On February 26, 2008, over 1,600 people attended the Federated Rural Electric Insurance Exchange Annual Membership Meeting in Anaheim, California. Thank you for taking time out of your busy schedule to learn more about Federated’s 2007 fiscal year and how safety is an essential part of your Company’s overall success.

The following are excerpts of the President’s address to the members of the Exchange at the 2008 Annual Membership Meeting held February 26 in Anaheim, CA.

Today, I take this opportunity to share this message with you.

We currently insure 765 electric distribution and generation and transmission systems in 40 states. 86% of the electric cooperative family have made Federated their property/ casualty carrier of choice. I can assure you that I and the entire staff at Federated will do our very best to make sure you never regret this decision.

Federated’s assets as of December 31, 2007 exceed $300 million for the first time in our history. This is an important number for you, our members. Insurance is an interesting product; you give us money in exchange for a promise – a promise that we will be there to assist you if certain events unfold. These assets give us the ability to fulfill that promise.

The Company’s surplus, or equity, is approaching $100 million. Our member systems have invested over $24 million directly into Federated over the years. Today, this investment has grown to over $80 million due to the favorable operating results over the past several years. In 2007, Federated earned margins of $15.2 million. Federated’s Board of Directors reviewed the financial results for 2007 and allocated 100 percent of the Company’s margins back to the membership. Margins earned in 2007 primarily were derived from the Company’s investment income; those assets are working for you.

Since 1999, when we became a cooperative, we have allocated margins totaling $72 million back to you, our members. There was a time when our annual premiums did not amount to this much.

The good thing about having margins is it gives us the ability to return some money back to you. In the next few weeks we will be returning almost $4 million in cash back to our members. This represents a 4% return on your current investment in interest and we are also retiring the unpaid balance of our 1999 patronage capital allocations. Membership does have its privileges!

Our goal is to operate as an “at cost” insurance cooperative. By that I mean we need to charge an appropriate premium for the exposures we are insuring. During 2007, our combined loss and expense ratio was 99.8% and, thus, we met this goal. Please note that 86% of your premium dollars goes to pay for losses. This amounted to $86 million in 2007. The question is: “How can we collectively lower these losses so we can ultimately lower the cost of your property/casualty insurance?”

We learned long ago not only to record incidents, but to learn from them and take the next step – share the knowledge. When it comes to sharing information, one of the best sources of safety information – and certainly one with great impact – is what you hear from your peers. This year we have dedicated Federated’s Annual Report to Safety and the Power of Information Sharing. In this report, you will find firstperson accounts from five cooperative executives about their safety programs and how they dealt with accidents and steps they’re taking to avoid them in the future. We extend a special “thanks” to Robert W. “Chip” Leavitt, Jr., CEO, Brunswick EMC, Shallotte, NC; Mel Coleman, CEO, North Arkansas Electric, Salem, AR; Bob Bauman, CEO, Butler County REC, Allison, IA; Mitch McCumber, CEO, New-Mac Electric, Neosho, MO and Dan Strode, General Manager/CEO, Ralls County Electric Cooperative in New London, MO for sharing their stories.

Over the years, we’ve actively worked to help our members control exposure to risk and reduce accidents. But, as helpful and effective as these activities have been, we need to do more. We understand that your safety program is just one of a hundred priorities you juggle every day. We also know that an excellent source of safety information – and certainly one with tremendous impact – is what you hear from your peers. So in 2008, we’re developing ways for members to share safety information – about training, communications, and changes made based on accidents and nearmisses. Here’s how we plan to bring the power of sharing information to you throughout 2008.

All-new Member Web Site

We’re redesigning and reorganizing our members-only web site, to make it easy for you to find the information – loss control reports, claim information, articles on safety, training tools and other key needs. Our goal is to make the Federated web site the first place you go for safety-related data and materials. Phase 1 of the new web site will be launched in the spring of 2008.

Strategy Labs

These practical sessions bring together personnel from different cooperatives and levels within the cooperative – management, supervisors, linemen, engineers – to discuss their jobs, the pressure they feel and how it impacts safety. Participants gain new insights into how others in their organization view safety challenges and learn how to communicate more effectively. Our Safety and Loss Prevention Department has compiled OSHA 300 A data from electric cooperatives across the country. This information is used to identify trends and drive discussions at these sessions. One Strategy Lab was held in 2007, and five more are scheduled for 2008.

Statewide Safety Programs and Member Relations Outreach

Federated will continue to support RESAP, attend your statewide meetings and consult one-on-one with safety directors and other cooperative personnel. The statewide loss control departments are vital to helping prevent losses and in 2008 we will be returning $2.4 million to the statewides to assist them with their efforts. I view the statewides as strategic partners in carrying out our mission.

In 2008, we will also focus on assisting our members in educating the general public about public power line safety. We are developing a series of public safety ads in conjunction with the Safe Electricity “Teach Learn Care” campaign.

• Teach what you know.
• Learn what you need to.
• Care enough to share it with those you love.

We are working with statewide managers to provide print Public Service Announcements (PSAs) that they can run in their statewide magazines. You will hear more about this initiative throughout the coming year. Help us save lives in 2008 and beyond.

For nearly 50 years, Federated has been your partner in helping you make your community a better, safer and more vibrant place to live. Like you, Federated is member owned – so our financial strength works for you. Our emphasis will always be on safety and our focus will continue to be on the long-term.

Sometimes we forget one of the most important reasons for buying insurance. Earlier this year, I received a letter from a member who was involved in an unfortunate incident. In the letter, and I quote, “There is no question that the claim posed a serious threat to the cooperative’s corporate existence and the ability to continue providing services to its members. But with Federated’s involvement and commitment to this matter, we are now able to continue our corporate mission and purpose. The cooperative was well represented and PROTECTED by Federated, and we sincerely appreciate that effort.” Isn’t this why you buy insurance, for the protection?

All of us at Federated welcome the opportunity to demonstrate to you the power of the cooperative’s property and casualty insurance program. We refer to it as the Federated difference—a difference to be proud of. Please, put us to the test in 2008.

You can view the President’s Report and Mr. Strode’s Keynote Address at Cooperative.com.

phil.irwin@federatedrural.com