American Family Insurance reports financial results for 2008

Company remains strong despite investment declines, significant storm losses.

Madison, Wis. (March 3, 2009) – The American Family Insurance Group withstood significant challenges in 2008, continuing its gains in customer satisfaction in a year that saw a faltering global economy and a near company record for storm losses. In announcing the company’s financial results for 2008, American Family’s top officer says American Family is well-positioned for long-term success.

“We made it through a rough stretch of road in 2008, but American Family remains on solid ground,” said David R. Anderson, chairman and chief executive officer. “We have a strong financial position and a mission of providing industry-leading value to our customers.”

Another stormy year

Storm and catastrophe losses topped the billion-dollar mark for the second time in three years. American Family’s top four years for storm and catastrophe losses all occurred this decade, with three of the top four taking place in the past three years.

The year started with rare January tornadoes in the Midwest. The catastrophe and storm activity peaked in May and June, with losses of a total of $691.5 million for those two months alone. Among the 19 catastrophe operations during those two months, Minnesota was particularly hard hit, with major windstorms also striking other Midwestern states.

“It was another busy year to help our customers recover from the unexpected,” said Jack C. Salzwedel, president and chief operating officer. “Our agents and employees work hard to provide excellent service and value, and not just at the time of a claim. Our customer satisfaction scores increased throughout the year and finished at levels higher than planned.”

American Family recorded a $298.9 million loss from operations in 2008, compared to a $110. 4 million loss in 2007 and a $202.1 million loss in 2006. The three straight years of losses followed a record $889.1 million gain from operations in 2005. Gain or loss from operations is the group’s total revenues less total losses and expenses.

After adding realized capital gains and tax expenses (or benefits) to the operating loss, the company’s net loss was $297.9 million for 2008, a reversal from the $82.4 million net gain in 2007.

Impact of the recession on policyholder equity

Policyholder equity, which serves as financial protection for policyholders in the event of unusual catastrophic events or unexpected losses, declined $871.3 million in 2008 as a result of the year’s net loss and other equity adjustments, net of tax. American Family added $145.0 million to policyholder equity in 2007, $52.3 million in 2006 and $623.3 million in 2005.

The current total policyholder equity stands at $4.2 billion.

“A soft economy is tough on our industry to begin with,” said Anderson. “You see the impact on the automakers, the impact on the real estate market. With fewer automobiles leaving the dealer lots and fewer homes with ’sold’ signs in the front yard, that means there was less demand for insurance protection in 2008.”

Anderson said the company’s longstanding investment philosophy insulated American Family from the full impact of the recession.

“American Family follows an investment philosophy of choosing high-quality stocks and bonds, and holding them for the long run,” Anderson said. “Our portfolio took a bit of a tumble, like everyone else’s did, but it could have been much worse. The one thing our customers should know is that we’re still financially stable and strong, and in a position to meet our obligations to them.”

Group revenues dropped to more than $6.7 billion, a decrease of 1.8 percent from 2007. Company assets fell to $15.5 billion, a decrease of 3.1 percent. Life insurance in force rose to $84.0 billion from $81.2 billion.

Planning for future success

American Family proceeded further down the path established in 2007 with the introduction of a new mission statement: “To be the most trusted and valued service-driven insurance company.” Significant revisions include the introduction of a single toll-free number for all customer inquiries; enhanced accessibility and functionality of the company’s Web site, www.amfam.com; and a streamlined claims process that minimizes the number of customer service handoffs in the process.

“American Family is trying something new for our industry – we’re making a focused, determined effort to build a competitive advantage in how we serve our customers,” said Salzwedel. “That requires us to look at processes from A to Z, with an eye toward ease and convenience, care and concern as well as fairness.”

“We’re starting to see some results from that focus. With everything else that happened in 2008, our customer satisfaction and customer loyalty measures remained high. That’s a positive sign for 2009 and beyond.”

The company also introduced a new pricing model for personal auto insurance including the use of credit information. While the new pricing model resulted in increased premiums for some customers and decreased premiums for others, its overall impact on the company’s personal auto insurance in 2008 was a slight reduction in premiums. American Family implemented a similar model for homeowners insurance in 2007, with a similar immediate impact on premiums.

Georgia expansion

American Family opened for business in its 19th state, Georgia, on Jan. 1, 2009, focusing initially on the Atlanta metropolitan area. In addition to providing growth opportunities, the new state also represents diversification of the company’s Midwestern and Western risk base.

“There’s something to be said for opening up in a new state, a certain sense of energy and innovation and optimism,” said Anderson. “We’ve had a fantastic reception in Georgia, and we’re extremely happy to provide consumers there an additional choice of insurance providers.”

The company’s entry into Georgia was its fifth state expansion since it moved into Oregon in 1998. The company expanded into Nevada in 2001, Utah and Idaho in 2002 and Washington in 2006.

Here are the consolidated highlights of the group’s 2008 GAAP financial report (in thousands, except for individual life insurance in force):

Category

2008

2007

2006

2005

2004

Assets

$15,501,845

$16,003,955

$15,477,009

$14,636,642

$13,641,212

Equity

$4,162,986

$5,034,285

$4,889,281

$4,837,014

$4,213,709

Revenue

$6,742,578

$6,867,863

$6,785,819

$6,831,824

$6,606,786

Life insurance in force

$84.0 billion

$81.2 billion

$75.9 billion

$71.0 billion

$67.6 billion

American Family offers auto, homeowners, life, health, commercial and farm/ranch insurance in 19 states. The company employs 8,071 people and sells its products through 3,901 independent contractor exclusive agents.

American Family Insurance was founded in 1927 and is the nation’s third-largest mutual property/casualty insurance company and 14th-largest property/casualty insurance company group. The group ranked 352nd on the Fortune 500 list, based on 2007 revenues.