USAA 2008 Report to Members: Stronger Together

Letter from the CHIEF EXECUTIVE OFFICERDear fellow USAA Members,We used to say in the Army that anyone can be a parade-day soldier,but when faced with adversity, not everyone can rise to the test.USAA’s mission, the reason our association exists, is to help facilitatethe financial security of military families. That mission was never morecritical — and our ability to deliver on it never more tested — than in 2008.In short, I am very pleased to report that USAA rose to the challenge.In a year that saw the worst economic downturn since the Great Depressionand record weather-related catastrophes, we took care of members;we supported our employees; and we enhanced the association’s abilityto meet the challenges ahead, whatever they may be.Josue (Joe) Robles Jr.Maj. General, USA (Ret.)President and Chief Executive OfficerLast year, we grew the association’s assets to$68.3 billion, and improved our net worth from$14.4 billion to $14.6 billion. In a year when mostfinancial services companies posted record lossesand the S&P 500 Index total return dropped by37 percent, USAA earned $423 million in netincome and generated positive investmentincome. In fact, USAA’s property and casualtyequity portfolio returned a positive 1 percent lastyear, a result dramatically different from mostequity portfolios. Like many companies, USAAexperienced significant unrealized investmentlosses in 2008. These “paper” losses totaled$1.8 billion and impacted our net income.We believe the vast majority of these losses relateto quality investments that we anticipate holdingfor the long term, waiting for them to recovertheir value in the future. If they do, our netincome will be positively impacted.Our practice of preparing for the worst buthoping for the best served us well last year.Our conservative investment philosophy enabledus to cushion ourselves from even greater losses.We tightened credit to protect USAA. We cutnonessential expenses, and our employeesimproved productivity by 11 percent.Despite 2008 being the costliest year forcatastrophe claims in our 86-year history,USAA was highly efficient as evidenced byour positive operating income. In early 2009,we will continue eliminating expenses byconsolidating USAA’s regional offices, saving$15 million annually in operating expenses.All affected employees will be offered jobs in otherlocations, including generous relocation packages.USAA membership and products grew considerablyin 2008 because of the trust you have in us.As a result, we were able to return $857 millionto eligible members in the form of dividends,distributions, bank rebates* and rewards,a further indication of USAA’s financial strength.total returns&p 500 index vs.usaa p&c’s equity portfolio+1%USAA P&CEquity Portfolio’sReturn-37%S&P 500 INDEXSecond-worst yearsince its inception2 USAA 2008 REPORT TO MEMBERS

2008 Industry Competitive PerformanceCategory industry USAAFinancial strength ratings Numerous downgrades Highest possible **Outlook Negative StableLeverage high Very lowLayoffs Numerous noneNet worth Decreased IncreasedSee more in-depth discussion atusaa.com/ReportToMembersWatch USAA’s CEO and Chairman discusshow the association fared in 2008 and listento a conversation between Chris Claus, presidentof the USAA Financial Services Group,and some of his top portfoliomanagers about theongoing market turmoil.Government bailout Yes, please No, thank youViable business Bankruptcies and failures Strong and growingUSAA’s Property and Casualty Insurance Groupremains among the few top-rated U.S. companiesby Standard & Poor’s, A.M. Best and Moody’s ata time when well-respected competitors weredowngraded. USAA’s Life Insurance Companywas also awarded the highest ratings fromStandard & Poor’s and A.M. Best. We earn theseratings not only because of our financial strength,our strategic plans and our corporate governance,but also because of you, our members — who youare and the loyalty you have for USAA.USAA served as a haven for its 6.8 millionmembers, many of whom discovered that USAAis not just their insurer, but a trusted sourcefor financial advice, banking and investments.We achieved record market share in everyeligibility category. Overall market shareincreased by 2 percentage points, continuing tosupport our position as provider of choice formilitary families. Of the USAA members whostarted the year with us, more than 96 percentstayed with us in 2008, and for the first time,members owned an average of five USAA productsper household — a very good indication of theirtrust in USAA.The best service got even betterLast year, we mobilized to help our memberswho were hit hard by a record number ofwildfires, hurricanes and other storms.We deployed our world-class claims team ofhundreds of catastrophe adjusters and supportpersonnel who moved into affected areas assoon as it was safe to do so. Many of them wereaway from their homes and families for extendedperiods, helping more than 150,000 memberswho suffered damage to their homes and otherproperty. By year-end, we closed 97 percentof 2008 catastrophe claims.USAA returned$857 millionto members in the form of dividends,distributions, bank rebates * and rewards.*Includes amounts returned to members, associates and other customers.USAA continuously improves how we serve you,and we showed you that in two especiallyimportant ways. First, to further strengthenour military connection, we increased militaryrecruiting, hiring 472 employees with militaryexperience, which represented 21 percent ofour 2008 hires. This included efforts to recruitwounded warriors and Purple Heart recipients —some of whom are featured in this very report onpages 16 and 17.Second, we made it easier for members to dobusiness with USAA in whatever channel theyprefer. In 2008, more than 600,000 membersembraced the new MOBILE.USAA.COM.It provides access to your accounts from yourmobile device to pay bills, transfer funds, requestan auto ID card, place stock trades and more.Forty-six percent of the use came from activeduty military because they can now do businesswith USAA on the go, from anywhere in the world.**USAA Property and Casualty Insurance Group from the threemajor rating agenciesUSAA 2008 REPORT TO MEMBERS 3

