President. pleased. of incurred. losses, relationship. a combined. including in We expect to. years. Daniel F. McNeil

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1 A message from the President Dear Policyholders, I hope this letter finds you and all of your members safe. I would like to take this opportunity to thank you and your members for your selfless dedication to the fire and emergency needs of New York State was a year like very few others and the unprecedented activity in the financial markets impacted everyone. Fire Districts of New York Mutual Insurance Company (FDM) posted a decrease in Policyholders Surplus, or net worth of the company, for the year of $1.4 million or 13%. While not pleased with this result, it is not much different than what analystss say will be the industry s average percentage decline. Daniel F. McNeil The Policyholders Surplus represents one measure of a company s financial strength to meet future obligations. Much of this decline is a result of unrealized investment losses which means as the market recovers so will the Policyholders Surplus. Nevertheless, even with the absence of a market recovery we are confident that we are positioned to meet all future obligations. FDM has always maintained a conservative investment approach. Our conservative portfolio is comprised primarily of corporate bonds diversified among sub-sectors, U.S. Government bonds, government agency securities and structured securities. The remaining invested assets consist of a portfolio of exchange traded funds, cash and short term investments. Fire Districts Mutual does not, nor has it ever engaged in sub-prime mortgage lending. The Company s main exposure to sub-prime lending is limited to investments within the fixed maturity investment portfolio through corporate bonds in the bank, broker and finance sub-sectors. Another factor impacting the Policyholders Surplus is its combined ratio. The combined ratio is a measure of the Company s underwriting performance and represents the relationship of incurred losses, loss adjustment expense, underwriting costs, acquisition and insurance expenses to earned premium. A combined ratio of less than 100% indicates an underwriting profit, while a combined ratio exceeding 100% reflects an underwriting loss. Our 2008 combined ratio was 106.6%. This means FDM paid out approximately $1.07 in claims and expenses for every premium dollar collected, not including investment income. This is estimated to be about average for the insurance industry in In my comments in 2007 s annual report I stated that the Board of Directors was committed to improving our overall underwriting results. Throughout 2008 we implemented initiatives to do just that. We expect to begin realizing the favorable benefits of these actions in the latter half of FDM continues to be highly committed to the safety of emergency personnel. Over the last few years we have initiated safety officer training, a video training loan library, and physical injury reduction studies. We will maintainn our efforts to identify further areas where we can assist our policyholders in making operations safer to all of the dedicated men and women serving in their communities.

2 A message from the President - continued 2009 appears to be no less challenging however we will continue to work diligently to see that Fire Districts of New York Mutual Insurance Company is ready and able to meet our obligation to you and your members. We pride ourselves in offering excellent claim service and you can be assured of our commitmentt to continue doing so. We appreciate the continued support of you, our policyholders, as well as that of our agents and brokers. I would also like to thank my fellow officers and board members for their dedication, and the management and staff of FDM for their diligent work. Daniel F. McNeil President Fire Districtss of New York Mutual Insurance Company The Executive Committee of Fire Districts Mutual From left: Michael H. Geoghan, Treasurer; Daniel F. McNeil, President; Lanny D. Strain, Executive Vice President and Chief Operating Officer (non-voting member); Frank A. Nocerino, Vice President; Kenneth E. Hoffarth, Secretary.

3 A message from the Executive Vice President and Chief Operating Officer Dear Policyholders, We are all aware that 2008 was an extraordinarily difficult year financially speaking for most businesses and individuals alike. The insurance industry was certainly no exception. According to joint research by the Property Casualty Insurers Association Lanny D. Strain of America and the insurance-advisory firm Insurance Services Office (ISO), profitability for insurance companies in 2008 would have been the lowest in more than two decades if not for the 2001 loss resulting from Sept. 11 terrorist attacks. Contributing to the adverse financial and investment environment in 2008 were two other factors that made 2008 even more challenging for FDM. They were: Workers Compensation rates went down even though our total incurred losses did not. While there was only a slight reduction in the rates for Volunteer Firefighters Benefit Law coverage ( whichh represents about 90% of FDM s premium) the rates for Workers Compensation decreased by a weighted average of 25% %. The rates FDM paid for reinsurance increased somewhat. Fortunately, these factors have reversed themselves for 2009: Rates for VFBL increased significantly for We are seeing a decrease in the rate FDM pays for its reinsurance. I am pleased to say that Fire Districts Mutual s efficient operation and conservative investment strategies guided the company through this financial stress test better than the insurance industry average. Fire Districts Mutual remains in excellent financial health. Additionally the underwriting and safety initiatives implemented during 2008 are expected to reduce the overall frequency and severity of claims. Barring the financial and economic environment getting worse during 2009, we expect 2009 to be a good year for Fire Districts Mutual. Regardless of all of the outside distractions, FDM has never and will never lose its focus on providing the best possible claims service to volunteers injured in the line of duty... because our volunteers deserve no less.

