AFI is no exception. Financial results for 2008 show a decline in policyholders’ surplus of nearly $12 million, about 15 percent of the policyholder surplus of the Exchange. Over the past two quarters significant modifications have been made in invested asset allocation and investment management practice but quite obviously, the equity allocations in place at year-end 2007 were not conservative enough to withstand the market conditions of 2008. It goes without saying that such reactive changes cannot restore surplus levels. Yet, in spite of market conditions, the Exchange continues to be strongly capitalized and maintains one of the strongest reinsurance programs in the industry. The process to evolve the company to a more sustainable operational model continues and this annual report highlights several changes in its structure and operations:

• With the retirement of Del Chisolm, the SAC and BOD have implemented changes to facilitate succession and enhance overall management effectiveness, separating the positions of chairman and president. I will retain the role of Chairman and CEO, while Kurt H. Seelbach, who joined AFI in June 2008, will assume duties as President and COO effective January 2009.


• A Chief Information Officer (CIO) has been added to the senior management team. This position will be charged with positioning the Exchange to better market its products to eligible prospective subscribers and meet the e-commerce requirements of current subscribers.


• In conjunction with our efforts to deploy a stronger e-commerce presence, a range of product and service enhancements are in development with emphasis on expanding our presence in the personal auto line and the introduction of more competitive rates and features in our homeowner and personal property lines of business.


• Further, to provide subscribers with access to a broader range of financial services products from a trusted source, we have entered into an affinity relationship with Armed Forces Benefit Association (AFBA), also known as 5 Star Financial. For those of you not already familiar with AFBA, the association was founded in February 1947 to “… promote the general welfare and economic interests of its members and their families by providing superior benefits and services principally to military families during peace and war.” Our relationship with AFBA provides access to superior financial products (life insurance, investments and banking products) through an organization that shares a similar military legacy and a culture of service.