Top 5 catastrophe years2008 Hurricanes Ike and Gustav, Georgia wind/hail, Texas hailRecord-high 43 catastrophe eventsCalendar year losses (in millions)(net of reinsurance)$750$775$839$8662005 Hurricanes Katrina, Rita and Wilma$5101992 Hurricane Andrew2004 Hurricanes Ivan, Charley, Frances and Jeanne2003 Hurricane Isabel, Southern California fires, Texas hail20032004199220052008The many external accolades and awards during2008 bode well for the future. They includedBusinessWeek’s top “Customer Service Champ”for the second year in a row and Forrester’s“Highest in Customer Advocacy Ratings.” † And,USAA received the highest score in the “J.D. Powerand Associates 2008 National Auto InsuranceStudy ṢM ” Standard & Poor’s referred to USAA’senterprise risk management as “excellent, withindustry-leading risk-management practices” —no small feat in this industry or economy.In addition, numerous magazines recognizedUSAA as an excellent place to work, includingG.I. Jobs, Military Spouse, LATINA Style, andComputerWorld. We think this recognition isimportant because when we take good care of ouremployees, they take good care of our members.Stronger togetherOur 2008 results are remarkable given thecircumstances we faced then and which continueto confront us. The financial services industryoutlook is negative, it is highly leveraged withdecreasing net worth, and many financialservices companies have taken governmentbailouts. Conversely, your association’s outlookis stable, we have low debt and good liquidity,net worth is growing, and we have no need ordesire for a government handout.Whatever financial challenges are still to come,USAA offers you great value, outstanding personalservice from people who really care, and theconvenience of doing business when and whereyou want. Also, as a fully integrated financialservices company, USAA offers you free financialadvice from professionals who are not paid oncommission. Call them at (877) 314-2258. They arehere to help facilitate your financial security.Thank you for your membership and for yourtrust. We will continue to be good stewards ofyour association.Ultimately, USAA’s strength comes from threeessential components: a solid financialfoundation; our employees, who care deeplyabout our members; and you — the extraordinaryU.S. military and your families.The cover of this report pictures a mass militaryre-enlistment in Baghdad last July Fourth — a truedepiction of what it means to serve. Not unlikethese outstanding military men and womenstanding shoulder to shoulder, now more thanever, we are stronger together than we are apart.Sincerely,Josue (Joe) Robles Jr.Maj. General, USA (Ret.)President and Chief Executive Officer† ”Customer Advocacy 2008: How Consumers Rate Their Banks,Brokerages, and Insurers,” Forrester Research Inc., June 23, 2008.4 USAA 2008 REPORT TO MEMBERS

Our ASSOCIATIONWhen 25 Army officers decided more than 86 years ago to insure each other’svehicles, they could not have imagined that USAA would one day serve6.8 million total members. Nor could they have imagined the challengestheir association would face over the next eight decades. But one thing hasremained constant: We are stronger together than we are apart.Membership compositiON(P&C eligible)officersEnlisted27 %associates48 %the association’smembership increased by385,000in 2008, totaling6.8million members5.4million householdsUSAA RETAINED MORETHAN 96% OF ITS MEMBERSIN 2008of members feelUSAA proudly servesthe military communityof members planto be a lifelongUSAA memberThe new eligibility guidelines that went intoeffect in 2008 contributed 51,400 membersand families to USAA’s net growth. A potential6.5 million new members are now eligible fromthe following groups:• Military retirees who served honorably,regardless of when they retired25 % USAA 2008 REPORT TO MEMBERS 528,900,000ProductsUp 2.2 million from 200796% 95%3.0 MILLION+ 3.5 MILLION= 6.5 MILLIONPOTENTIAL NEW MILITARY MEMBERSPOTENTIAL NEW family MEMBERSPOTENTIAL NEW MEMBERS94% 96%• Military personnel honorably dischargedon or after Jan. 1, 1996 (the date USAA openedmembership to enlisted personnel)• Widows and widowers of militarymembers killed in action while eligibleAfter they join, spouses and children ofthe above may also be eligible to enjoy thebenefits of membership.of members feelthat USAA meets orexceeds their families’needs as a full-rangeprovider of financialproducts and servicesof members feelUSAA lets themchoose the way theywant to conductbusiness — onlineor by phone

Our associationYour channel,your choiceIn 2008, USAA members contacted theirassociation more than 474 million times inseven different channels. Whether it was tocheck a balance on USAA.com, transfermoney via MOBILE.USAA.COM or ask oneof our member service representatives howmuch insurance coverage they needed,members knew we would help them whenthey needed us.WHERE our MEMBERS ARETotal members(Mobile Logins, December 2008)North America6,656,446892,650mobile loginsEurope97,21023,437mobile loginsInternet344,312,000USAA Rep55,577,000Phone self-service24,600,000South America2,302Africa8021,525mobile logins626mobile loginsMail37,637,000Fax3,298,000E-mail2,033,000MOBILE USAGE FACTS569,00046%average mobilesessionseach monthof mobile usagecomes from activeduty militaryMOBILE.USAA.COM USERS AT WORK AND PLAYmobile6,828,000In fact, 96 percent of members feelUSAA lets them choose the way theywant to conduct business with us.This year, members readily embracedUSAA’s newest channel — USAA Mobile.Michael skiffFort Jackson, S.C.Cody McDonaldEl Paso, TexasCarl ClintonCalistoga, Calif.2008 total globalcommunications volume474,285,000Jeanette carrigoLong Beach, N.Y.Joseph StrassnerMount Bond Cliff, N.H.Ed LabargeFort Leonard Wood, Mo.6 USAA 2008 REPORT TO MEMBERS

YOU’RE READY FOR ANYTHINGWITH USAA MOBILEWhether you’re deployed overseas or bumping elbows at the grocery store,USAA Mobile gives you immediate and secure access to your accounts fromyour mobile device. With USAA Mobile you can:Asia51,58921,411mobile logins• View your balances.• Transfer funds.• Pay bills.Coming soonUSAA will launch new iPhone ®applications that allow members to:• Find the closest ATM.• Call for Roadside Assistance with a finger touch.• Take a picture of a check and make a deposit.Imagine what may be next.• Request an auto insurance ID card.*• Place a stock trade.• Get an instant stock quote.To learn more abouthow it works go toUSAA.COM/mobile.*Virtual proof of insurance may not besufficient in every case. You can ordera physical copy on USAA Mobile.Australia1,1361,080mobile logins600,000members used thenew mobile.usaa.comin 2008Audry PrinceOklahoma City, Okla.Chris VadnaisOahu, HawaiiiPhone ® is an internationally registered trademark of Apple Inc.USAA 2008 REPORT TO MEMBERS 7

