Madison,
01
March
2016
|
09:34 PM
America/Chicago

American Family Insurance group reports solid, balanced results for 2015

Summary

Policy growth, operational gains and an unusually mild storm year lead to increase in policyholder equity.

The American Family Insurance group of companies achieved solid results in 2015 – increasing policyholder equity to $7.4 billion through premium revenue increases driven by policy growth, as well as gains from operations affected by the lowest storm losses in 10 years.

“The story of 2015 is one of balanced success,” said Jack Salzwedel, chairman and chief executive officer of Madison, Wisconsin-based American Family. “Our results reflect progress across our subsidiaries, our insurance lines and important growth, customer and financial strength measures.

“We are pleased with these numbers because it shows our actions to meet customer preferences and strengthen customer value are working. And those types of actions will continue.”

American Family released its 2015 results today at the company’s annual policyholder meeting. The results cover all the group's subsidiaries, including:

  • The American Family brand companies, which offer multiline insurance products through the company’s exclusive agents.
  • Boston-based Homesite, a direct homeowners insurance company acquired by American Family on the last day of 2013. Homesite also manages American Family subsidiary AssureStart, a direct small-business insurance provider.
  • The General, based in Nashville, Tennessee, a direct non-standard auto insurance acquired on the last day of 2012.

Policyholder equity, other measures reflect financial strength

Policyholder equity increased by $397 million, or 5.7 percent, to a total of $7.4 billion. That compares to a policyholder equity increase of $384 million in 2014, and is close to the group’s five-year average of $386 million. Policyholder equity is used to protect customers from extraordinary catastrophes and other unplanned financial losses.

“Our gain in policyholder equity was similar to last year, but achieved in a much different way,” said Dan Kelly, American Family chief financial officer. “Unlike last year when investment gains contributed greatly to the increase, this year’s results were achieved through improved operating results along with increased premium revenue driven by policy growth. The operational gains more than offset investment losses in the stock and bond markets.”

American Family’s net income, the main contributor to the policyholder equity increase, was $693.9 million, which includes underwriting/operating results, investment income, realized gains (and losses) and taxes. That compares to net income of $515.2 million in 2014.

Group assets rose to $21.5 billion, an increase of nearly $900 million from 2014, while group revenue increased to $8.1 billion from $7.4 billion.

Positive results achieved across categories

Direct premium written for the group grew 5.5 percent in 2015, reaching $7.6 billion in 2015, with increases across all American Family brand companies and subsidiaries. While direct premium growth for the group was higher in 2014, a large part of that was attributable to the addition of Homesite, which had not been part of the group in 2013.

The group reported a 2015 property-casualty (P/C) net underwriting gain of $327 million, compared to an underwriting loss of $92.5 million in 2014. Over the last five years, the group has averaged an underwriting loss $77.2 million. The 2015 gain was primarily attributable to low storm losses. Other factors included lower-than-anticipated losses on 2014 claims resolved in 2015, and reinsurance recoveries.

Meanwhile, non-storm auto losses increased from 2014, as drivers put on more miles and subsequently had more accidents. Non-storm property losses decreased from 2014 due to declining homeowners claim frequencies and mild winter conditions.

Another underwriting measure is combined ratio, which compares claims payments and expenses to premium. The American Family group finished 2015 with a P/C combined ratio of 95.3, which means it paid out roughly 95 cents in claims and expenses in 2015 for every dollar of earned premium. That compares to a 2014 combined ratio of 101.8 and five-year average of 101.6.

“It’s important for our customers that we have the financial strength to pay their claims, even when there are unexpected catastrophic events. That’s why we look at our financial performance over an extended period of time, not just one year, to ensure we maintain that critical ability over the long term,” said Kelly.

Decreased storm losses impact results

In 2015, American Family brand customers reported an anticipated $607.4 million in storm claims from severe wind, tornado, hail and lightning. That is the lowest amount since 2005, when American Family paid out $463.3 million in storm losses, and compares to 2014 storm losses of $848.8 million and a five-year average of $845.8 million. The company's record for annual storm claim payments was set in 2011, when it paid nearly $1.2 billion for storms and other events.

The largest storm events occurred in Fairdale, Illinois, where a spring tornado generated anticipated claims of $69.6 million, a late June hail storm that hit the western suburbs of Minneapolis resulted in $60.5 million in claims and a hail storm that hit the Denver area earlier in June had estimated claims of $34.2 million.

Life insurance company reports strong growth

The American Family Life Insurance Company also had a strong year, issuing the most new policies since 2007. Reasons for the success included growth of term life insurance and continued efficiencies in the life insurance application process.

A look ahead

Salzwedel described the 2015 results “as a great beginning” and said initiatives were in place or in the works to introduce new product options, strengthen service levels and efficiencies, and pursue additional innovations that have customer benefits.

“I am bullish on our future,” Salzwedel said. “We are investing in new products, programs and services for the many customers who rely on our American Family agents, while through our subsidiaries expanding our reach to customers who want to handle their insurance matters on their own or in other ways. We are determined and excited to meet those varied customer preferences.”

Dan Kelly, American Family chief financial officer
“Our gain in policyholder equity was similar to last year, but achieved in a much different way. Unlike last year when investment gains contributed greatly to the increase, this year’s results were achieved through improved operating results along with increased premium revenue driven by policy growth. The operational gains more than offset investment losses in the stock and bond markets.”
Dan Kelly, American Family chief financial officer