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American Family Insurance builds policyholder equity despite record catastrophe year in 2011

Madison, Wis. (March 6, 2012) — The American Family Insurance Group added about $279 million to policyholder equity in 2011 while helping customers recover from a company record in catastrophe claims incurred of nearly $1.2 billion.

The company's policyholder equity, which serves as financial protection for policyholders in the event of unusual catastrophic events or unexpected losses, stood at $5.7 billion at year's end.

American Family's measures of customer satisfaction reached an all-time high in 2011, and the company earned the top ranking in J.D. Power and Associates' measurement of customer satisfaction with the auto insurance shopping experience.

Policyholder equity increased

American Family's policyholder equity increase of $279 million follows two years of increases of at least $600 million: $605.6 million in 2010 and $663.2 million in 2009.

"As a mutual insurance company, we strive to increase our policyholder equity so we can be there for our customers," said Chairman and Chief Executive Officer Jack Salzwedel. "Over the course of the previous two years, American Family regained the equity we lost in the global financial crisis of 2008, and we built it up further in 2011."

Property and casualty (P/C) investment income along with realized and unrealized capital gains of $405.1 million on American Family's investment portfolio were major contributors to the 2011 policyholder equity gain.

Managing a record storm season

Midwestern wind and hail storms fueled the record-setting catastrophe year, with American Family's P/C insurance claims in April and May alone incurred $650 million. Among those spring storms was the massive tornado that ravaged Joplin, Mo., on May 22, 2011, that resulted in more than 2,500 insurance claims from American Family customers.

The 2011 catastrophe losses incurred nearly $1.2 billion and topped the previous American Family high mark of $1.1 billion in 2006, followed by slightly less than $1.1 billion in 2008. Catastrophe claims payment totals in 2010 and 2009 were $866.2 million and $678.1 million, respectively.

"American Family has built an expertise in responding to catastrophes, and not just because of the high number we've had in the past five or six years," said President and Chief Operating Officer Dan Schultz. "We treat our customers with compassion and respect, respond to and pay their claims quickly, and manage our finances to maintain the financial strength our customers rely upon when disaster hits."

The extraordinary year for storms started in April when wind and hail pelted portions of Kansas and Missouri (including the Kansas City metro area), Colorado, Illinois, Iowa and Wisconsin, leaving expected claims losses incurred of more than $180 million.

Over a four-day span in late May, wind, hail and tornadoes inflicted more than $210 million of losses incurred to American Family customers in Illinois, Indiana, Kansas, Minnesota, Missouri and Wisconsin, including $125 million in Joplin.

Catastrophe losses incurred in June, July and August totaled $454.6 million. American Family customers experienced a milder fall in 2011, however, with catastrophe claim losses incurred of $26.6 million in September and October.

A portion of the total catastrophe losses for the year was offset by American Family's use of reinsurance. In concept, a reinsurer is like an insurance company for insurance companies - it takes on excess risk in exchange for a premium.

"American Family needs to be ready for our customers in their times of need, and reinsurance is one more way we stay strong for our customers," Schultz said

In line with the industry's 2011 storm experience

Due primarily to storm losses, American Family finished 2011 with a combined ratio of 106.1 for its core business of P/C insurance. The combined ratio is a measure of losses and expenses compared to premium, which means in 2011 the company paid out $1.06 in claims and expenses for every dollar of premium it received.

The rating agency A.M. Best recently reported an estimated 2011 P/C industrywide combined ratio of 107.5, with the industry's underwriting losses of $33.9 billion trailing only the years 2001 ($56.4 billion) and 2002 ($34.3 billion).

American Family's P/C underwriting loss of $322.2 million in 2011 was due primarily to catastrophes, a reversal from the $12.2 million underwriting gain in 2010. Net premium written dropped to $5.2 billion, a decrease of 3.0 percentage points from 2010.

After adding realized capital gains and tax expenses (or benefits) to the operating gain, the company's net income was $295.2 million for 2011, down from the $487.1 million net income in 2010.

Company assets rose to $17.3 billion, an increase of 3.1 percent. Life insurance in force rose to $87.0 billion from $86.5 billion.

Record-setting customer satisfaction

American Family measures customer satisfaction with respect to the company and with respect to the customer's agent. Both measures were considered high at the start of 2011, and reached record levels by year's end.

"Our employees and agents are seeking out opportunities to improve our customers' experiences with us," said Salzwedel. "Whether it's working extra hours on a technology project that will make it easier for customers to securely access account information online, explaining new products and discounts to customers, or helping catastrophe victims rebuild their lives and dreams, our people are fully invested in this company's future."

Another noteworthy measure of customer satisfaction was the J.D. Power and Associates 2011 Insurance Shopping Study. Customers who had recently purchased auto insurance were asked to rate their purchasing experience, and American Family customers gave higher marks than customers of any other insurer.

"We've made tremendous progress on customer satisfaction, and we will carry that forward by managing our expenses and focusing on improvements that drive value and draw more customers to American Family Insurance," Salzwedel said.

Here are the consolidated highlights of the group's 2011 GAAP financial report (in thousands, except for individual life insurance in force):

Category

2011

2010

2009

2008

2007

Assets

$17,302,037

$16,787,779

$16,250,813

$15,501,845

$16,003,955

Equity

$5,711,151

$5,431,728

$4,826,146

$4,162,986

$5,034,285

Revenue

$6,151,237

$6,321,474

$6,360,130

$6,742,578

$6,867,863

Life insurance in force

$87.0 billion

$86.5 billion

$85.4 billion

$84.0 billion

$81.2 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 Mutual Insurance Company is the nation's third-largest mutual property/casualty insurance company. Web: www.amfam.com; Facebook: www.facebook.com/amfam; Twitter: www.twitter.com/amfam.