Our MEMBERSRetired Sgt. Fred and Sophia VelasquezMembers since 2008For decades, Fred Velasquez wanted to be aUSAA member. But every time he would ask, theanswer was always the same — no. In August 2008,USAA expanded eligibility to include moremilitary members than ever before. After years ofwaiting, the 73-year-old great-grandfather and24-year National Guard mechanic finally becamea USAA member. Soon after, his daughters joinedalong with their children. Now three generationsof the Velasquez family are part of USAA, with afourth generation poised to take full advantageof membership.In all, 3 million military veterans became eligibleto join — a natural expansion of USAA’s mission tofacilitate the financial security of military families.Auto insuranceHomeowners insuranceValuable personalproperty insurance8 USAA 2008 REPORT TO MEMBERS

USAA 2008 REPORT TO MEMBERS 9

Our membersRetired Lt. Col. Larry and Helen BurkMembers since 1975As a member for 33 years, retired Lt. Col. LarryBurk knows a thing or two about USAA’s productsand services. So after years of trying to managehis 401(k) by himself, in 2008 he decided itwas time to turn to a trusted advisor for help.Burk transferred his retirement account toUSAA — the company he’d been with since hewas a young captain in the Air Force — becausehe had trusted us for decades with his insuranceand banking needs.BrokerageMutual fundsLife insuranceSavings accountCredit cardHomeowners insuranceAuto insuranceRashmi GriecoMember since 1993Sgt. Kevin Grieco tried numerous times toconvince his wife they needed additional lifeinsurance. Rashmi, who immigrated to the U.S.in 1993, refused to listen, fearing that talkingabout life insurance would somehow seal herhusband’s fate.But the Illinois Guardsman quietly persisted,purchasing a USAA Universal Life insurance policy.On Oct. 27, 2008, Grieco was killed by an Afghansuicide bomber, leaving behind a grieving widowand two young children, Angeli and Joshua.Grieco’s foresight and confidence in USAAhelped protect his family’s financial future.Life insuranceFinancial planningSavings accountHomeowners insuranceAuto insurance10 USAA 2008 REPORT TO MEMBERS

David and Crystal WeissMembers since 1996It’s a reality military wives are all too familiarwith — having a baby while their husbands aredeployed. In the spring of 2008, Crystal Weisswas 36 weeks pregnant with her second childand trying to close on a VA mortgage while herhusband, David, was deployed in Iraq. Undertremendous pressure to close quickly on theirnew home, the California nurse frantically calledUSAA needing help to work through the sometimescomplicated VA process. The voice on the otherend of the phone helped put the expectantmother at ease and assured her that USAA couldhelp, fulfilling our mission to serve membersthrough every stage of life.A short time later, the Weiss family — Crystal,Addison and new baby sister Ellie — moved intotheir house, just in time for dad’s return home.MortgageHomeowners insuranceValuable personalproperty INSURANCEFlood insuranceAuto insuranceRetired Capt. Gene ScottMember since 1967When Hurricane Ike made landfall near Galvestonon Sept. 13, 2008, retired Army Capt. Gene Scottrealized his greatest fears were about to come true.Days later, when he was finally able to return tohis neighborhood, only three homes remained.His was not one of them. But the 41-year memberwas determined to rebuild, confident USAAwould be at his side.Today, Gene Scott keeps a watchful eye on theconstruction of his new home — 25 feet abovesea level — in Seabrook, Texas.Flood insuranceHomeowners insuranceUmbrella insuranceAuto insuranceUSAA 2008 REPORT TO MEMBERS 11

Management’s responsibility for financial reportingThe management of USAA is responsible forthe integrity and objectivity of the financialinformation presented in this annual report.Due to the volume of financial informationcontained in the audited consolidated financialstatements, which includes the financialstatements as well as the accompanyingfootnotes, we have chosen not to include thefull audited consolidated financial statementsin this Report to Members.The financial statements that appear in thisdocument have been selected from the auditedconsolidated financial statements to give basicand necessary financial information about USAA.Certain prior year amounts were reclassified toconform to the current year presentation. Theselected financial information was prepared byUSAA in accordance with Accounting PrinciplesGenerally Accepted in the United States ofAmerica (GAAP), except for the key statutorydata, which was prepared in accordance withStatutory Accounting Principles (SAP).Management believes the financial informationcontained in the audited consolidated financialstatements fairly presents USAA’s financialposition, results of operations and cash flows.A copy of the complete audited consolidatedfinancial statements of USAA, includingErnst & Young LLP’s unqualified independentauditors’ report thereon, is available upon requestto USAA headquarters in San Antonio, Texas.USAA’s internal controls are designed toreasonably ensure that USAA’s assets aresafeguarded from unauthorized use or dispositionand that USAA’s transactions are authorized,executed and recorded properly. In addition,USAA has a professional staff of internalauditors who monitor these controls on anindependent basis. The Finance and AuditCommittee of USAA’s board of directors engagedErnst & Young LLP as independent auditors toaudit USAA’s financial statements and expressan opinion thereon. Ernst & Young LLP’s auditincluded consideration of USAA’s internalcontrols over financial reporting as a basis fordesigning audit procedures that support theirfinancial statement audit opinion, but not forthe purpose of expressing an opinion on theeffectiveness of USAA’s internal controls overfinancial reporting.The Finance and Audit Committee of USAA’sboard of directors consists of five members,who are not officers or employees of USAA. Thiscommittee meets periodically with management,internal auditors and Ernst & Young LLP toensure that management fulfills its responsibilityfor accounting controls and preparation of theconsolidated financial statements and related data.Josue (Joe) Robles Jr.Maj. General, USA (Ret.)President and Chief Executive OfficerKristi A. MatusExecutive Vice PresidentChief Financial OfficerUSAA HIGHLIGHTSAssets owned grew to $68 billion.The increase is due to a conservative and well-managed investmentportfolio, increases in consumer loans taken out by USAA members andrecord annuities purchased by members.Years Ended December 31 2008 2007 2006TOTAL MEMBERS (in millions) 6.8 6.4 5.9TOTAL PRODUCTS (in millions) 28.9 26.7 23.9TOTAL EMPLOYEES (in thousands) 21.9 22.7 21.7Members (in millions)USAA Consolidated (Dollars in millions)Revenue $12,912 $14,418 $13,416Expenses 12,489 12,563 11,086Net Income 423 1,855 2,330Assets owned $68,296 $67,177 $60,269Assets owned and managed 119,550 125,140 113,475Total liabilities 53,730 52,810 47,145Net worth 14,566 14,367 13,1245.25.55.96.46.820042005200620072008MEMBER DISTRIBUTIONSUSAA returned $857 million to members in the formof dividends, distributions, bank rebates and rewards.Our financial strength, expense control and efficiency efforts enabledUSAA to weather the difficult financial environment and USAA’s largestcatastrophe losses in its 86-year history.Distributions to members (in millions)$670$694$795$910$857Years Ended December 31 (Dollars in millions) 2008 2007 2006Subscriber’s Account distributions $170 $255 $221Automobile policyholder dividends 69 108 105Total automobile policyholder dividends andSubscriber’s Account distributions 239 363 326Subscriber’s Account senior bonus † 121 104 88Subscriber’s Account terminations 85 71 62Total property and casualty distributions 445 538 476Life Insurance Company policyholder dividends 44 45 44Federal Savings Bank rebates and rewards 368 327 275Total distributions to MEMBERS $857 $910 $795† Members with more than 40 years of membership may be eligible for the Senior Bonus, which is an additionaldistribution from the member’s Subscriber’s Account.2004200520062007200812 USAA 2008 REPORT TO MEMBERS

