annual report - American Family Insurance

American Family executives Jack Salzwedel (left) and Dan Schultz at an American Family Insurance care center in Madison, Wis.AMERICAN FAMILY INSURANCE | 2011 ANNUAL REPORT

DREAMSCOME IN MANY SIZESFor thousands of residents in Joplin, Mo., theirdream is to get back to the lives they once had,before a massive, powerful tornado turned theirlives upside down.American Family Insurance is in the business ofprotecting dreams, every day of the year. To be thebest, you have to work harder, come up with betterideas and care about your customers more than theother guys. The people in Joplin lost their homes,businesses, possessions and their hope. AmericanFamily was there to help them put their lives anddreams back together.Our customers are seeing the results of ourcommitment to being the best. In 2011, AmericanFamily earned the top ranking in the J.D. Power andAssociates measurement of customer satisfactionwith the auto insurance shopping experience. Thataward mirrors our own measure of customersatisfaction, which reached a record high in 2011.demonstrated by our agents and employees offeringcomfort and assistance in times of extreme duress.Many American Family personnel set aside their ownlives for weeks or months to be on-site in Joplin.We’re glad to report our customers and the greaterJoplin community are well on the way to recovery.We hope you find inspiration and meaning in thesenarratives and images from Joplin. While you maynot live anywhere near “Tornado Alley,” you rely onus to protect your dreams from many insurancerelatedperils. American Family Insurance was up tothe challenge in 2011, and we’re pushing ourselves tofind better ways to serve you in 2012 and beyond.Jack C. SalzwedelChairman and Chief Executive OfficerBoth of us had the opportunity to visit Joplin,witnessing firsthand the outpouring of concern froma wide spectrum of society. We found affirmationof American Family’s customer-centered valuesDaniel R. SchultzPresident and Chief Operating Officer3

REBUILDINGOUR CUSTOMERS’ DREAMSWhen one of the deadliest tornadoes on record in the country ripped through Joplin, Mo., May 22, 2011,many of our customers’ dreams became nightmares. Loved ones and friends were injured or killed.Homes, vehicles and businesses were destroyed. Countless tears were shed.By the time it was over, American Family received more than 2,500 claims. True to our mission, weimmediately responded to help our customers. We expect to make more than $100 million in claim payments.Since then, we’ve continued to be there for our customers every step of the way as they rebuild their dreams.Customers such as Steve and Debbie Leatherman escaped death, but lost their home and both vehicles.Eva Eck risked her life to protect her great-granddaughter as her house collapsed around them. Mike Kimdrove his son to the hospital for urgent leukemia treatments one day before the tornado, only to return tofind his home severely damaged.“When you see a community come back like this and you know you’ve played a role in that happening, itmakes you very proud,” says Tom Keller, American Family Insurance catastrophe operations administrator.“Our customers put their trust in us, and it’s an awesome honor to come through for them.”Visit http://www.amfam.com/2011-report for videos and expanded versions of these stories aboutAmerican Family Insurance’s response to the Joplin disaster.AMERICAN FAMILY INSURANCE | 2011 ANNUAL REPORT

FAMILYA NEW BEGINNINGFOR THREE GENERATIONSCustomer Eva Eck’s dream is her family. She’ll do anything she can to protect it – even risking her own life.Eva purchased an American Family homeowners policy from her agent, Stacey Phillips, to help protect hermodest home in Joplin that she shared with her grandson, Logan, his wife, Angela, and great granddaughter,Aubrey, 2. American Family also insured the rental home she owned next door. She was ready in case theunexpected happened.And it did on May 22.“It sounded just like a train,” Eva says of the tornado that would forever alter her life and the lives of otherJoplin residents. As the house violently shook in the 205-mph winds, Eva instinctively threw herself overAubrey to protect her. In a matter of seconds, the home Eva lived in for more than 30 years collapsedaround them. Eva saved Aubrey’s life.The tornado destroyed not only Eva’s home, but also her car and the rental home. Immediately, Eva knewexactly where to turn. “I’ve got my family here to help me,” says Eva. “And the next day, I had my insurancecompany to depend on.”In relatively short order, Eva received checks covering her home, car and rental property. She was thankfulshe chose American Family as the one company to meet her various insurance needs.Eva kept her family in mind when she purchased an existing home and is back to living her dream.“They mean a lot to me. They’re always there for me,” Eva says of her family.And she’s always there for them.AMERICAN FAMILY INSURANCE | 2011 ANNUAL REPORT

