American Family Insurance group strengthens policyholder equity in 2014

Growth from second acquisition in two years, investment gains highlight results

(Madison, Wis.) (March 3, 2015) —American Family Insurance today reported strong 2014 results for its group of companies, increasing policyholder equity to almost $7 billion while responding to an unusual pattern of weather-related claims and taking additional actions to meet customer needs.

"In many ways, 2014 was a landmark year for our customers and us," said Jack Salzwedel, chairman and chief executive officer of Madison, Wisconsin-based American Family.

"We not only welcomed a new company for the second consecutive year and achieved solid results across our critical measures, we also made customer-driven changes that position us well for the future."

American Family's 2014 results, which were released today at the company's annual policyholder meeting, 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 the group on the last day of 2013.
The General, based in Nashville, Tennessee, a direct non-standard auto insurance company acquired on the last day of 2012.

Financial and customer measures remain strong

American Family's policyholder equity of nearly $7 billion reflects an increase of $384 million, or 5.8 percent, from the end of 2013. That compares to a policyholder equity increase of $444 million in 2013. Policyholder equity is used to protect customers from extraordinary catastrophes and other unplanned financial losses.

"While strong policyholder equity ensures we have the financial resources to meet that responsibility, exceptional products and people to serve our customers are equally important," Salzwedel said. "Our internal measures for customer satisfaction and loyalty remain strong."

The main contributor to the policyholder equity increase was net income of $515.2 million, which includes line operating results, investment income, realized gains and taxes. Net income in 2013 was $378.8 million.

American Family Chief Financial Officer Dan Kelly said realized investment gains of $541 million drove the change in net income. He said the investment gains were particularly strong in the bond market, with solid returns in stock and other investments as well.

Investment gains were slightly offset by a group property-casualty (P/C) underwriting loss of $92.5 million. The loss was primarily caused by a severe first-quarter cold snap (also known as the 2014 Polar Vortex) that generated a spike in auto claims from icy road conditions as well as more homeowners claims from freezing pipes and ice dams. The event on its own generated approximately $120 million in auto, homeowners and commercial claims.

The 2014 underwriting loss of $92.5 million was a slight improvement from 2013 when it was $96 million.

In other measures, direct premium written for the group grew 13.9 percent from 2013, reaching $7.2 billion in 2014. A large part of that increase was attributable to the acquisition of Homesite. Direct premium written increased 3.0 percent for the American Family brand companies.

Group assets rose to $20.6 billion, an increase of more than $1 billion from 2013, while group revenue increased to $7.4 billion from $6.8 billion. Life insurance in force rose to $91 billion from $89.6 billion.

Combined ratio improves slightly

The combined ratio, which compares claims payments and expenses to premium, is an important measure in the P/C insurance industry. American Family group finished 2014 with a P/C combined ratio of 101.4, which means the company paid out more than $1.01 in claims and expenses in 2014 for every dollar of earned premium. In 2013, American Family's group P/C combined ratio was 101.7.

Severe weather makes its mark

While the first-quarter cold snap contributed to increased non-catastrophe losses, traditional P/C catastrophe losses - caused by tornadoes, severe wind, hail and lightning - also increased in 2014.

Anticipated catastrophe claim payments for American Family brand companies totaled $848.8 million in 2014, slightly less than planned but more than the 2013 tally of $804.8 million. The company's record for annual catastrophe claim payments was set in 2011, when it paid nearly $1.2 billion for storms and other events.

The largest catastrophes in 2014 were a June hailstorm in Nebraska and a September hailstorm in Colorado. Each of those storm systems produced anticipated claim payments of $120 million.

Taking actions for the future

Beyond the company's financial results, Salzwedel noted other customer-driven accomplishments in 2014, including:

Increasing innovation and venture capital efforts, including in the area of smart-home technology for its potential to prevent or reduce accidents. American Family and Microsoft Corp. partnered on a home automation accelerator, providing industry insights and mentorship to 10 emerging companies. Last month, American Family began to roll out a discount for customers using certain new technologies to self-monitor and protect their homes.
Taking additional actions to protect policyholder equity and diversify catastrophe risk though the acquisition of Homesite and modifications in American Family"s reinsurance program.
Introduction of a new flexible life insurance product, MyLife, in addition to continued work on new auto and homeowners insurance products. These auto and homeowners products have debuted in two states, and will be introduced to all American Family states in 2015 and 2016.
Strengthening capabilities and expanding alliances with other insurance companies to help customers who need specialized coverage outside of American Family products.

"I am pleased by our success in 2014, but even more excited about our prospects for the future," Salzwedel said. "Our vision is to be the most trusted and valued customer-driven insurance company. We are unwavering in pursuit of this goal, and we are already taking action."

About American Family Insurance
Madison, Wis.– based American Family Insurance is the nation's third-largest mutual property/casualty insurance company and ranks 373rd on the Fortune 500 list. The company sells American Family-brand products, including auto, homeowners, life, business and farm/ranch insurance, through its exclusive agents in 19 states. American Family affiliates (The General, Homesite and AssureStart) also provide options for consumers who want to manage their insurance matters directly over the Internet or by phone. Web: www.amfam.com; Facebook: www.facebook.com/amfam; Twitter: www.twitter.com/amfam. Google+ plus.google.com/+amfam/

News media contact:
Ken Muth
Media Relations
(608) 242-4100, ext. 30680
kmuth@amfam.com

Sandra Spann
Media Relations
(608) 242-4100, ext. 32881
sspann@amfam.com