Financial strength ratingsUSAA Property and Casualty Insurance Group maintained thehighest possible financial strength ratings from A.M. Best,Standard & Poor’s and Moody’s, representing independentassessments of the continued financial strength of the association.In 2008, several rating agencies gave the property and casualty and thelife insurance industries negative outlooks — expecting to give more ratingdowngrades than upgrades in the next year. USAA is one of a small, elitegroup of companies to retain the highest possible financial strength ratingsfor its property and casualty insurance group. That financial strength enablesus to pay our members’ claims in extreme and catastrophic circumstances.USAA property & casualty insurance groupA++(Superior, highestof 16 possible ratings)Aaa(Exceptional, highestof 21 possible ratings)AAA(Extremely Strong, highestof 21 possible ratings)A.M. Best CompanyMoody’s Investors ServiceUSAA life insurance companiesA++ Aa1(Superior, highest (Excellent, second highestof 16 possible ratings) of 21 possible ratings)A.M. Best CompanyMoody’s Investors ServiceStandard & Poor’sAAA(Extremely Strong, highestof 21 possible ratings)Standard & Poor’sUSAA federal savings bankTop 25% of peer groupHighline Banking Data ServicesSuperiorIDC Financial Publishing Inc.CONSOLIDATED BALANCE SHEETSUSAA maintained an extremely low leverage ratio of 4 percent.Because USAA has access to more than $40 billion of liquidity fundingsources and sustained strong operations, USAA’s leverage ratio remainsconservative compared to the financial services industry.Assets owned (in billions)$46.5$51.0$60.3$67.2$68.3Years Ended December 31 (Dollars in millions) 2008 2007 2006AssetsInvestments $23,579 $23,708 $25,884Bank loans, net 26,469 25,874 20,159Real estate investments, net 1,285 1,111 1,195Cash and cash equivalents 6,277 5,580 2,191Premiums due from policyholders 1,812 1,692 1,681Property and equipment, net 1,469 1,461 1,398Securities lending collateral 754 2,759 2,688Other assets 6,651 4,992 5,073Total ASSETS $68,296 $67,177 $60,269Liabilities20042005200620072008Insurance reserves $12,158 $11,502 $10,641Life insurance — funds on deposit 8,423 8,444 8,095Bank deposits 28,954 26,886 22,061Borrowings 610 449 808Securities lending payable 754 2,759 2,688Other liabilities 2,831 2,770 2,852Total LIABILITIES $53,730 $52,810 $47,145Net WorthTotal net worth 14,566 14,367 13,124Total liabilities and net WORTH $68,296 $67,177 $60,269CONSOLIDATED STATEMENTS OF NET WORTHUSAA increased its net worth to $14.6 billion despite the tougheconomic environment in 2008.Net worth, an indicator of financial strength, is used to cover futurepotential member losses, meet regulatory and rating agency requirements,and fund current and future operations.Net worth (in billions)$10.12004$11.22005$13.12006$14.42007$14.62008Years Ended December 31 (Dollars in millions) 2008 2007 2006Net WorthBeginning of year $14,566 $13,141 $11,182Distributions to policyholders (376) (430) (371)Net income 423 1,855 2,330Other (includes change in accounting principles) 7 0 0End of Year $14,620 $14,566 $13,141Accumulated Other Changes in NetWorth from Nonowner SourcesBeginning of year (199) (17) (26)Unrealized (losses) gains on securitiesduring year, net of income taxes andreclassification adjustments (36) 30 12Other adjustments (includes change inaccounting principle) 181 (212) (3)End of Year (54) (199) (17)Total net WORTH $14,566 $14,367 $13,124USAA 2008 REPORT TO MEMBERS 13