FORTITUDERESTORING TRUST,MAKING GOOD ON OUR PROMISECustomers Mike and Susie Kim rushed off with the family to Kansas City, Mo., May 21, seeking treatmentfor their son, Samuel, 9, whose leukemia was worsening. The next day, their home in Joplin was severelydamaged by the horrendous tornado.“When I drove into town, I couldn’t believe it,” says Mike. “Just looking at my neighborhood, I had tearsin my eyes. Every emotion you can think of went through my mind: scared, upset, depressed, worried.”But he was also determined to take charge and work through everything.Mike was nervous about having to deal with insurance claims and wanted answers. He was especiallyworried, having heard rumors about insurance companies not living up to their promises. But after regularconversations with his American Family Insurance agent, Bob Brown, things changed.One of the first things Bob did was to arrange a personal meeting between Mike and members of the AmericanFamily catastrophe claim team in Joplin. Plus, Bob and Adjuster Ryan Chase guided him through the claimprocess. Mike’s trust and confidence in American Family grew with every interaction.Since then, Mike and his family have moved back into their repaired home and are starting to rebuildtheir lives.“Sometimes what you need is someone just to listen to you, and that’s what American Family did forme,” says Mike. “Along with making sure we got our home back and claims taken care of, AmericanFamily really listened to us and let us know, ‘You’ll be OK. We’ll take care of you.’”7

FINANCIALS2011 WAS A YEARFOR THE RECORD BOOKSOur hearts go out to the victims of the damaging anddeadly tornado in Joplin, Mo., and others who had torebuild their lives after similar events.My role as chief financial officer is to provideleadership and coordinate the incredibly talentedteams that manage American Family Insurance’sfinances. That’s how we care for our customers – bymaking sound decisions and looking for ways toserve them even better.American Family incurred a record $1.2 billion instorm and catastrophe losses in 2011, which meansmany of our customers depended on us to help themget back on their feet.How did we do that, while still adding $277 million topolicyholder equity?For one thing, our investing philosophy serves uswell. American Family invests for the long term andtakes steps to reduce volatility during market crisisperiods. As responsible stewards of our policyholders’money, we closely monitor our investments andmaintain a balanced, diversified portfolio.We’ve also made a significant commitment toreinsurance programs, which substantially offsetthe past year’s record storm payments. Think ofreinsurance as insurance for insurance companies– we work with specialized insurers to help managethe potential for excessive insurance losses.When you consider our outstanding customerservice, highly efficient operations and commitmentto new and evolving delivery channels, in additionto our financial strength, there are pretty goodreasons to do business with us.Daniel J. KellyChief Financial OfficerAMERICAN FAMILY INSURANCE | 2011 ANNUAL REPORT

American Family Insurance GroupCONSOLIDATED HIGHLIGHTS2011 2010 2009 2008 2007Assets (in thousands) $17,302,037 $16,787,7 79 $16,250,813 $15,501,845 $16,003,955Equity (in thousands) $5,711,151 $5,431,728 $4,826,146 $4,162,986 $5,034,285Revenue (in thousands) $6,151,237 $6,321,474 $6,360,130 $6,742,578 $6,867,863Life insurance in force $87.0 billion $86.5 billion $85.4 billion $84.0 billion $81.2 billionField force 3,457 3,498 3,822 3,901 3,978Employees 7,893 7,801 7,745 8,071 8,482The American Family Insurance Group consists of the following 10 companies with more than$17.3 billion in total assets:American Family Mutual Insurance CompanyAmerican Standard Insurance Company of Wisconsin (ASIC)American Family Life Insurance Company (AFLIC)American Family Brokerage, Inc.American Family Financial Services, Inc. (AFFS)American Family Insurance CompanyAmerican Standard Insurance Company of Ohio (ASICO)AmFam, Inc.American Family Securities, LLCNew Ventures, LLC9

American Family Insurance GroupCONSOLIDATED BALANCE SHEETGAAP basis - As of Dec. 31, 2011 (in thousands)Assets 2011 2010Bonds $10,589,667 $10,519,550Stocks 1,636,295 1,919,457Real estate 250,914 255,944Mortgages 364,486 334,410Other invested assets 300,860 253,265Short-term investments 84,476 19,465Cash and cash equivalents 663,720 238,897Premiums receivable 974,355 993,754Investment income receivable 112,612 115,837Deferred policy-acquisition costs 811,244 827,574Policy loans 238,727 236,247Reinsurance recoverable 427,036 237,219Furniture and equipment 57,737 66,030Computer equipment 150,011 105,308Deferred tax asset 254,049 278,880Other assets 131,620 116,048Separate account assets 254,228 269,894Total Assets $17,302,037 $16,787,779Liabilities 2011 2010P/C loss and loss-adjustment reserves $3,624,252 $3,688,612Life reserves and deposit contracts 3,744,837 3,625,766Unearned premium reserves 2,053,263 2,154,419Loss drafts payable 135,097 139,543Dividends payable 19,860 21,454Income taxes payable 29,027 13,385Agent-termination benefits 631,389 552,846Employee post retirement liabilities 443,038 321,887Expenses payable 251,398 237,530Other liabilities 404,497 330,715Separate account liabilities 254,228 269,894Total Liabilities $11,590,886 $11,356,051Equity 2011 2010Accumulated other comprehensive income $488,959 $507,201Retained earnings 5,222,192 4,924,527Total Equity 5,711,151 5,431,728Total Liabilities and Equity $17,302,037 $16,787,779AMERICAN FAMILY INSURANCE | 2011 ANNUAL REPORT

