USAA 2008 Report to Members: Stronger Together

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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
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USAA 2008 Report to Members: Stronger Together

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