141st Annual Report

2017 was a challenging year for the insurance industry in Wisconsin. Windstorms impacted a good portion of the state. Pella Mutual was significantly affected by these weather events, as well as fire claims. The company suffered an underwriting loss of $273,110 and a net loss of $121,888. We paid out over $750,000 in claims, with wind accounting for the majority of our losses at a figure just shy of $275,000. Fire remained one of our highest claim categories, with over $180,000 in claims paid. And our third highest cause of loss was water damage, totaling over $70,000.

For the third consecutive year, Pella Mutual did not reach our reinsurance stop-loss for claims paid in 2017. Although our overall claims experience was slightly higher than our 2016 figures, we are continuing to move in the right direction, with only one claim exceeding our reinsurance retention level. The company's decrease in claims activity over the last three years has already begun to positively impact our reinsurance premium rates.

2017 saw a full year of accepting applications for all lines of business and we were proud to see our new policies issued more than doubled the 2016 production levels. Pella Mutual also moved forward with shifting three counties, as was brought up at our 2017 annual meeting. We left Calumet, Manitowoc and Waushara, and opened business for Adams, Door and Marquette counties.

In November of 2017, Pella Mutual held our fourth annual agents meeting. Along with our usual business we had the opportunity to introduce two new agencies appointed to write for the company. Oddly enough, both named Hometown": Hometown Insurance Agency of Shawano and Hometown Community Insurance based in Adams.

With the addition of new agencies, shifting counties, and continued ongoing evaluation of our Underwriting guidelines, we are confident that the momentum seen in 2017 will carry forward through this new year.

On behalf of the office staff and directors, we want to thank you for insuring with Pella Mutual Insurance Company and allowing us to service your insurance needs.

Board of Directors
Pella Mutual Insurance Company

Causes of Loss for <u>2017</u> Graph
OFFICE PERSONNEL
Jakie Sperberg GM/Treasurer
Deanna Guetschow Underwriter
Jackie Messner Underwriting Assistant
Cindy Dean Claims Adjuster
Nick Yaeger Loss Control Specialist
Diane Blashe Administrative Assistant
Lori Bartz Administrative Assistant
Virginia Boehmke Administrative Assistant
OFFICERS AND DIRECTORS
Gary Dalke President
Bruce Buettner Vice President
James Egen Secretary
Al Beyer Director
Sharon Greene-Gretzinger Director
Bonnie Olson Director
Al Quinney Director
Greg Riesenberg Director
Dennis Zahn Director
AGENTS
Patricia Ambacher Tigerton
Asenbrenner Agency Shawano
Conway Insurance Services Wrightstown
Delain Insurance Agency Green Bay
Dhuey Insurance Agency Luxemburg
Greater Insurance Services Antigo
Hometown Community Insurance Adams
Hometown Insurance of Shawano Shawano
Mehlberg Agency Marion
Oconto Falls Insurance Center Oconto Falls
Prey Insurance Services Shawano
Radtke & Associates Weston
Thompson/Durkee Insurance Agency Wausau
Verdette Insurance Agency Green Bay

PELLA MUTUAL INSURANCE COMPANY STATEMENTS OF OPERATIONS STATUTORY BASIS
Years Ended December 31, 2017 and 2016

2017 2016
UNDERWRITING INCOME
Net premiums written $2,103,855 $2,298,126
Unearned premium reserve adjustment 78,083 166,190
Reinsurance premiums (805,815) (948,226)
Net premiums earned 1,376,123 1,516,090
LOSSES INCURRED
Losses incurred 524,908 481,497
Reinsurance recovered 139,263 112,666
Net losses incurred 664,171 594,163
NET LOSS ADJUSTMENT EXPENSES 251,153 260,141
OTHER UNDERWRITING EXPENSES 733,909 750,706
Total losses and expenses incurredf 1,649,233 1,605,010
NET UNDERWRITING Income (LOSS) (273,110) (88,920)
INVESTMENT AND OTHER INCOME
Investment income earned 63,930 61,884
Investment expenses (52,336) (50,984)
Net realized capital gain (loss) 798 (2,261)
Other income 138,830 150,773
Net investment and other income 151,222 159,412
NET INCOME (LOSS) $(121,888) $70,492

STATEMENTS OF ADMITTED ASSETS, LIABILITIES, AND POLICYHOLDERS’ SURPLUS
December 31 2017 and 2016

2017 2016
Cash and invested cash $231,853 $236,249
Bonds 1,388,749 1,516,995
Stocks and mutual funds 1,136,181 1,021,433
Real estate, land, and home office building, net of accumulated depreciation 73,754 78,838
Total cash and investments 2,830,537 2,853,515
Premiums receivable 242,967 269,590
Investment income due or accrued 13,195 13,451
Reinsurance recoverable on paid losses - 11,247
Furniture and fixtures, net of accumulated depreciation 11,054 10,084
Reinsurance premiums receivable - 35,423
Fire dues recoverable 1,057 2,055
Other receivable - 545
Reinsurance commission receivable 15,109 21,315
Total assets 3,113,919 3,217,225
Less non-admitted assets: Uncollected premiums 2,364 2,641
Furniture and fixtures 11,054 10,084
TOTAL ADMITTED ASSETS $3,100,504 $3,204,500
LIABILITY AND POLICYHOLDERS’ SURPLUS
2017 2016
Unpaid losses, net of reinsurance recoverable $58,074 $107,893
Unpaid loss adjustment expenses 6,000 6,000
Commissions payable 67,937 77,392
Payroll taxes payable 1,636 -
Unearned premiums 983,769 1,061,852
Premiums received in advance 20,278 23,393
Reinsurance premiums payable 40,549 -
Accrued expenses 31,776 30,172
Total liabilities 1,210,019 1,306,702
POLICYHOLDERS’ SURPLUS 1,890,482 1,897,798
TOTAL LIABILITIES AND POLICYHOLDERS' SURPLUS $3,100,501 $3,204,500

STATEMENTS OF POLICYHOLDER’S SURPLUS STATUATORY BASIS
Years Ended December 31, 2017 and 2016

2017 2016
BALANCE - BEGINNING OF YEAR $1,897,798 1,677,113
Net income (loss) (121,888) 70,492
Net change in non-admitted assets (693) 5,289
Unrealized gain (loss) on stocks, mutual funds, and bonds 115,265 144,904
BALANCE - END OF YEAR $1,890,482 $1,897,798

STATEMENTS OF CASH FLOW STATUATORY BASIS
Years Ended December 31, 2017 and 2016

2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from premiums $2,127,740 $2,324,686
Cash received from reinsurance loss recoveries 209,750 35,351
Cash paid for losses (912,493) (633,955)
Cash paid for supplies and services (991,472) (1,066,084)
Reinsurance premiums paid (765,265) (955,328)
Investment income received 82,827 84,673
Policy, late payment, and re-write fees received 130,970 141,858
Other income 7,860 8,915
Net cash and invested cash provided by operating activities (110,083) (59,884)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchase of stocks, mutual funds, and bonds (920,883) (1,156,633)
Proceeds from disposal of stocks, mutual funds, and bonds 1,032,116 1,165,593
Purchase of property and equipment (5,546) -
Net cash and invested cash provided by investing activities 105,687 8,960
NET INCREASE (DECREASE) IN CASH AND INVESTED CASH (4,396) (50,924)
CASH AND INVESTED CASH, BEGINNING OF YEAR 236,249 287,173
CASH AND INVESTED CASH, END OF YEAR $231,853 $236,249
NON-CASH ACTIVITY
Liability losses paid directly by reinsurance company $105,952 $2,316