American Family Insurance GroupCONSOLIDATED STATEMENT OF INCOME AND EQUITYGAAP basis - For the years ended Dec. 31 (in thousands)Revenues 2011 2010P/C net premiums earned $5,271,591 $5,378,823AFLIC premiums earned 327,285 326,782Net investment income 511,621 565,632Other revenues 40,740 50,237Total Revenues $6,151,237 $6,321,474Losses and Expenses 2011 2010P/C losses incurred $3,380,838 $3,270,457P/C expenses incurred 2,207,046 2,100,062Life insurance benefits incurred 293,546 286,518Other expenses 148,260 174,235Total Losses and Expenses 6,029,690 5,831,272Gain (Loss) from Operations 121,547 490,202Realized capital gains (losses) 248,923 170,366Income (Loss) before Taxes 370,470 660,568Tax expense (benefit) 75,247 173,508Net Income (Loss) $295,223 $487,060Statement of Equity 2011 2010Beginning equity balance $5,431,728 $4,826,146Net income (loss) 295,223 487,060Change in unrealized gains (losses)Bonds 292,469 (73,158)Stocks (136,273) 188,522Tax impact of unrealized gains (57,946) (41,456)Other changes in equity, net of tax (114,050) 44,614Other comprehensive income (loss) (15,800) 118,522Change in Equity 279,423 605,582Ending Equity $5,711,151 $5,431,72811

American Family Insurance GroupNET PREMIUMS WRITTENFor the year ended Dec. 31, 2011All dollar amounts have been rounded to the nearest thousand.5%6%89%American Family Mutual Insurance CompanyAmerican Standard Insurance Company of WisconsinAmerican Family Life Insurance CompanyNet Premiums WrittenAmerican Family Mutual Insurance Company $4,892,973 *89%American Standard Insurance Company of Wisconsin $273,221 **5%American Family Life Insurance Company $331,513 6%American Family Life Insurance CompanyTotal insurance in forceNew business issued$87.0 billion$7.2 billion* Before reinsurance assumed from ASIC and ASICO. Includes AFIC.** Includes ASICO.AMERICAN FAMILY INSURANCE | 2011 ANNUAL REPORT

American Standard Insurance Company of WisconsinBALANCE SHEETGAAP basis - As of Dec. 31, 2011 (in thousands)AssetsBonds $324,486Cash and cash equivalents 15,684Investment income receivable 2,760Premiums receivable 1,763Reinsurance recoverable 199,162Other assets 20,428Total Assets $564,283LiabilitiesLoss and loss-adjustment expense reserves $185,999Loss drafts payable 13,952Income taxes payable 10Deferred-tax liability 6,679Expenses payable 52,607Other liabilities (5,510)Total Liabilities 253,737EquityStock and paid-in capital 6,000Accumulated other comprehensive income 11,525Retained earnings 293,021Total Equity 310,546Total Liabilities and Equity $564,283AMERICAN FAMILY INSURANCE | 2011 ANNUAL REPORT

American Family Life Insurance CompanyBALANCE SHEETGAAP basis - As of Dec. 31, 2011 (in thousands)AssetsBonds $3,806,169Stocks, unaffiliated 1,063Mortgages 364,486Cash and cash equivalents 124,211Policy loans 238,727Investment income receivable 37,763Deferred acquisition costs 469,091Income tax recoverable 8,582Reinsurance recoverable 137,300Other assets 10,971Separate account assets 254,228Total Assets $5,452,591LiabilitiesLife reserves and deposit contracts $3,744,837Claims payable 20,362Dividends payable 19,009Expenses payable 44,149Deferred tax liability 71,989Other liabilities 41,129Separate account liabilities 254,228Total Liabilities 4,195,703EquityStock and paid-in capital 3,545Accumulated other comprehensive income 121,381Retained earnings 1,131,962Total Equity 1,256,888Total Liabilities and Equity $5,452,59115

