Just a year later, ourfirstquarter 2009 new surplus lines business was $7 million.”Our technology progress is making it possible to attract more professionalagencies as we expand and to increase efficiencies that will save time andmoney for all of our agencies and our company. These advances also improveservice for policyholders and give them more options. First-quarter milestonesincluded enhancement of our claims system to allow many agencies to securelysubmit notice of loss online and introduction of a new online payment systemfor personal lines policyholders who are billed by our company instead oftheir agency. In the second quarter, we plan to begin offering direct billingof workers’ compensation policies.”Our major projects are on track. We will take a major leap forward beforeyear-end as agencies in 11 states begin using our new commercial policyadministration system. It will offer efficiencies such as real time policyquote and issue and payment options including direct billing, monthly paymentsand electronic funds transfer.

We expect this system to have a positive impacton future growth from our agencies.”Stecher concluded, “First quarter was less than satisfactory for our company,and there are few signs that industry and economic conditions will improve inthe near term We are not daunted. 10-13Flood, South, 12 18 30hail, wind Midwest,water damageEastFeb. 18-19 Wind, hailSouth 055Development on 2008 and prior catastrophes(4) 2 (2) Calendar year incurred total$14$39$532008Jan 4-9 Wind, hail, South, $3 $3 $6 flood,MidwestfreezingJan 29-30 Wind, hailMidwest 55 10Feb 5-6 Wind, hail, Midwest 89 17 floodMar 14Tornadoes, South516 wind, hail, floodMar. Lower renewal premiums were offset by growth in newbusiness and the combined impact of reinsurance and adjustments forpolicies in effect but still in process.–$76 million in first-quarter 2009 new commercial lines businesswrittendirectly by agencies, up 14.9 percent from $66 million in lastyear’s first quarter. Written premiums include life insurance, annuity andaccidentand health premiums.–6.7 percent increase to $37 million in written premiums for lifeinsurance products in total.–12.3 percent rise to $20 million in term life insurance writtenpremiums, reflecting marketing advantages of competitive, uptodateproducts, providing close personal attention and offering policiesbacked by financial strength and stability.–1.3 percent rise in face amount of life policies in force to $66.756billion at March 31, 2009, from $65.888 billion at yearend 2008.

The same local independent insuranceagencies that market those policies may offer products of our othersubsidiaries, including life and disability income insurance, annuities andsurplus lines property and casualty insurance. For additional informationabout the company, please visit Address:Street Address:P.O. Box 145496 6200 South Gilmore RoadCincinnati, Ohio 45250-5496 Fairfield, Ohio 45014-5141Safe Harbor StatementThis is our “Safe Harbor” statement under the Private Securities LitigationReform Act of 1995. Our business is subject to certain risks and uncertaintiesthat may cause actual results to differ materially from those suggested by theforward-looking statements in this report. Some of those risks anduncertainties are discussed in our 2008 Annual Report on Form 10-K, Item 1A,Risk Factors, Page 25. Thecompanyalso is subject to public and regulatory initiatives that can affectthemarket value for its common stock, such as recent measures affectingcorporate financial reporting and governance. Statutory data is prepared in accordance with statutoryaccounting rules as defined by the National Association of InsuranceCommissioners’ (NAIC) Accounting Practices and Procedures Manual and thereforeis not reconciled to GAAP data.Management uses certain non-GAAP and non-statutory financial measures toevaluate its primary business areas – property casualty insurance, lifeinsurance and investments.

Management uses these measures when analyzing bothGAAP and nonGAAP measures may improve its understanding of trends in theunderlying business and help avoid incorrect or misleading assumptions andconclusions about the success or failure of company strategies. Managementadjustments to GAAP measures generally: apply to non-recurring events that areunrelated to business performance and distort short-term results; involvevalues that fluctuate based on events outside of management’s control; orrelate to accounting refinements that affect comparability between periods,creating a need to analyze data on the same basis.– Operating income: Operating income is calculated by excluding net realizedinvestment gains and losses (defined as realized investment gains and lossesafter applicable federal and state income taxes) from net income. Managementevaluates operating income to measure the success of pricing, rate andunderwriting strategies. While realized investment gains (or losses) areintegral to the company’s insurance operations over the long term, thedetermination to realize investment gains or losses in any period may besubject to management’s discretion and is independent of the insuranceunderwriting process. Also, under applicable GAAP accounting requirements,gains and losses can be recognized from certain changes in market values ofsecurities without actual realization.

Management believes that the level ofrealized investment gains or losses for any particular period, while it may bematerial, may not fully indicate the performance of ongoing underlyingbusiness operations in that period.For these reasons, many investors and shareholders consider operating incometo be one of the more meaningful measures for evaluating insurance companyperformance. Equity analysts who report on the insurance industry and thecompany generally focus on this metric in their analyses. The company presentsoperating income so that all investors have what management believes to be auseful supplement to GAAP information.– Statutory accounting rules: For public reporting, insurance companiesprepare financial statements in accordance with GAAP. However, insurers alsomust calculate certain data according to statutory accounting rules as definedin the NAIC’s Accounting Practices and Procedures Manual, which may be, andhas been, modified by various state insurance departments. Statutory data ispublicly available, and various organizations use it to calculate aggregateindustry data, study industry trends and compare insurance companies.– Written premium: Under statutory accounting rules, property casualtywritten premium is the amount recorded for policies issued and recognized onan annualized basis at the effective date of the policy.