Report to our Shareholders

Our 135th anniversary year of serving the insurance needs of North Americans marked the accomplishment of several significant milestones. Net profit for the year was a record high of $48 million, retained earnings exceeds one half billion, at $528 million. This outstanding result reflects our commitment to consistent underwriting and risk selection and our focus on providing competitive products and service to our independent broker/agent network. Our balance sheet and financial condition continue to be strong.

Our Surety business generated exceptional underwriting performance through our continued commitment to underwriting discipline, our experienced underwriting staff, a stable construction economy and the ongoing support of our network of leading surety brokers and agents. Our strong financial position and our longstanding partnering with the construction industry provide our brokers, agents, contractors and insureds with the superior prequalification expertise and the financial stability they expect from a specialty insurer. In the United States, our experienced underwriting staff, supported by our Web-based technology platform, enables us to efficiently service our agents and clients in their local markets in both Contract and Miscellaneous Surety producing strong growth and a successful year of profitable operations. We expanded our national presence with the addition of offices in Nashville, Tennessee and Morristown, New Jersey. To support our plans for further growth, the regulatory capital of our US subsidiary was increased to $110 million.

Our Corporate Risk business which provides Fidelity and Directors’ and Officers’ Liability insurance to corporations and non-profit organizations continues to exhibit strong performance despite softening market prices. With the launch of a new product for Directors and Officers of private corporations we confirm our commitment to providing our brokers and their clients with a competitive range of products in this line of business.

Our Personal Lines Insurance business continues to generate strong underwriting results. Our Guarantee GOLD® Centre, opened in Toronto in late 2006, has demonstrated outstanding growth and reinforces our position as a leading insurer of high value homes and automobiles. The Guarantee GOLD® Centres of Montreal, Toronto and Woodstock are staffed by experienced underwriting, loss control and claims personnel to provide exceptional service to our brokers and policyholders.

We continue to be fully committed to the independent agent/broker distribution system and rely on their expertise to assist us in achieving our objectives every year. On behalf of management and the Board of Directors, we thank our brokers and agents for their continuing support. We also thank our dedicated employees for their excellent work in achieving our record profit and a milestone of over half a billion dollars of retained earnings in 2007.