American Modern faces challenges by maintaining its focus on the core operating principles that have made it an acknowledged leader in specialty property and casualty personal lines insurance. These principles define the company, providing the framework under which we make decisions about the form and function of our products and services, about the markets we choose to serve, about the distribution channels we develop and about the way we do business. Applying these principles today sets the stage for tomorrow's successes.

Focus on Specialized Products:
American Modern targets small, defensible market niches where our expertise in the evaluation, pricing and servicing of specialized risks can provide a competitive advantage. Our focus is on insurance products that are characterized by lower per-claim costs but generally higher claim frequency than products with significant liability exposures.

Multiple Distribution Channels:
To complement our specialty focus, we employ several distinct channels of distribution. This enables American Modern to design products targeted to selected risk classes, more effectively diversifying exposure to risk. Two key components of American Modern's distribution strategy include a continued focus on the Agency channel and positioning products as part of the original purchase or financing transaction with lenders, manufacturers and retailers.

Leverage Multiple Company Structure across Distribution Channels:
American Modern owns eight property and casualty companies, two life companies, three agencies and three service companies. We leverage this multiple company structure across our distribution channels to garner important flexibility in our ability to tailor product offerings to policyholders or business partners.

Consistent Underwriting Profit:
American Modern maintains a highly disciplined approach to underwriting. Our commitment to specialty niches has enabled us to develop analytical tools, pricing models and products designed for profitability. This underwriting expertise has allowed American Modern to produce an underwriting profit in eight out of the past ten years.

Expert Claims Management:
American Modern has invested substantial resources in our claims management infrastructure and in the training and development of staff adjusters to provide policyholders with timely and accurate claims processing. We employ more than 240 full-time associates in our claims department, including more than 145 field claims adjusters. The use of in-house claims staff results in greater customer satisfaction and improved underwriting results; our claims staff knows our products, and can generally settle claims quickly. A disciplined approach to the claims process has been a key contributor to the success of recent product diversification efforts.

Reduce Earnings Volatility via Risk Management:
American Modern has long been an industry leader in the use of modeling software to monitor weather-related catastrophe risk exposure. These techniques allow us to manage geographic concentration within high-risk areas, such as coastal and adjacent counties. Reinsurance programs also help reduce exposure on large individual risks.

Strategically Deploy Technology:
Our investment in information technology is part of a carefully planned strategy to ensure that American Modern's company-wide infrastructure is among the most advanced in the specialty insurance industry. A relatively low average premium per policy requires us to efficiently handle large volumes of transactions. Through modernLINK™ , our Web-enablement initiative, American Modern seeks to even more efficiently meet the needs of business partners and policyholders by providing self-service opportunities over the Internet.

These principles define us as well as inspire us, guiding a future of growth that fits within these parameters.