American Family Reports Strong Financial Results for 2005

Madison, Wis. (March 7, 2006) — Fewer insurance claims than anticipated in 2005 helped the American Family Insurance Group achieve strong underwriting and operating gains last year and allowed American Family to add more than $620 million to policyholder equity in 2005, the Madison-based insurer announced today.

American Family operates in 17 states and will enter Washington state in 2006, but the company does not operate in any of the Gulf Coast states ravaged by hurricanes in 2005. The company each year estimates the coming year’s expected losses due to catastrophes and non-catastrophes, and the claim volume turned out to be lower for both in 2005.

Business conditions allowed American Family to reduce premiums for auto and homeowners insurance policyholders by more than $319 million in 2005 and early 2006.

Formula for success
“American Family remains committed to our proven formula for success,” said Harvey Pierce, chairman and chief executive officer. “We upheld our commitment to customer service, offered a broad range of quality products and responsibly managed our internal expenses. As a result, we were able to reduce rates, build policyholder equity and embark upon a very significant reinvestment in our operations and infrastructure.”

American Family added $623.3 million to policyholder equity in 2005, bringing the new total to $4.8 billion. Policyholder equity serves as financial protection for policyholders in the event of unusual catastrophic events or unexpected losses.

“2005 will be remembered throughout the insurance industry for a series of incredibly devastating hurricanes,” said David Anderson, president and chief operating officer. “These storms were a striking reminder of the importance of strong financial equity, and American Family customers can rest assured their insurance policies are backed by strong financial reserves.”

The change in equity consists of a record $862.7 million in gains from operations plus stock and bond appreciation, minus taxes the company pays on operating and investment results. Gain from operations is the group’s total revenues less total losses and expenses. Comparable gains from operations figures were $703.4 million in 2004 and $321.7 million in 2003.

Storm and other losses lower
American Family’s losses from storms and all other causes were significantly lower than expected in 2005, and company leaders also attributed the 2005 results to continued gains in productivity and expense management.

Storm losses of $390.7 million in 2005 were comparable to the previous year but considerably less than expected based on long-term storm history. Storm losses are caused by wind, hail, lightning or sump pump backup/overflow. American Family paid a company record $834.9 million in storm and catastrophe losses in 2001.

Losses from causes other than storms came in at more than $2.9 billion, also lower than expected but approximately $100 million higher than 2004. While the average loss per claim continues to increase, fewer claims are being reported.

Group revenues exceeded $6.8 billion, an increase of 3.2 percent from 2004. Company assets rose to more than $14.6 billion, an increase of 7.3 percent. Net income rose to $671.5 million, a gain of 19 percent. Life insurance in force rose to $71.0 billion from $67.6 billion.

Reinvestment in operations and infrastructure
Anderson said American Family is embarking on several major projects that will help the company continue to offer a superior value to consumers, including a significant upgrade of its technology infrastructure and a comprehensive review of all claims processes.

The company also is systematically examining its computer software and investing in software solutions that will enhance service and the customer experience. “It’s widely accepted that computer hardware’s utility is defined by a lifecycle,” said Anderson. “Software has a lifecycle, too, and this project will repay its investment many times over.”

American Family also is investing to expand operations to Washington state. Agent offices in select areas of the state will open July 1, and auto insurance will be available in Washington via the Internet on May 1.

Here are the consolidated highlights of the group’s 2005 GAAP financial report (in thousands, except for individual life insurance in force):

Category 2005 2004 2003 2002 2001
Assets $14,636,642 $13,641,212 $12,238,586 $11,005,679 $10,274,603
Equity $4,837,014 $4,213,709 $3,612,189 $3,139,923 $3,297,956
Revenue $6,820,574 $6,606,786 $6,064,463 $5,307,134 $4,713,986
Life insurance in force $71.0 billion $67.6 billion $64.5 billion $61.3 billion $56.9 billion

American Family offers auto, homeowners, life, health, commercial and farm/ranch insurance, investment products and consumer loans in 17 states. The company employs 8,135 people and sells its products through 4,302 independent contractor exclusive agents.

American Family was founded in 1927 and is the nation’s third-largest mutual property/casualty insurance company and 16th-largest property/casualty insurance company group. The group ranks 313th on the Fortune 500 list.


Ken Muth
Media Relations Director
Tel: (608) 242-4100, ext. 30680