William J. Post
Chairman
Quentin Jackson
President & CEO
Thomas F.Donovan
Vice Chairman

The year 2001 will go down as a year of challenge. Our world was challenged, our society was challenged, and our industry was challenged. Through the turmoil in the insurance industry, however, we were reminded again of the stability of NEIL and the benefit of being able to provide very significant amounts of insurance for the nuclear power industry through a mutual insurance company. We do not propose to increase our rates, we are providing at least one full policy limit for terrorism losses, and the Board was able to declare a large distribution to policyholders at the end of the year.

Our Annual Report offers an opportunity to look back on the events of the last 12 months and consider some of the plans for the future. In this report you will read of both the financial and business challenges faced by the organization during the year. In spite of these challenges, NEIL continues to be financially strong and fully able to meet the business expectations of our Members.

Early in February, at the height of the California electricity crisis, we were reminded of the importance of NEIL. When Southern California Edison suffered substantial turbine damage at the San Onofre Nuclear Generating Station, NEIL’s speed in getting funds to the insured and the uncomplicated nature of our accidental outage program helped alleviate some of the pain for our Members.

September 11 changed everything. For the first time, we were faced with the possibility of having significant damage occur at several insured sites in a short time period. How could we react to this to ensure that, even after such an unlikely event, NEIL was still able to support the ongoing operations of the nuclear power industry? The knee-jerk reaction taken by the commercial insurance industry was to simply exclude damage caused by terrorist acts. As a mutual, we were challenged to find a better answer.

Early consultation with the Membership through the Insurance Advisory Committee and the Board of Directors helped us develop a plan that would meet the key objectives of providing coverage for terrorist acts while facilitating the ongoing viability of the Company. By limiting the amount of resources that we could commit to cover terrorism in a 12-month period, we provided a measure of certainty to the Members and assurance of ongoing viability for the industry. The unanimity that this proposal received in the subsequent action by the Membership is testament to the effectiveness of the spirit of mutuality that exists within NEIL. Our advisory committees are a continuing valuable resource to NEIL and an important part of our mutuality.

An additional source of strength was our reinsurance program. At the beginning of the year we had renewed the existing reinsurance program for a further period of three years. This was designed to give us a period of stability following a catastrophic loss or other turmoil in the insurance markets, which is precisely what it did. We are grateful to our reinsurers for their commitment to our program, and we continue to value most highly our relationship with all our reinsurers.

For the second year in a row, we have experienced a negative return in our investment portfolio. However, the broad diversification that we employ in our investments helped to soften the blow somewhat. We continue to review our asset allocation and investment guidelines to ensure that we are maintaining an appropriate balance to provide for security of principal and the expectation of enhanced returns over a medium-term time horizon.

Through our Dublin subsidiary, ONEIL, we continue to make steady progress on the international front. With conventional insurers restricting coverage and increasing rates, there is a growing interest from international utilities in ONEIL’s products. ONEIL is well positioned to respond to this situation, and we look forward to an active dialogue with international utilities in the year ahead.

Since we opened an office in Dublin three years ago, Jeff Palmer has headed it. At the end of December, Jeff left the Emerald Isle to return to the United States. Jeff was the first employee we hired when we moved NEIL’s operations from Bermuda to Wilmington in 1988. Before moving to Dublin, he had served as the Company’s Vice President of Finance and Administration. He is well regarded by everyone with whom he has worked, and he established a firm foundation for our international operations. We wish Jeff and his family every success in the years ahead.

We also marked the retirement of four Board members during the year. Michael Egan, Bob Murray, John Shaw and Larry Westbrook all have provided outstanding input to the Board’s deliberations over a number of years. We wish them every success in the future.

This report would not be complete without recognizing the contribution of the Company’s employees in Wilmington and Dublin. As every challenge has come along, they have responded magnificently. Their dedication and hard work combined with good humor and team spirit have contributed significantly to NEIL’s success over the last 12 months. We thank all employees for a job well done.