CONSOLIDATED STATEMENTS OF INCOMENet income was $423 million for the year.USAA stayed profitable in 2008 due to strong operations and continuedgrowth in membership levels. This was achieved despite 2008 being theworst catastrophe year in USAA’s history and investment income beingsignificantly lower due to the disruption in the financial markets, whichresulted in large unrealized losses. USAA ended the year well-positioned forfuture operations and growth. These achievements are in contrast to thefinancial results for many financial services companies this year.USAA maintained its disciplined focus on expense management, processimprovements and increasing productivity. The rigor paid off as USAA’sproperty and casualty insurance operation kept its expense-to-revenueratio very low at 24 percent. This ratio continued to outperform theproperty and casualty insurance industry by 15 percentage points.Years Ended December 31 (Dollars in millions) 2008 2007 2006RevenueInsurance premiums $9,641 $9,324 $9,163Investment returns:Interest and dividends earned, net 1,517 1,510 1,278Realized gains on securities sold, net 584 325 272Unrealized losses on securities unsold, net* (1,847) 0 0Total investment return 254 1,835 1,550Fees, sales and loan income, net 2,008 2,254 1,865Real estate investment income 171 241 313Servicing and contractual income on securitizations 368 362 212Other revenue 470 402 313Total revenue $12,912 $14,418 $13,416Operating expense ratioP&C insurance industryUSAA P&C insurance group38%39%38%39%39% †Losses, Benefits and ExpensesLosses, benefit payments and lossadjustment expenses 8,353 7,509 6,737Deferred policy acquisition costs 471 477 435Real estate investment expenses 110 123 254Interest expense 688 1,001 727Dividends to policyholders 114 153 149Other operating expenses 2,785 2,767 2,19726%26%25%26%24%Total losses, benefits and expenses 12,521 12,030 10,499Pre-tax income 391 2,388 2,917Income tax (benefit) expense (32) 533 587Net income $423 $1,855 $2,33020042005200620072008*In 2008, the association modified the presentation of unrealized gains/losses from net worth to income.† A.M. Best 2008estimateCONSOLIDATED STATEMENTS OF CASH FLOWSUSAA produced positive operating cash flows of $3.2 billion due tostrong operational performance, increased productivity and continuedgrowth of the association.These cash flows added to USAA’s already solid liquidity position and areanother measure of financial strength.Cash flows from operating activities (in billions)$2.2$1.5$2.8$2.3$3.2Years Ended December 31 (Dollars in millions) 2008 2007 2006Cash Flows from Operating ActivitiesNet income $423 $1,855 $2,330Adjustments to reconcile net income to net cashprovided by operating activities:Increase in insurance reserves 508 647 529Interest credited on policyholder deposits 427 380 350Net realized gains (584) (325) (272)Unrealized losses on securities unsold, net 1,707 0 0Increase in premiums due from policyholders (120) (11) (70)Depreciation and amortization 189 81 89Equity earnings in real estate partnership (3) (62) (23)Decrease (increase) in loans held for sale 1,387 (426) 145Change in other assets/liabilities (719) 119 (314)Net cash provided by operating activities 3,215 2,258 2,764Cash Flows from Investing Activities20042005200620072008Proceeds from investments sold or matured 14,244 21,016 14,626Cost of investments acquired (16,894) (18,438) (21,046)Net increase in bank loans (2,304) (5,589) (2,778)Other uses (417) 18 60Net cash used in investing activities (5,371) (2,993) (9,138)Cash Flows from Financing ActivitiesSubscriber’s Account distributions (373) (426) (371)Net (repayment) borrowing of debt 161 (359) (184)Net increase in bank deposits 2,068 4,824 5,655Other 997 85 89Net cash provided by financing activities 2,853 4,124 5,189Net increase (decrease) in cash andcash equivalents 697 3,389 (1,185)Cash and cash equivalents — Beginning of YEAR 5,580 2,191 3,376Cash and cash equivalents — End of YEAR $6,277 $5,580 $2,19114 USAA 2008 REPORT TO MEMBERS

Our environmental responsibilityNot unlike most businesses, USAA’sworldwide operations depend heavilyon natural resources. That’s why USAAtakes its responsibility to manage thoseresources seriously.In 2008, USAA made sustainability astrategic priority, working to further reduceour effect on our planet without sacrificingfiscal responsibility. USAA did that byadopting greener practices and tappinginto new energy resources and technology.In 2008, USAA’s Tampa office became the first existing building in Floridato be certified “Gold EB” by the United States Green Building Council.Being green at usaaRecycleUSAA actively recycled items that wouldotherwise end up in a landfill. In 2008, USAArecycled 61 percent of its total waste materials,including more than 44 tons of obsoleteelectronic equipment.ReduceUSAA reduced waste by offering reusable mugs,ceramic plates and metal flatware in all of itscafeterias as an alternative to non-biodegradableStyrofoam containers and plasticware.ConserveUSAA conserved water by installing lavatoryfaucet aerators, using drought-tolerant plants,watering landscape from retention ponds that catchrunoff water, and implementing a computerizedirrigation system for maximum efficiency. Thesemeasures have averaged more than 68 milliongallons in annual water consumption savings.USAA conserved energy by building and improvingits offices to meet recommended benchmarks.In 2008, USAA’s Tampa office became the firstexisting building in Florida to be certified“Gold EB” by the United States Green BuildingCouncil, a nonprofit organization committedto expanding sustainable building practices.In San Antonio, USAA supplemented its electricitywith wind-powered energy through the CPSEnergy Windtricity SM program, reducing itselectrical use by roughly the same amount neededto power 190 average-sized homes for a year.ImproveUSAA improved air quality by purchasinglow-emission corporate vehicles, avoiding useof grounds maintenance equipment on poor airquality days, and offering subsidized ride-shareprograms such as NuRide, an online ride-matchingservice that connects drivers and riders commutingto the same location. Through NuRide, USAAreduced greenhouse gases by 638 tons fromSeptember to December 2008.Our communityIn 2008, USAA’s employees and retireesgave back to their communities withselfless gifts of time and money. And likeits people, USAA, the USAA FederalSavings Bank and The USAA Foundationdid the same, contributing more than$13 million to improve our communities.United wayUSAA’s 2008 United Way campaign set newrecords in 2008: 98.7 percent employeeparticipation and more than $4.8 million inpledges from employees and retirees. Withmatching funds from The USAA Foundation,we raised more than $7.3 million to aidUnited Way programs like the ones offered byThe Children’s Shelter of San Antonio, whichstrives to make children’s dreams come true.VolunteeringMore than 8,000 USAA employees and retireesreported 385,237 volunteer hours, such as theeffort in 2008 to help area nonprofits clean uplocal parks and playgrounds. An additional82,651 volunteer hours were reported by familymembers volunteering with USAA.Empowering consumersThe USAA Educational Foundation distributed3.1 million free consumer education publicationsin 2008 and provided 1,000 financial managementpresentations to more than 56,400 servicemembers and ROTC cadets.USAA’s Chief Financial Officer, Kristi Matus, reads tochildren at The Children’s Shelter of San Antonio.USAA employee volunteers paint a mural on a fence at aUnited Way Days of Caring event in San Antonio.USAA 2008 REPORT TO MEMBERS 15

