Today, your Company is financially sound with a strong Board of Directors and an enthusiastic management team in place. The number of sites insured continues to grow, and Members’ participation at all levels remains high.

The end of 2002 marked the completion of 30 years of uninterrupted provision of insurance to the nuclear power industry. When the mutualization of insurance for this special category of risk was conceived, it was impossible to imagine what a successful enterprise had been created. Throughout the years, the business model has stood the test of time and has allowed the Members to design a program that meets their nuclear insurance needs both as to cost and as to coverage provided.

Today, your Company is financially sound with a strong Board of Directors and an enthusiastic management team in place. The number of sites insured continues to grow, and Members’ participation at all levels remains high.

The stock market continued its decline for the third successive year, but diversification protected the NEIL investment portfolio to some extent. In the face of notable investment losses for these three years, our continuing favorable loss experience and $2.9 billion surplus supported a distribution to policyholders of $250 million. While less than recent years, it still allows all Members to buy very significant amounts of insurance at a net cost not even conceivable in the commercial insurance market.

There are many reasons for this success, and it is worth considering some of them. First and foremost, NEIL is an insurance company. This may seem an obvious statement, but other mutuals have gotten into difficulties because the Members have failed to retain adequate surplus, thus jeopardizing their ability to continue providing the required insurance. This realization was particularly important this year as we struggled to determine the appropriate amount of distribution to policyholders that the surplus and our insurance mission would support.

Second, NEIL has remained focused on its nuclear mission and resisted the temptation to stray into the insurance of unrelated risks. The provision of a portion of the cover on some of our Members’ conventional programs is an important benefit of NEIL Membership, but it is not intended to detract in any way from the nuclear mission.

The most important reason for our success is the willingness of our Members to contribute their time and talents to the advisory committee structure. The Insurance, Engineering and Legal Advisory Committees have made huge contributions to NEIL’s success over the years. You can read of their current activities in other parts of this report, but it is their ability to design policies and procedures, which can be applied equitably to all Members, that has made their work so important.

The Insurance Advisory Committee (IAC) has responsibility for advising management and the Board on matters concerning policy form and rating issues. Each Member is entitled to appoint a representative to the IAC, and there has been a remarkably stable group of utility risk managers who have contributed to its deliberations over many years. The culture of the mutual is dependent on having confidence that each Member has been issued a policy that is based broadly on the same terms and conditions as every other Member. The IAC has been very effective in strengthening this aspect of the Company.

The Engineering Advisory Committee (EAC) has a slightly different structure as its membership consists of insureds who actually operate nuclear stations. The importance of the Company’s loss control standards cannot be overemphasized. When the Company’s Loss Control Representatives visit a site, they are doing so to assess that site’s compliance with the standards that have been developed over many years by the EAC. Once again, this application of common standards is vital to the success of the mutual enterprise.

The Legal Advisory Committee (LAC) is a comparatively recent addition to the NEIL organization. In today’s regulatory environment, it is important that our Members understand the importance of the integrity of our policies and procedures. Working with our General Counsel, the LAC has provided many helpful insights and validation of the structures we have in place.

The dedication and hard work of the advisory committees, the Board of Directors and the NEIL employees have resulted in 30 years of insurance excellence and will continue to guide the Company in the future.

In 30 years, there have been a number of events that have had a significant impact on the Company’s development. The issuance of the first policies, the accident at the Three Mile Island Nuclear Station, the decision to offer the full amount of insurance to US nuclear utilities and the offering of insurance on a Membership basis to carefully selected international utilities have all been seen as important milestones in the Company’s history. We were delighted to welcome the Spanish utilities, Nuclenor and Union Fenosa, as Member Insureds on January 1, 2003, and there are several more opportunities for international growth in the years ahead.

The NEIL management team has seen two changes this year. Elva Ferrari retired at the end of March after almost fifteen years as NEIL’s Vice President, Investments. Her stewardship of the Company’s assets as they grew from $1 billion to almost $5 billion in 1999 contributed enormously to the Company’s success. In addition, she provided a unique perspective to many aspects of NEIL, and we wish her a long and happy retirement. We are fortunate to have found Rob MacGovern to take her place. Rob’s experience and technical skills will be invaluable in the challenging times for investors in the years ahead. We were also delighted at the beginning of 2003, to welcome Gerald Wilson as our Vice President, Insurance. His nuclear engineering background and utility risk management experience will blend well with the Company’s core mission. Gerald succeeds Michael Durning, to whom we extend our thanks for his two years of contributions to the Company.

To all of the NEIL and NSO employees in Wilmington and the ONEIL employees in Dublin, we express our appreciation for another good year of service to the nuclear power industry.

William J. Post
Chairman
H. Peter Burg
Vice Chairman
Quentin Jackson
President & CEO