2012 OFFICERSJack C. SalzwedelChairman and Chief Executive OfficerDaniel R. SchultzPresident and Chief Operating OfficerDaniel J. KellyChief Financial Officer, TreasurerDavid C. HolmanChief Legal Officer, SecretaryMark V. AfableExecutive Vice PresidentLisa R. BacusExecutive Vice PresidentGerry W. BenusaExecutive Vice PresidentPeter C. GunderChief Investment OfficerKristin R. KirkconnellChief Information OfficerJerry G. RekowskiChief Business Integration OfficerMary L. SchmoegerExecutive Vice PresidentWilliam B. WestrateExecutive Vice PresidentRichard A. FetherstonSenior Vice PresidentCommunicationsBetty A. BergquistVice PresidentIntegrated Sales & ServiceTimothy D. ConstienVice PresidentClaims OperationsJustin B. CruzVice PresidentActuarialCarolyn S. GilbVice PresidentCommercial-Farm/RanchGregory V. GisiVice PresidentEnterprise Strategy &Risk AlliancesKari E. GraseeVice PresidentControllerAnnette S. KnapsteinVice PresidentMarketingChristopher R. ListauVice PresidentAgency SalesBernard T. McCartanVice PresidentClaims LegalMario S. MenesseVice PresidentProduct Lines TerritoryAlan E. MeyerVice PresidentLifeJulie A. RupertVice PresidentPersonal LinesScott J. SeymourVice PresidentCorp Legal & Reg AffairsPamela M. StampenVice PresidentHuman ResourcesRichard M. SteffenVice PresidentAgency SalesJohn W. ThedingaVice PresidentAgency SalesMary A. TheilenVice PresidentP&C Loss ReservingAMERICAN FAMILY INSURANCE | 2011 ANNUAL REPORT

BOARD OF DIRECTORSJack C. Salzwedel (Chair)Chairman and Chief Executive OfficerAmerican Family Insurance GroupDavid R. AndersonRetired Chairman andChief Executive OfficerAmerican Family Insurance GroupLonda J. DeweyPresidentQTI GroupLeslie Ann HowardPresident and Chief Executive OfficerUnited Way of Dane CountyTed D. Kellner, CFAChairman and Chief Executive OfficerFiduciary Management, Inc.Rakesh KhuranaProfessorHarvard Business SchoolMichael M. Knetter, Ph.D.PresidentUniversity of Wisconsin FoundationR. Scott MalmgrenRetired Senior PartnerDeloitte & ToucheWalter M. OliverSenior Vice PresidentHuman Resources and AdministrationGeneral Dynamics CorporationEliot G. ProtschPresidentWapsie Investment & Advisory, LLCDaniel R. SchultzPresident and Chief OperatingOfficerAmerican Family Insurance GroupPaul S. ShainChief Executive OfficerSinglewireThomas J. ZimbrickChief Executive OfficerZimbrick, Inc.17

AMERICAN FAMILY PRODUCTSSome products are not available in every state. To learn more about any of these products orservices, contact an American Family agent or visit our website at amfam.com.These products are underwritten by American Family Mutual Insurance Company and itssubsidiaries, American Standard Insurance Company of Wisconsin, American StandardInsurance Company of Ohio and American Family Insurance Company.Personal LinesAutoAll-terrain vehicle (ATV)BoatownersCampers/motorhomesCondominiumsCustom value homesGolf cartsHomeownersMobile/manufactured homeownersMotorcyclePersonal liability umbrellaRentersSnowmobileCommercial-Farm/RanchBusiness autoBusinessownersBusiness KeyContractors Package ProgramCommercial general liabilityCommercial propertyCommercial liability umbrellaCrime and fidelityFarm/RanchFarm/Ranch personal liability umbrellaInland marineNonprofit Directors and Officers LiabilityRental Dwelling Protection ProgramWorkers’ compensationThese products are underwritten by American Family Life Insurance Company:LifeFixed annuitiesTerm lifeUniversal lifeWhole lifeAMERICAN FAMILY INSURANCE | 2011 ANNUAL REPORT

OUR OPERATING TERRITORYWe’re proud to offer our products in Arizona, Colorado, Georgia, Idaho, Illinois, Indiana, Iowa,Kansas, Minnesota, Missouri, Nebraska, Nevada, North Dakota, Ohio, Oregon, South Dakota,Utah, Washington and Wisconsin.Our national headquarters is in Madison, Wis. We have regional offices in Englewood, Colo.,Madison and St. Joseph, Mo.19