Letter from the Chairman and the President

Stability: Our Most Important Promise

Insurance is essentially a promise. It is a promise that the carrier will stand in the shoes of policyholders and accept their covered liabilities from claims. To Texas Mutual Insurance Company, however, insurance is much more than that.

Our management and staff are committed to helping Texans manage their claims, improve their safety programs, minimize the consequences of workplace accidents and control their workers’ compensation costs.

The first section of this report shows how we kept our promises in 2009. The second section demonstrates our financial stability, which ensures we will be here to keep our promises for years to come.

Where We Are

Policyholders’ shrinking payrolls affected workers’ compensation carriers this year, and Texas Mutual was no exception. Although our premiums decreased 16 percent from our record year of 2008, we wrote more policies than projected and maintained our share of the workers’ compensation market. Even with the decline in revenues, the company remains profitable and, more importantly, financially stable.

Our conservative investment philosophy has carried us through the downturn in the markets, which began rebounding rapidly in 2009. We also experienced favorable development in our reserves, which helped keep our 2009 calendar year loss ratio low.

Our financial strength empowered us to pay policyholder dividends for the 11th consecutive year. Nearly 39,000 employers earned a share of our $75 million individual policyholder dividend distribution as a reward for preventing workplace accidents. We distributed $18 million more in dividends to qualifying group discount programs. We have paid $742 million in individual and group dividends since 1999.

Policyholders consistently cite dividends and service as primary reasons they choose to stay with Texas Mutual. With guidance from their agents, 81 percent of our customers renewed their policies in 2009.

We wrote $645 million in premiums this year, providing coverage for 48,000 employers and their 936,000 employees. We are Texas’ leading writer of workers’ compensation insurance, and we enter 2010 on solid financial ground.

Where We Are Going

We expect the highly competitive workers’ compensation market and the effects of the recession to continue into 2010. Texas Mutual will closely watch both, but neither will be our primary focus.

We know that market and economic conditions are temporary; our mission, values and strategic goals are permanent.

Texas Mutual will continue its diligent efforts to provide customers with unsurpassed service. We will explore innovative ways to anticipate and meet the changing needs of agents, employers, injured workers and health care providers. We will responsibly manage our costs because that is the hallmark of any company that achieves long-term success.

The management and staff of Texas Mutual are committed to providing a stable, competitive source of workers’ compensation insurance for Texans. The company has the complete support of the board of directors as it fulfills that commitment in 2010 and beyond.

We are Here for Texas. Here to Stay.^®

Bob Barnes, Chairman             Ron Wright, President