Our peopleNo one has a greater appreciation for whatit means to serve than someone who’swalked a mile in a soldier’s boots. That’swhy we stepped up our efforts to recruitemployees with strong military backgroundsto join our team. This includedenhanced efforts to recruit woundedwarriors and Purple Heart recipients.In 2008, 472 employees with militaryexperience joined the USAA team,representing 21 percent of our new hires.For many of them, employment withUSAA is simply an extension of theirmilitary service — and they, more thananyone, know our members, theirchallenges and their needs.Brian NeumanMilitary Staffing Advisoremployee since: 2008Nov. 11, 2004 — Veterans Day — was a fateful dayfor Staff Sgt. Brian Neuman. That’s the day he losthis left arm, injured by an explosive device whiledeployed to Iraq as part of the U.S. Special OperationsCommand. The Purple Heart recipient now recruitsother wounded warriors to join the USAA team.Raul RamirezBank Servicing Specialistemployee since: 2007On New Year’s Day 2005, Sgt. Raul Ramirez wasbringing back detainees from the Syrian borderwhen an anti-tank mine exploded under his vehicle.He received treatment in Baghdad for his injuries andrejoined his platoon a few days later to complete therest of his deployment. Ramirez is still actively servingin the U.S. Marine Corps Reserve.Kenneth VoilandHome Equity Bank Originations Specialistemployee since: 2008On May 25, 2005, while deployed to Ramadi, Iraq,Sgt. Kenneth Voiland was injured by shrapnel froman IED while on an egress convoy following a combatpatrol. After retiring from active duty in January2008, Voiland joined the U.S. Marine Corps Reserveand remains active today.Renada AllenAssociate Claims Adjusteremployee since: 2007Pfc. Renada Allen is a member ofthe Texas Army National Guard.She completed basic training onSept. 26, 2008, and went on tocomplete advanced individualtraining as part of theQuartermaster Corps.16 USAA 2008 REPORT TO MEMBERS

Our deployedJohn FasanoSenior Operations Performance Analystemployee since: 1997Lt. Col. John Fasano, U.S. Army Reserve,is currently serving in Heidelberg, Germany.His wife, Cheryn, also a USAA employee,is mobilized to the same region.Cheryn FasanoIT Operations Analystemployee since: 1998Lt. Col. Cheryn Fasano has spent thepast 21 years in the U.S. Army Reserve.She is currently mobilized to Heidelberg,Germany, where fellow USAA employee andhusband, John, is also serving.Gil LombanaClaims Representativeemployee since: 2008On Sept. 11, 2006, Sgt. Gil Lombana was hit witha surface-laid IED during deployment to Iraq.The Army paratrooper received shrapnel to hishand and face, for which he received a Purple Heart.He is currently active in the U.S. Army Reserve.John SuttonSoftware Systems Engineeremployee since: 1999John Sutton is a major in the U.S. ArmyReserve and is currently deployed toSouthwest Asia.Jason ParkerFinancial Solutions Advisoremployee since: 2008In 2003, Sgt. Jason Parker was wounded byshrapnel from a hand grenade while deployed in Iraq.The Purple Heart recipient’s military service includesmore than seven years in the U.S. ArmyReserve, where he served as a psychologicaloperations noncommissioned officer (Airborne).Chin CoxPolicy Service Manageremployee since: 1998Master Sgt. Chin Cox is a member of the U.S.Air Force Reserve and is currently attached tothe 944th ASTS, Luke Air Force Base, Ariz.She deployed to Iraq in October 2008.Andrew PowersMember Relationship Specialistemployee since: 2007In August 2005, Cpl. Andrew Powers was injuredby a roadside bomb while serving in Iraq. He waseventually retired from active duty due to his injuries.Angela MondayMember Relationship Specialistemployee since: 2007Angela Monday is a first lieutenant inthe U.S. Army Reserve. She is currentlydeployed to the Naval Support Annexin Bahrain.USAA 2008 REPORT TO MEMBERS 17