4 Fire Disstrict Mutu ual s Boarrd of Directors Standing, froom left: Lawren nce A. Pierce, Joseph L. Crugger, Thomas E. E Herlihy, Jr., Michael M L. Whhite, George J. Paul, D. Do onald Greene, James J J. McCoormick, Craig P. P DeBaun, Johhn LoScalzo. Seated d, from left: Keenneth E. Hofffarth, Secretaryy; Daniel F. MccNeil, Presidennt; Frank A. Noceerino, Vice Preesident; Michaeel H. Geoghan,, Treasurer

5 FIRE DISTRICTS OF NEW YORK MUTUAL INSURANCE COMPANY, INC. STATEMENT OF ASSETS, LIABILITIES AND SURPLUS FOR THE PERIOD ENDED DECEMBER 31 Assets Bonds 32,748,487 31,489,403 Common Stock 2,477,090 3,184,377 Superintendent of Insurance - Investment 309, ,389 Cash on Deposit 1,706, ,081 Short Term Investments 3,042,868 1,528,975 Total Invested Assets $40,284,790 $37,267,224 Premiums Receivable $839,161 $998,352 Interest and Dividends Due and Accrued 371, ,508 Reinsurance Recoverable 172, ,472 Other Assets 173, ,661 Total Assets $41,840,383 $39,259,218 Liabilities Loss Reserves $20,540,457 $17,527,507 Loss Adjustment Expense Reserve 5,788,611 5,291,953 Unearned Premium Reserve 3,514,749 3,300,330 Other Expenses 240, ,715 Taxes, License and Fees 1,223, ,226 Ceded Reinsurance Payable 665,337 1,207,496 Advanced Premiums Received 604, ,761 Other Liabilities 97,098 79,132 Total Liabilities $32,675,370 $28,730,119 Capital and Surplus Unassigned Surplus $9,642,575 $9,701,704 Special Contingent Surplus 300, ,000 Unrealized Gains and Losses (602,790) 799,610 Non-admitted Assets (174,771) (272,215) Total Capital and Surplus $9,165,014 $10,529,099 Total Liabilities, Capital and Surplus $41,840,383 $39,259,218

6 FIRE DISTRICTS OF NEW YORK MUTUAL INSURANCE COMPANY, INC. INCOME STATEMENT FOR THE PERIOD ENDED DECEMBER 31 Underwriting Income/(Loss) Direct Premiums Earned $15,519,277 $15,762,581 Assumed Premiums Earned 0 0 Ceded Premiums Earned (3,916,472) (3,888,530) Premiums Earned $11,602,805 $11,874,051 Direct Losses Incurred $15,311,108 $20,346,834 Assumed Losses Incurred 90, ,000 Ceded Losses Incurred (6,606,757) (12,446,078) Loss Adjusting Expenses Incurred 2,212,986 2,772,508 Total Losses Incurred $11,007,675 $11,076,264 Commissions and Brokerage $801,527 $783,797 Other Underwriting Expenses 1,165, ,115 Total Underwriting Expenses $1,966,628 $1,623,912 Net Underwriting Income (Loss) ($1,371,498) ($826,125) Miscellaneous Income(Expense) ($7,921) ($2,985) Investment Income Interest & Dividends Earned $1,757,380 $1,723,698 Capital Gains and Losses (254,765) (15,030) Investment Expenses (182,325) (170,339) Net Investment Income $1,320,290 $1,538,329 Net Income (Loss) ($59,129) $709,218 Commentary: The Company s experience for 2008 was a loss of $59,100 as compared to a profit of $709,200 for The earned premiums for 2008 were down 2.3% with incurred losses approximately the same as The underwriting expenses increased approximately 20% from the prior year. This increase was a result of changes in the assessment paid to the NY Compensation Rating Board. Due to the failure of Lehman Brothers, the Company recognized $257,800 in losses for the Lehman Brothers bond held in the Company s investment portfolio. During 2008 the Company s assets increased by $3 million, the liabilities increased by $3.9 million and the surplus, or net worth of the company decreased by $1.4 million, due to the change in the market value of the Financial Statements and Commentary prepared by: Helen E. Davey - Controller

7 Daniel F. McNeil President Michael H. Geoghan Treasurer Non-Voting Officer Joseph L. Cruger [2,4,5] 507 Salt Point Turnpike Poughkeepsie, NY Craig P. DeBaun [1,2,3] 465 Atlantic Avenue Oceanside, NY Michael Geoghan [1,2,3,4,6] PO Box 818 Bayport, NY D. Donald Greene [3,4,7] 36 Chapel Road Newburgh, NY hotmail.com Thomas E. Herlihy, Jr. [2,4,5,6] 1082 Route 91, PO Box 51 Apulia Station, NY Kenneth E. Hoffarth [1,2,3,5] 73 Cleveland Street Valhalla, NY Officers Lanny D. Strain * Executive Vice President & Chief Operating Officer LannyS@fdmny.com Directors Frank A. Nocerino Vice President Kenneth E. Hoffarth Secretary James J. McCormick [1,3] 21 Purdy Avenue East Northport, NY us Daniel F. McNeil * 20 Church Street Cortland, NY Frank A. Nocerino [1,3,7] 948 N. Bay Avenue N. Massapequa, NY fnoc@aol.com George J. Paul [1,2] 93 Hemlock Drive West Seneca, NY Gpaul93@verizon.com Lawrence A. Pierce [3,4,5] 45 Charlemagne Mendon, NY lpierce@rochesterr.rr.com Michael L. White [1,4] 5431 Amalfi Drive Clay, NY mwhite@mcneilandcompany.com John LoScalzo [2,3,4,7] 26 Edcris Lane Huntington, NY McQue@verizon.net *President will serve on all committees as an advisor [1] Budget Committee [2] Investment Committee [3]Safety and Loss Control Committee [4] Wage and Fee Committee [5] Audit Committee [6]Nominating Committeee [7] Building Committee