NEIL’S ULTIMATE BUSINESS OBJECTIVE is to provide effective services that support our Members in their nuclear mission. To accomplish this, we are committed not only to maintaining financial strength but also to delivering insurance products that meet our Members’ changing needs. As a mutual company, NEIL can develop products without the commercial demands that could distract from our fundamental mission. In 2001, NEIL helped our Members successfully face today’s business challenges in a variety of ways.

Stable Insurance Rates
2001 presented the worldwide insurance market with its most significant challenges ever. Fortunately, the NEIL nuclear programs were insulated from the severe market fluctuations that occurred last year. This was due primarily to NEIL’s continuing strong surplus and security afforded by the three-year NEIL nuclear reinsurance treaty that began on January 1, 2001. This treaty included a fixed-rate premium for the term as well as the fixed capacity of our reinsurers.

Policy Enhancements
The NEIL I Accidental Outage coverage options were enhanced in 2001 by offering Members optional deductibles of 8, 20 and 26 weeks, in addition to the standard 12-week deductible. Also, Members may now secure a higher maximum weekly indemnity limit of $4.5 million on their NEIL I policies. This was increased from $3.5 million. The overall NEIL I maximum limit remains unchanged at $490 million.

COST PER BILLION OF COVERAGE excluding distribution
INCURRED LOSSES in millions
NEIL’s terrorism coverage was revised to a 12-month aggregate approach, similar to our natural hazards coverage approach. The revision was undertaken to assure our Members that NEIL would be able to cover multiple terrorist events and still be in a position to meet the Membership’s nuclear insurance needs going forward.

All NEIL policies are now written in “plain-talk” language following the revisions to the NEIL II Excess Policy form in 2001. An Insurance Advisory Committee Task Force will evaluate the possibility of combining the NEI
L II Excess Policy with the NEIL Primary Policy in 2002.

Also in 2001, the Shut-Down Sites Task Force developed a more equitable rating plan for shut-down sites than was previously available to those facilities.

NEIL has been actively exploring a nuclear decommissioning product to support our Members’ decommissioning exposures. Our analysis and product development will continue in 2002.

Conventional and International Growth
NEIL’s support of our Members’ conventional risks expanded significantly in 2001. The hardening insurance market has resulted in tightened capacity, severely increased pricing, and restrictive terms and conditions. In this difficult environment, NEIL’s conventional written premium almost tripled by year-end.

NEIL expanded its relationship with Energy Insurance Mutual (EIM) in 2001. EIM began “fronting” for NEIL’s conventional policies. This agreement will improve ease of access to NEIL and provide a consistent business approach for our Members and their brokers when seeking NEIL’s support on their non-nuclear risks. Additionally, NEIL expanded our reinsurance of EIM’s liability programs by supporting EIM’s new, high-excess layers for General Liability and Directors & Officers coverages. The great majority of NEIL Members are also EIM Members.

Our international insurance business continues to grow. In 2001, we insured sites in Belgium, Germany, South Africa, South Korea, Sweden and Switzerland. We are pleased that beginning in 2002, the Japanese Atomic Energy Insurance Pool will support the NEIL Nuclear Treaty. NEIL, in turn, has begun reinsuring the Japanese Pool in its coverage of Japanese nuclear generating sites.

Claims Experience
NEIL had a consolidated loss ratio for 2001 of 55%, its highest in eighteen years. While this ratio is still quite favorable compared with the commercial market, our five- and ten-year ratios of 12% and 23% are a better reflection of the Membership’s superior loss results. The loss ratio for the nuclear programs was 50%, with the majority of the claims related to a single claim of $55 million.

There were 11 new nuclear claims filed in 2001, an average amount for the Company, and 59 new conventional claims. The Company closed 4 nuclear losses and 10 conventional claims, ending the year with 20 open nuclear claims and 61 open conventional claims. Payments for claims and loss adjustment expenses for the year totaled $65 million—$58 million for nuclear claims and $7 million for conventional and reinsurance claims. Claims reserves for prior years increased by $2 million. The year-end reserves increased from $16.8 million at year-end 2000 to $42.7 million at year-end 2001—$20.7 million for nuclear claims and $22 million for conventional and reinsurance claims.

Loss Control Activities
Workshops
Several years ago, NEIL began hosting an annual workshop for plant personnel. These individuals are the primary points of contact with the Company’s Loss Control Representatives during periodic plant evaluations. Since the plant staff is responsible for implementing the programs required to comply with the NEIL Loss Control Standards, the workshops were designed to better educate them about the mutual nature of the insurance company and our mission and goals.

Over the years, the workshops have evolved from a status report on NEIL activities and requirements to a valuable information-sharing session with interactive discussions on current industry issues and best practices. While all of the past workshops have been well attended, the 2001 workshop was the most successful to date, with more than 100 attendees and virtually all insured plants represented.

Oversight and Assessment
The Engineering Advisory Committee (EAC) routinely reviews the Company’s loss experience and industry incidents to identify trends and to ensure that the Loss Control Standards contain sound and meaningful loss prevention requirements.

In light of the continuing loss experience with large power transformers, the EAC has formed a task group of industry experts to review the Company’s existing requirements and to suggest possible enhancements that could reduce the risk of future transformer failures. In addition, various risk assessment tools and techniques continue to be evaluated to determine if they can be used effectively in the Company’s Loss Control Program.

This important work of the EAC continues to reinforce the principle of mutuality, which is so vital to NEIL’s success.