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American Family Insurance reports strong 2010 financial results

Madison, Wis. (March 1, 2011) — The American Family Insurance Group increased its policyholder equity by nearly $606 million in 2010, due to solid operating gains and strong investment returns.

For the year, American Family achieved a combined ratio of 99.8 percent for its core business of property and casualty insurance. The combined ratio is a measure of losses and expenses compared to premium, which means in 2010 the company paid out 99.8 cents in claims and expenses for every dollar of premium it received.

"Despite a very difficult business climate for both the insurance industry and the customers we serve, American Family made some outstanding progress in the recently completed year," said David Anderson, chairman and chief executive officer. "Our highest-level accomplishment was adding to the policyholder equity fund, which provides an extra level of protection for our customers.

"American Family also strengthened our customer loyalty scores and took some significant strides toward implementing other changes that will enhance our competitiveness for years to come."

Policyholder equity increases

In 2010, American Family added $605.6 million to policyholder equity, increasing the current total to $5.4 billion.

"Our commitment to building and maintaining financial strength is unwavering, even if the cyclical nature of our business dictates that some years we're able to add to policyholder equity and other years we're not," said Jack Salzwedel, president and chief operating officer. "Given the recent turbulence in the financial services field, it's more important than ever for our customers to know we have the financial strength to protect them from the unexpected."

Policyholder equity serves as financial protection for policyholders in the event of unusual catastrophic events or unexpected losses.

American Family's second consecutive year with an increase in equity of more than $600 million enabled the company to fully recover from effects of the 2008 global financial meltdown.

Investment income and realized capital gains were major contributors to the policyholder equity recovery, totaling $522.2 million in 2010 and $415.0 million in 2009.

Stormy weather exacts a price

Storm and catastrophe losses were $270 million higher than expected in 2010. American Family incurred $866.2 million in storm and catastrophe claims in 2010, a significant increase over the $678.1 million incurred in 2009. American Family incurred more than $1 billion in claims resulting from storms in each of the years 2006 and 2008, with a $732 million storm year in 2007.

After a fairly light first five months of the year, American Family's storm and catastrophe losses picked up in June and July with total incurred losses of $353.9 million. Notable opportunities for assisting customers during that time period included tornadoes and strong winds in Eagle, Wis., and other parts of southeast Wisconsin; wind storms in the Rochester and Wadena, Minn., areas, and wind and hail storms in the Watertown, Minn., and Appleton, Wis., areas.

Storms struck with unexpected intensity in September and October, inflicting $287.5 million in incurred losses. Wind and hail raked Wichita, Kan., and the Kansas City and Independence, Mo., areas in September. An unusual wind and hail storm in the Phoenix area in October is expected to result in claim payments of more than $100 million.

In addition to the wind, hail and tornadoes of 2010, American Family also responded to customers in the path of a severe wildfire in the Boulder, Colo., area in early September.

Non-catastrophe losses were lower than anticipated in 2010. American Family's non-catastrophe property and casualty (P/C) claims were $250 million less than expected in 2010.

Growth an ongoing challenge

American Family finished 2010 with a P/C combined ratio of 99.8, which is an improvement from the 2009 combined ratio of 104.4 and only the fourth time in the past 30 years the company experienced a combined ratio lower than 100. Investment returns enable American Family to meet its profit objectives by targeting an overall combined ratio close to 100.

Policy growth was a continued struggle for P/C insurers in 2010 due to sluggish sales of autos and homes. American Family's P/C net premium written dropped to $5.3 billion, a decrease of 2.5 percent from 2009. About 1.2 percentage points of the decrease was due to American Family's ceding of its long term care business to another insurer. Industry-wide measures for the first three quarters of 2010 (the most recent figures available) show a slight gain of 0.7 percent in P/C net written premium, compared to the same period in 2009.

After adding realized capital gains and tax expenses (or benefits) to the operating gain, the company's net income was $487.1 million for 2010, building upon the $256.9 million net income in 2009.

Company assets rose to $16.8 billion, an increase of 3.3 percent. Life insurance in force rose to $86.5 billion from $85.4 billion.

Customer connection remains strong

American Family's measures of customer retention and customer satisfaction increased in 2010.

"American Family is moving in the right direction in our quest to lead the industry in customer satisfaction," Salzwedel said. "Our customers are connecting with us around-the-clock, and our comprehensive approach to improving the customer experience is yielding outstanding results.

"It's an exciting time, as we prepare to introduce our customers to a series of new products and services, as well as new approaches to pricing insurance. Competition is fierce, and we intend to give consumers multiple reasons to choose and stay with American Family."

Here are the consolidated highlights of the group's 2010 GAAP financial report (in thousands, except for individual life insurance in force):

Category

2010

2009

2008

2007

2006

Assets

$16,787,779

$16,250,813

$15,501,845

$16,003,955

$15,477,009

Equity

$5,431,728

$4,826,146

$4,162,986

$5,034,285

$4,889,281

Revenue

$6,321,474

$6,360,130

$6,742,578

$6,867,863

$6,785,819

Life insurance in force

$86.5 billion

$85.4 billion

$84.0 billion

$81.2 billion

$75.9 billion

Based in Madison, Wis., American Family Insurance offers auto insurance, homeowners insurance, life insurance, health insurance, business and farm/ranch insurance in 19 states. American Family insurance is the nation's third-largest mutual property/casualty insurance company. Web: wwwqa.amfam.com; Facebook: www.facebook.com/amfam; Twitter: www.twitter.com/amfam