Board of directors(as of March 1, 2009)Sixteen accomplished individuals whohave distinguished themselves throughtheir military and civilian careerscomprise the USAA Board of Directors.Board members conduct regular, formalevaluations of the CEO and corporateperformance.( from left to right)Lt. General John H. Moellering, USA (Ret.)Member since 1959. Elected 1996.The former president and chief executive officer of Lear SieglerServices Inc., Moellering is the founder of managementconsultancy JM Associates and is a member of the adjunctfaculty of the Kenan-Flagler Business School of theUniversity of North Carolina. He is a retired senior officerwhose 28-year Army career included key commandassignments. Moellering was also a White House Fellow,Commandant at West Point and assistant to the Chairmanof the Joint Chiefs of Staff. A graduate of the U.S. MilitaryAcademy, Moellering holds a master’s degree in engineeringfrom the University of California, Berkeley, and is agraduate of the Stanford Business School MarketingManagement Course for Senior Executives. Chairman ofthe Board; Chair, Governance and Executive committees;ex officio member, Finance and Audit, Compensation andWorkforce, and Marketing and Programs committeesColonel John D. Buckelew, USMC (Ret.)Member since 1964. Elected 1994.Most recently director of administration for an internationallaw firm in Norfolk, Virginia, Buckelew is a graduate ofthe U.S. Naval Academy and served in the U.S. MarineCorps as a combat engineer officer and as a data systemsofficer. His final active-duty assignment was oversight ofthe defense budget and organization in the Office of theChairman, Joint Chiefs of Staff. A Fulbright scholar at theUniversity of Vienna and the University of Bonn, Buckelewholds a doctorate in history from the University of California,San Diego. Member, Executive and Compensation andWorkforce committeesCaptain Frederick M. Hamilton, USCG (Ret.)Member since 1965. Elected 1998.Hamilton was a recognized leader in the telecommunicationsinfrastructure industry and played a major role in shapingthat industry’s new competitive market. He was formerly avice president of network construction and maintenancefor Tyco Telecommunications in Morristown, New Jersey.The company designed, manufactured and installed, aswell as owned and operated, fiber optic telecommunicationssubmarine cable systems. During almost 27 years ofmilitary service, Hamilton held key command and staffpositions in the U.S. Coast Guard. An honors graduateof the U.S. Coast Guard Academy, Hamilton holds amaster’s degree in naval architecture and marine engineeringand a master’s degree in mechanical engineering fromMassachusetts Institute of Technology. He also earned amaster’s degree in management from the MIT Sloan Schoolof Management. Member, Finance and Audit CommitteeGeneral Michael E. Ryan, USAF (Ret.)Member since 1964. Elected 2002.Ryan was the 16th Chief of Staff of the U.S. Air Force. He isnow the president of the consulting firm Ryan Associates,focused on national defense. During his Air Force career,he flew more than 150 combat missions and commandedat all levels, from squadron through major command.He served as the NATO Air Commander, directing combatoperations in Bosnia. A graduate of the U.S. Air ForceAcademy, Ryan earned a master’s degree in businessadministration from Auburn University and completedthe National Security Program at Harvard University.Vice chair, Finance and Audit CommitteeColonel Leslie G. Denend, USAF (Ret.)Member since 1962. Elected 1996.A director of McAfee Inc. and VeriFone Corp., Denend isthe former president and chief executive officer of NetworkGeneral Corporation. During his 20-year Air Force career,he served on President Reagan’s economic policy staff, was amember of President Carter’s National Security Council staff,and flew more than 190 combat missions. A distinguishedgraduate of the U.S. Air Force Academy, he holds a master’sdegree in business administration and a doctorate in economics,public policy and business from Stanford University. He wasa Fulbright scholar in economics at the University of Bonnand a White House Fellow under President Ford.Member, Marketing and Programs CommitteeMaj. General Josue Robles Jr., USA (Ret.)Member since 1967. Elected 2007.Robles is president and chief executive officer of USAA.He also served as the executive vice president, chief financialofficer and corporate treasurer. From 1990 to 1994, Robleswas a member of the USAA Board of Directors. He joinedUSAA in 1994 after 28 years of distinguished military service,which included serving in Korea, Vietnam, Germany andthe Middle East. He was the Director of the Army Budgetand was the Commanding General, 1st Infantry Division(The Big Red One). Robles holds a bachelor of businessadministration degree in accounting from Kent StateUniversity and a master’s degree in business administrationfrom Indiana State University. Member, Governance andExecutive committeesRear Admiral Joseph C. Strasser Sr., USN (Ret.)Member since 1964. Elected 1998.Strasser is the former executive director of the Naval WarCollege Foundation in Newport, Rhode Island, and formerdean of Pennsylvania State University’s CommonwealthCollege. During his 32-year naval career, he commanded afrigate, a destroyer squadron, a cruiser-destroyer group,and the U.S.S. Enterprise carrier battle group. He alsoserved as executive assistant to the Chairman of the JointChiefs of Staff and as president of the Naval War College.A U.S. Naval Academy graduate, Strasser earned master’sdegrees in international relations and international lawand diplomacy and a doctorate in political science, all fromTufts University. Chair, Finance and Audit Committee;member, Governance and Executive committeesGeneral John P. Abizaid, USA (Ret.)Member since 1973. Elected 2007.Abizaid’s 34-year Army career included serving as theCommander of the United States Central Command,overseeing American military operations in a 27-countryregion, from the Horn of Africa, the Arabian Peninsula,and South and Central Asia, covering much of the MiddleEast while supervising 250,000 U.S. troops. A graduate ofthe U.S. Military Academy at West Point, Abizaid holds amaster’s degree in area studies from Harvard Universityand was an Olmsted scholar at the University of Jordan.Member, Marketing and Programs Committee18 USAA 2008 REPORT TO MEMBERS

executive councilUSAA Headquarters, Lobby Entrance, San Antonio, Texas(as of March 1, 2009)The day-to-day operationsof USAA’s companies andstaff agencies are managedby the 10 members ofUSAA’s Executive Council.( from left to right)Wendi E. StrongExecutive Vice President,CorporateCommunicationsF. David BohnePresident,USAA FederalSavings BankSteven A. BennettExecutive Vice President,General Counsel &Corporate SecretaryStuart ParkerPresident,USAA Property & CasualtyInsurance GroupJosue Robles Jr.President and ChiefExecutive OfficerChristopher W. ClausPresident,USAA FinancialServices GroupElizabeth D. ConklynExecutive Vice President,People ServicesKristi A. MatusExecutive Vice President,Chief Financial OfficerWayne PeacockExecutive Vice President,Enterprise BusinessOperationsRoger V. ChackoExecutive Vice President,Chief Marketing OfficerAdvisory panelUSAA Headquarters Conference Center, San Antonio, Texas(as of Dec. 31, 2008)USAA’s Advisory Panelincludes members of all agesfrom all walks of life. Panelmembers provide candidand valuable feedback aboutUSAA’s products, services,marketing campaigns anddelivery methods.( from left to right)20 USAA 2008 REPORT TO MEMBERSStephen CrokerChairUSAA Advisory PanelLt. General, USAF (Ret.)Chestertown, Md.Member since 1963Rene OrahoodMarried to a retiredArmy officerAnderson, Ind.Member since 1968Deanna GeorgeMarried to a MarineCorps officerPapillion, Neb.Member since 1993Ed KringerCol., USAF (Ret.)Burke, Va.Member since 1974Veronica BandrowskyChief Warrant OfficerUSCGCape MayCourt House, N.J.Member since 1998Jason RossSon of anAir Force officerMurfreesboro, Tenn.Member since 1998Patricia LawrenceSenior Master Sgt.,U.S. Air Force ReserveSan Antonio, TexasMember since 1993Martin WellsSgt. Maj., USAWest Point, N.Y.Member since 1982Carolyn AumanDaughter of anArmy officerSanta Cruz, Calif.Member since 1992Matthew DuffyLt. Cmdr., USNNorfolk, Va.Member since 1995Jabari CraddockCapt., U.S. ArmyReserveDurham, N.C.Member since 1997April HolmesDaughter of a Navy officerLakeway, TexasMember since 1984Eileen CollinsVice ChairUSAA Advisory PanelCol., USAF (Ret.)League City, TexasMember since 1978Christina BrimsWidow of anAir Force officerColorado Springs, Colo.Member since 1970

