American Family reports improved financial results for 2007

Heavy storm losses continue; company to open in Georgia next year

Madison, Wis. (March 4, 2008) – Despite finishing 2007 with the third-highest storm and catastrophe total in company history, American Family Insurance Group increased its net income from the previous year and topped the $5 billion mark in policyholder equity, the company announced today. The company also said it plans to expand into a 19th state, Georgia, in January 2009.

American Family’s storm and catastrophe claims payments totaled $731.8 million in 2007, a decrease from the record $1.1 billion paid to customers in 2006 but still considerably more than projected by the company. More than 40 percent of the storm and catastrophe total resulted from weather events in August, when American Family declared 14 catastrophe operations in 11 different states.

“Whether it was a fender bender in an ice-covered supermarket parking lot or a tree limb blown onto a roof by a windstorm, American Family customers depended on us in 2007 to help them get on the path to recovery,” said David R. Anderson, chairman and chief executive officer.

“Our employees and independent contractor agents came through with flying colors, and we’ve raised the bar even higher by challenging the entire organization to provide maximum value to our customers.”

American Family’s catastrophe and storm loss totals spiked in the years 2001 and 2006 but remained fairly stable in the years in between, increasing steadily from $309.3 million in 2002, $353.7 million in 2003, $389.4 million in 2004 and $390.7 million in 2005. Before 2006, the previous American Family record storm and catastrophe loss year was $834.9 million in 2001.

Revenues improved in 2007 due to a higher average number of policies throughout the year. The company also introduced a new pricing model for homeowners 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 homeowners insurance premiums in 2007 was a slight reduction of premiums.

Continued impact of volatile non-coastal weather

For the second consecutive year, operating results for property and casualty insurance in the Midwestern and non-coastal Western states lagged behind the results for hurricane-prone states along the Gulf Coast and the Atlantic Seaboard. Serving customers in 18 states in the Midwest and West, American Family did not experience the relief other companies felt from light hurricane seasons in 2006 and 2007.

Reflecting the cyclical nature of the property and casualty insurance industry, American Family’s net income and equity growth tailed off the past two years. By contrast, in 2005 hurricanes Katrina and Rita savaged the Gulf Coast region while the interior states experienced a relatively mild storm year.

American Family recorded a $110.4 million loss from operations in 2007, an improvement from the $202.1 million loss from operations in 2006. The company finished 2005 with a record $889.1 million gain from operations. 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 income was $82.4 million for 2007, an increase from $24.4 million in 2006. 

Policyholder equity grows

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

The current total policyholder equity stands at $5.0 billion.

“The past two years, we’ve dealt with weather-related factors that were considerably outside of the historical norm,” said Anderson. “American Family is operating from a position of financial strength, and our policyholder equity provides a measure of assurance that we’re able to stand behind the commitments we make to our customers.”

Group revenues rose slightly to more than $6.8 billion, an increase of 1.2 percent from 2006. Company assets rose to $16.0 billion, an increase of 3.4 percent. The rise of net income to $82.4 million was an increase of 237.2 percent. Life insurance in force rose to $81.2 billion from $75.9 billion.

Georgia expansion

Over the last decade, American Family has diversified its risk base by expanding outside the Midwest to additional states in the West and the Pacific Northwest. The company will continue its trend of expansion, but to a new part of the country, when it begins servicing customers in Georgia. Anticipated entry is in January 2009.

“We are very excited by the opportunity to introduce ourselves to customers in a new state,” said Anderson. “American Family will invite Georgia residents to learn firsthand about our commitment to customer service and value.”

The company’s entry into Georgia will be 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.

Renewed focus on customer service

American Family in 2007 adopted a new mission statement: “To be the most trusted and valued service-driven insurance company.”

“Was American Family focused on our customers before we had the new mission statement? Absolutely!” said Jack C. Salzwedel, president and chief operating officer. “Our new mission gives our agents and employees an unmistakable clarity about our focus. It’s driving every aspect of the way American Family does business, and we will constantly evaluate feedback from our customers to make sure we’re meeting their expectations.”

American Family in 2007 fully implemented the claim customer care center concept, providing around-the-clock service to customers and quick resolution to certain less-complex claims. In the first week of 2008, the company introduced a 24-hour call center to answer questions from customers about their bills or bill-paying procedures. Customers who choose to pay their bills over the phone with a credit card now have an automated option to do so.

American Family makes loss control services available to commercial insurance customers. The company also expanded its customer loss prevention efforts in 2007 in both the auto and homeowners insurance lines.

“We are looking at all aspects of our business and identifying ways to increase customer satisfaction,” said Salzwedel. “Some of the new ideas are already in place, and many more are on their way.”

Here are the consolidated highlights of the group’s 2007 GAAP financial report (in thousands, except for individual life insurance in force):

Category

2007

2006

2005

2004

2003

Assets

$16,003,955

$15,477,009

$14,636,642

$13,641,212

$12,238,586

Equity

$5,034,285

$4,889,281

$4,837,014

$4,213,709

$3,612,189

Revenue

$6,867,863

$6,785,819

$6,831,824

$6,606,786

$6,064,463

Life insurance in force

$81.2 billion

$75.9 billion

$71.0 billion

$67.6 billion

$64.5 billion

American Family offers auto, homeowners, life, health, commercial and farm/ranch insurance in 18 states. The company employs 8,482 people and sells its products through 3,978 independent contractor exclusive agents.

American Family 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 338th on the Fortune 500 list, based on 2006 revenues.