Richard J. Zick
President and
Chief Executive Officer

2007 - 104^th Annual Report

We were very fortunate in 2007 to produce another excellent year. With a Combined Ratio of 84.99% and an Underwriting Profit of $9.0 Million, the Surplus now stands at an all-time high of $68,814,480k, which is $9.2 Million above the 2007 number. By contrast, at the end of 2000, the Company had a $5.0 Million Underwriting Loss, lost $1.6 Million in Surplus, and had a total Surplus of $14.8 Million. Our Retention continues to be the bright spot of the continuing saga of the "soft market" and has reached an all-time high in all lines. Obiously, we have some concerns about this going forward as rates in certain classes of business continue to decrease. We certainly would hope that as 2007 results emerge that some level of sanity comes back to the market.

To our Agent partners, we paid out another extremely high level of profit-sharing in 2007 due to these fine results.

Last year, we changed the formula to a strictly Profit-Sharing arrangement; no growth, no IBNR, no stabilization factor. We make money and our agents make money.

These results do not happen by accident. It is the work of a professional staff and our dedicated Agency partners who make this possible. A little help from Mother Nature once in awhile also helps! As our book of business has moved away from a Homeowners Book to a more balanced Commercial Book, we find the impact from these storms to be less severe. However, we do have to adhere to both the Catastrophe and Terror models as this is an integral part of the Rating process.

Last year, I spoke about "soft". Unfortunately, it seems it's becoming embedded in the insurance vocabulary and it looks like the tern for 2008 will be "softer". We are seeing some rates out there on small commercial accounts that just do not make fiscal sense and this Company certainly will not follow these players to a level of unprofitability. It is our goal to provide our policyholders and agents with a financially sound product. That being said, there are two new, very competitive products that will assist us in moving Written Premium levels upward in 2008. We will make a concerted effort to push these products to improve our level of writings. We also have some room within our niche product base to address certain classes of business, which we will look at in 2008 as to some rate concession in certain areas. Our fear is that we do not want to erode a book of profitable business; yet, we are not going to chase these rates to the bottom as some carriers have. We operate on the philosophy that a 90% Combined is our goal, not 100%.

It will continue to be the focus of this Management Team to drive our rating to an "A" over the course of the next couple of years. The last four years present a very good case for this and we will work toward that end in 2008.

We just released the new Office PAK policy in all State in conjunction with the coverages offered through Hartford Steam Boiler. We believe that this will be a one-of-a-kind product in the industry, "at least for the moment." We had almost 300 agents and CSR's participate in webinars recently and the interest for this product is running high. Our enhanced Lifestyle 55+ policy will also, along with the Office PAK, offer our agents products that shield them from many E&O type of issues. As such, it becomes a good product, not only for the policyholder, but also for our agent.

All of our reinsurance renewals are January 1st dates. We were able to stabilize our reinsurance costs in 2008. The Catastrophe and Terror rates, which has continue to climb prior to 2008, actually went down a bit this year. Unfortunately, this is somewhat of a two-edged sword in that as the rates have gone down, this tends to prolong a soft market from the primary company side; yet, from an expense factor, it does help the bottom-line. We took what savings there were and applied this toward additional coverage going forward in both our Catastrophe and Terror reinsurance programs so as to build on additional capacity.

We remain dedicated to educating our staff to become the best insurance professionals they can be and in the past several years our employees have taken close to 200 exams. We also had 3 employees obtains their CPCU designations in 2007. When you think of Utica First being a 75 person organization, this is an exceptional number. We continue to spend the necessary monies to enhance our IT systems, work toward the direction of true real time with our agents and in the long run, to being true partners with our agents and providing excellent customer service to our policyholders.