Explore usaa.comInvite familyand friends to joinFor more than 86 years, USAA has been honored to serve the military andmilitary families. Whether it’s through banking, investments or insurance,helping members reach their financial goals is USAA’s No. 1 priority.Family and friends may be eligible to join if they have served in the military,or if their parents were ever USAA members.Go to USAA.COM/JOIN or call (800) 531-USAA to learn more.Help USAAGo GreenIn the spirit of going green, you can opt out ofreceiving the printed Report to Members andreceive it in an electronic format via e-mail.To do so, log on to USAA.COM and go to“My Documents.” From there, go to “ManagePreferences” and select “General Documents:Annual Report to Members.”You’ve always put your country first.We do the same for our members’ financial well-being.InsuranceBankingFrom financing your car or home to college and retirement planning, we’ll assist you and your family every step of theway. For instance, now you can save up to $600 yearly 1 with USAA Free Checking. You get free ATM use worldwide, 2free rewards, free USAA Web BillPay, ® online and mobile banking, no monthly service fees, and free checks.Call 1-877-850-9256 today to get USAA Free Checking.InvestmentsMemberServicesWE KNOW WHAT IT MEANS TO SERVE ®1 $600 based on potential savings with USAA checking compared to average fee information on 2007 bankrate.com checking survey.2 USAA does not charge a fee for the first 10 ATM withdrawals and refunds up to $15 in other banks’ ATM fees each month. Currencyconversion charges may apply when using ATMs outside the U.S.Free Checking is also known as Four Star Checking. Bank products provided by USAA Federal Savings Bank. Member FDIC. ©2009 USAA.Additional informationRegulatory DisclosuresUSAA HeadquartersUSAA9800 Fredericksburg Rd.San Antonio, TX 78288(800) 531-8646(annual report inquiries only)Independent PublicAccountantsErnst & Young LLPSan Antonio, TexasUSAA is not a publicly heldcompany and does not filean SEC form 10-K.Annual Meeting ofUSAA MembersSaturday, Nov. 21, 20099 a.m. (Central Standard Time)Grand Hyatt San Antonio600 E. Market St.San Antonio, TX 78205The USAA EducationalFoundationUSAA9800 Fredericksburg Rd.San Antonio, TX 78288www.usaaedfoundation.orgCert no. SGS-COC-3048Design: VSA Partners Inc. Principal Photography: Kwaku AlstonCover Photography: Michael Kamber10%Each company has sole financial responsibility for its own products.“USAA” and “association” mean United Services Automobile Associationand its affiliates. Property and casualty insurance provided by UnitedServices Automobile Association, USAA Casualty Insurance Company,USAA General Indemnity Company, Garrison Property and CasualtyInsurance Company, USAA County Mutual Insurance Company, USAATexas Lloyds Company, San Antonio, TX, and USAA, Ltd. (Europe),and is available only to military members and their families whomeet certain membership eligibility criteria. To find out if you areeligible, contact USAA. Underwriting restrictions apply. Investmentsprovided by USAA Investment Management Company and USAAFinancial Advisors, Inc., both registered broker dealers. Lifeinsurance and annuities offered by USAA Life Insurance Company,San Antonio, TX, and in New York by USAA Life Insurance Companyof New York, Highland Falls, NY. Financial planning services providedby USAA Financial Planning Services Insurance Agency, Inc. (knownas USAA Financial Insurance Agency in California), a registeredinvestment advisor and insurance agency. Financial advice providedby USAA Financial Planning Services Insurance Agency, Inc. (knownas USAA Financial Insurance Agency in California), and USAAFinancial Advisors, Inc., a registered broker dealer. Credit cardsprovided by USAA Savings Bank, other bank products provided byUSAA Federal Savings Bank, an Equal Housing Lender, both MemberFDIC. Merchandise and Alliance services provided through USAAAlliance Services, L.L.C.MemberThe term “member” generally refers to current USAA customerswho are eligible for property and casualty insurance, and theirspouses and children who are current USAA customers. Use of theterm “member” does not convey any legal, eligibility or ownershiprights. To be a member of the USAA property and casualty insurancegroup, individuals must meet certain eligibility requirements andpurchase a USAA property or casualty insurance group policy.Eligible parent must purchase property and casualty insurance foreligibility to pass down to children. Eligibility guidelines are subjectto change without notice. Ownership rights are limited to policyholdersof United Services Automobile Association.OtherInvestments/Insurance: Not FDIC Insured •Not Bank Guaranteed • May Lose ValueBusinessWeek March 5, 2007 issue; BusinessWeek March 3, 2008 issue.The USAA Foundation and The USAA Educational Foundation(the “Foundations”) are nonprofit organizations sponsored by USAA.The Foundations do not endorse or promote any commercialsupplier, product or service.Past dividends or distributions are not a guarantee or promise offuture dividends or distributions.