THECHALLENGES WERE STEEP IN 2001.
NEIL experienced the second consecutive year of negative investment returns and the highest loss level since 1993. However, many years of strong investment returns, favorable loss records and a substantial premium flow enabled NEIL to overcome these challenges and to help our Members meet the demands of a rapidly changing industry. This provides continuing confidence that NEIL and our Members are well prepared to confront future financial tests together.

THE MEMBERS’ CASH FLOW
In December 2001, NEIL again declared a significant distribution to its Members. This $400 million distribution paid in March 2002 was the third highest in NEIL’s history. The $548 million distribution paid in March 2001 was the second highest in Company history.

Net premiums earned in 2001 were $166 million, reflecting an increase of nearly 14% due primarily to the conventional (non-nuclear) insurance programs. On an earned basis, conventional premiums increased from $6 million in 2000 to $18 million in 2001.

THE YEAR’S RESULTS
Earnings from underwriting operations declined 50%, from $113 million in 2000 to $57 million in 2001, primarily because of increased losses. Incurred losses increased from $17 million in 2000 to $91 million in 2001.

In 2001, net income increased to $5 million compared to a net loss of $181 million from the prior year. The increase in operating results was due to a decrease in distributions, partially offset by a decrease in earnings from underwriting operations.

DISTRIBUTIONS (in millions)
SURPLUS (in millions)

ONGOING FINANCIAL STRENGTH
At December 31, 2001, total assets were $4.0 billion, representing a decrease of 17% from the prior year. The decrease resulted from payment of distributions and market declines in our investment portfolio.

Liabilities decreased by 34% to $767 million at December 31, 2001, because of a lower level of distributions payable, coupled with a reduction in the Company’s deferred tax liability due to market declines in our investments.

At December 31, 2001, surplus was $3.2 billion, down 11% from the prior year. The decline in surplus reflects negative investment returns and the significant distribution to our Members in 2001.

Because of our strong surplus position, we maintained an “A” (excellent) rating with the AM Best Company, which ranked NEIL among the top 20 P&C insurance companies based on surplus size.

As of December 31, 2001, the market value of the NEIL investment portfolio was $4.0 billion, down from $4.7 billion at year-end 2000. The decline resulted in part from the distribution that was made to Members in the first quarter along with double-digit declines in both the U.S. and international equity markets. The portfolio realized above-average returns from fixed income and real estate investments in 2001. For the year ended December 31, the total fund return was -5.9%.

Diversification in both asset class and security holdings provided a buffer to the portfolio during the past year. In accordance with Company policy, the assets were allocated to U.S. and foreign equities, U.S. government and corporate bonds, mortgages, and real estate. As of December 31, the portfolio was allocated 36.8% U.S. equities, 17.5% international equities, 35.8% fixed income, 6.5% real estate and 3.4% in cash equivalents.