Cancellations - No Cancellations of Brokerage or Agency Contracts

Appointments - Doner-Horsley Insurance Brokers (Alliston)

                       - Paul Brown Insurance Brokers (Palmerston)

As documented in our 2005 management report, we were in discussions with two brokerages for a period of time about possible appointments. Both of the brokerages met with Germania Mutuals new brokerage guidelines. Key areas of these guidelines include the following:

1. No more than two other Farm Mutual (OMIA) insurers in house

2. Principally located in areas not served or seen as under serviced by Germania Mutual

3. Small to Mid-size Brokerages but we will consider larger offices if management plays an active role in any satellite or Sub-offices

Two employees returned from maternity leave in May of 2006, which brought us back to full compliment of staff. As of December 31^st 2006 there have been no changes to that status and we have no immediate plans to add or delete staff at this time. We have however made some internal changes concerning employee responsibilities. As of June Sharon Hollister was given the title of Deputy Treasurer of the corporation and is responsible for accounting procedures and work flows both electronic and manual. Sharon has her CMA designation and is well qualified for the position. I also have appointed Tracy Campbell to the position of Underwriting Supervisor/ IT Coordinator. Tracy is responsible for our computer systems and ultimately for the conversion to the MCCG IBS system. Tracy will complete her CIP designation in 2007 and that will bring our compliment of CIP graduates to 5 of our 12 staff.

The Germania Mutual investment portfolio met or exceeded budget expectations in 2006. The unrealized gain on our portfolio increased to over $900,000, including over $800,000 in unrealized equity gains. BMO Harris also took advantage of some late year market adjustments and realized approximately $250,000 in gains over and above those listed above. It should also be noted that the pending legislative changes regarding the "Prudent Portfolio Guidelines" should assist Germania Mutual maximize our investment portfolio performance and should also allow for more diversity on the equity side of the portfolio. Also of note our "FMFS (Farm Mutual Financial Services) Pooled Fund" has grown to just under $2,000,000 which gives us some needed diversity in our portfolio (Diversity traditionally assists in adding strength, stability and overall less volatility to a portfolio).

Our financial subsidiary "Farm and Town Financial" reported a bottom line profit in 2006 of just over $22,000 which is the first positive result in their short history. We received a verbal report from our board representative at our January 2007 regular board meeting advising that Farm and Town Financial has no intention of seeking further financial investment from its shareholders in 2007.

The Germania Board and Management continued to place an emphasis on controlled growth while attempting to lower our expense ratio. We feel this was accomplished in 2006 as expenses came in at budget levels in most areas, while our premium growth was acceptable in most areas our claims experience was higher on the property business.

Our 2007 Budget was completed in November 2006 and we expect only moderate to nil growth in all business lines on both a premium and a PIF (Policies in Force) basis. Our budgeted GWP (Gross Written Premium) growth for 2007 is $200,000 or 2.2%, which translates into an annual GWP of $9,325,000.

In 2007 we will be reviewing our "Disaster Recovery Program", and will include provisions for the possibility of a "Pandemic". We feel the timing is appropriate as we be moving to both a new location and to a new computer system in 2007. As mentioned in our 2005 management report the Germania enlisted the services of an independent moderator for our 2005 planning sessions Harry Vlachos. Our planning sessions included a full day of staff involvement in the planning process. As a result of these planning meetings the Board and Management established two year corporate goals and expectations as well as five year Financial Goals. Our key financial goals included five year growth expectations as well as strengthening our surplus position, with a five year expectation of returning to a one to one GWP to Surplus ratio. I am pleased to report that our 2006 financial results show that had we realized all unrealized gains in our investment portfolio our "Members Surplus" would have exceeded our GWP for the first time since 2001 when we wrote $4.25 million in GWP and had Members Surplus of $5.8 million.

Residential premiums increased by just over $71,000 or 2.4% while our PIF (Policies in Force) decreased slightly for the second consecutive year. Farm premiums increased by $216,000 or 7.9% mostly due to some package modifications while our PIF remained relatively stable year over year. Commercial premiums increased by $123,000 or 15.2% while our PIF increased only marginally over 2005. Automobile premiums increased by our lowest amount since starting to write this line in 2000. The $94,000 or 4.4% increase meets with our long term business plan expectations and it should be noted that our policies in force increased at a similar percentage. Overall in 2006, the company met or exceeded budgeted growth expectations in all lines except residential property.

The Germania Mutual property experience was poor in 2006 and although we did not have a catastrophe event we did have some poor results due to water damage from heavy snow followed by heavy rains last spring. We also experienced several large fire losses in 2006 but most did not meet our retention levels.

Germania remained on a quota-share agreement retaining 60% and ceding 40% to our re-insurer FMRP (Farm Mutual Reinsurance Plan). Claims experience remained consistent with budget expectations for 2006.

The Germania continued to revise reserving practices for BI claims in Automobile and Property Liability lines, which should allow us to monitor our individual claims exposure and limit our risk potential as it relates to IBNR (Incurred But Not yet Reported).

We continue to see an increase in claims involving Farm Machinery on the Road, and Livestock on the Road. This trend continues to be monitored as we move into 2007 but can at least be partially attributed to the growth of the company over the past 5 years.

The Board and Management feel that we can realistically expect that our claims frequency will remain at current levels or possibly increase. We have been preparing for impending increases in that area and now have two fulltime outside adjusters on staff handling the major portion of our claims. This has assisted in keeping our independent adjusting costs in line.

In early 2006 we enlisted the services of Dawley Engineering, and have now completed our rough design and site plan for this proposed building. The new office will be located on an existing property owned by the Germania Mutual, located in Ayton.

I feel this is a qualified managerial review of the Germania Farmers Mutual with an overview of past performance.

Dan Hill CIP

General Manager

Germania Farmers Mutual Fire Insurance Company