows insurers to charge these riskier drivers.

Commercial Auto premiums, which are handled exclusively by the parent Company on behalf of the Group, saw a minimal decrease of $1.0 million or 1.5% to finish the year at $66.8 million. Policy count reduced slightly, ending at 10,958, a reduction of 32 or 0.3%. There were no rate changes that affected this line during 2007. Competition has been on the upturn in this traditionally profitable line of business.

Direct premiums written for Workers' Compensation declined slightly on a Group-wide level to stand at $500.3 million, a decrease of $6.2 million or 1.2%. This was despite a 1.3% rate increase effective January 1, 2007, suggested by the New Jersey Compensation Rating and Inspection Bureau and approved by the Department of Banking and Insurance.

Workers' Compensation policy counts, however, increased somewhat for the Group, growing by 970 or 5.1% to reach 20,101. Most of that growth came from assigned risk policies from New Jersey Casualty Insurance Company. However, assigned risk direct premiums written for NJ Casualty went down slightly, to $91.9 million, a decrease of $619,000 or 0.7%.

Residential coverages experienced the greatest growth over the course of 2007. Homeowners/Dwelling direct premiums written climbed to $138.7 million, an increase of $17.0 million or 14.0%. This includes the impact of a 6.9% overall average rate increase effective April 1, 2007, which accounted for $6.4 million of that growth. Increases in the cost of property reinsurance, driven significantly by Hurricane Katrina and other major storms in recent years in the southern states, accounted for most of that rate change.

Policy count grew robustly as well, adding 12,526 or 5.3% to stand at 250,566. Many insurers have experienced a reduced appetite for exposure along the Atlantic coast, including New Jersey, out of concern for potential hurricane damage. NJM continues to offer coverage to eligible property owners in all parts of the Garden State.

Overall claims statistics were consistent with premium levels. Workers' Compensation claims frequency is down, which follows national trends. Homeowners claims jumped during the second quarter of 2007, in the wake of the April nor'easter and the subsequent reporting of multiple losses involving wind, water backup and sump pump overflow. This resulted in NJM's highest losses from a single event in Company history – more than $11.6 million. The storm also caused an expected surge in physical damage claims for automobiles.

NJM Bank's prudent underwriting practices helped it to a successful year. We had none of the charge-offs related to subprime mortgages that hampered many financial institutions. Total assets reached $401.8 million, an increase of $47.4 million or 13.4% from year-end 2006. Net income was $952,000 compared to $182,000 in 2006.

NJM is guided by a Board of Directors comprised entirely of policyholders. Their attention to policyholder needs carries over to our corps of talented, dedicated employees, with 2,340 full-time individuals supporting insurance operations and 45 at NJM Bank. The caring displayed by these individuals on a daily basis is what truly makes NJM a service organization, not just another insurance company.

April 25, 2008