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