American Family reports strong financial results for 2004

Madison, Wis. (March 1, 2005) - Strong financial results in 2004 allowed American Family Insurance Group to add more than $600 million to policyholder equity, the Madison-based insurer announced today at its annual meeting.

"More than any other number in our annual report, policyholder equity shows our excellent financial strength, and once again tells our customers we can meet our promises," said Harvey R. Pierce, chairman and chief executive officer.

American Family added $601.5 million to policyholder equity in 2004, bringing the new total to $4.2 billion. Policyholder equity serves as financial protection for policyholders in the event of unusual catastrophic events or unexpected losses.

The change in equity consists of a record $703.4 million gain 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 figures were $321.7 million in 2003 and $169.5 million in 2002.

"American Family had an excellent year in 2004," said David R. Anderson, president and chief operating officer. "A solid balance in product offerings, continued expense control and our commitment to customer service all contributed to our outstanding financial results."

Multiple reasons for operations gain
Company leaders said the gain from operations was caused by several factors, including lower-than-expected losses, both from storms and from all other causes; productivity gains; expense management; and product pricing. The company ended the year with an underwriting gain of $318 million and a combined ratio (claim losses and expenses versus premium) of 94.5 percent, compared with 100.1 percent in 2003.

Group revenues exceeded $6.6 billion, an increase of 8.9 percent from 2003. Company assets rose to more than $13.6 billion, an increase of 11.5 percent. Life insurance in force rose to $67.6 billion from $64.5 billion. Net income rose to $564.4 million. Net income is gain from operations minus taxes, including any realized gains or losses.

Moderate storm losses
The weather contributed to American Family's strong showing in 2004, as storm losses of $389.4 million were approximately $105 million less than projected based on long-term storm history. Storm losses are caused by wind, hail, lightning or sump pump backup/overflow. American Family paid a record $834.9 million in storm and catastrophe losses in 2001 and $353.7 million in 2003.

Losses from causes other than storms also came in significantly lower than expected. Potential factors contributing to lower losses include motorists driving fewer miles because of high fuel prices; lower-than-expected inflation in the costs of goods and services; and the decision by many customers to opt for higher deductibles.

Stable pricing conditions
Last year also marked continued rate stability in the company's auto insurance lines. Meanwhile, pricing for homeowners and commercial multi-peril insurance also moved in that direction, as the company decreased rates or kept rate increases to the cost of inflation in many of its operating states. Anderson said he expects further rate stabilization in 2005.

"Across the industry, homeowners insurance had been under-priced for many years. After making appropriate adjustments in pricing, the tide is now turning - and that's good news for consumers," Anderson said. "At American Family, we recognize keeping rates affordable is a shared responsibility . and we've done our part by operating efficiently and controlling costs."

American Family is taking several steps to retain its position as a top value in the insurance marketplace, including increasing discounts for policyholders who insure both their home and autos with American Family. The company is also offering a new auto-life discount and, in hail-prone states, a discount for impact-resistant roofing materials.

Here are the consolidated highlights of American Family's 2004 GAAP financial report (in thousands, except for individual life insurance in force):

Category 2004 2003 2002
Assets $13,641,212 $12,238,586 $11,005,679
Equity $4,213,709 $3,612,189 $3,139,923
Revenue $6,606,786 $6,064,463 $5,307,134
Life insurance in force $67.6 billion $64.5 billion $61.3 billion

American Family offers auto, homeowners, life, health, commercial and farm/ranch insurance, investment products and consumer loans in 17 states. The company employs 8,238 people and sells its products through 4,079 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