We Know What It Means To Serve - USAA

WE KNOW WHAT IT MEANS TO» SERVE

Watch a video about these veterans and videos from theChairman and the CEO at USAA.COM/REPORTTOMEMBERS.» SERVEFROM LEFT TO RIGHT:Lt. Col. Dewey Garwood, Jr., 83, USAF (Ret.)1st Lt. Robert Garwood, 87, USA (Ret.)Col. Virgal (Sandy) Sansing, 86, USAF (Ret.)Lt. Col. William (Bill) Powers, 83, USAF (Ret.)» The Greatest GenerationSpurred by love of country and a duty toserve, their selfless courage ultimately liberatedcountries on four continents and ended awar. Nearly half a million never made it home.The fallen and the survivors — now in their80s and 90s — leave a legacy of unparalleledcommitment and heroism.A special thanks to the Yellow Rose Squadronof the Commemorative Air Force.USAA 2007 Report to Members

» Mission StatementThe mission of the association is to facilitate the financialsecurity of its members, associates and their families throughprovision of a full range of highly competitive financialproducts and services; in so doing, USAA seeks to be theprovider of choice for the military community.CONTENTS4 We Know What It Means To …14 Awards15 Letter from the Chairman16 Letter from the CEO24 USAA.COM26 Performance Overview27 Financial Report3 1 Ratings33 We Know What It Means To Give34 Board of Directors39 Executive Council40 Advisory Panel4 1 Additional Information“We Know What It Means To Serve” has longbeen USAA’s signature.It connects us — our shared experience, sharedvalues and common military heritage.It reflects our community of members —those who are serving, those who have servedand their families.It reflects the pride our employees takein the privilege of serving you.2 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 3

Learn what to do after anaccident at USAA.COM/CLAIMS.WE KNOW WHATIT MEANS TO »GET IN AN ACCIDENTFrom fender benders to rollovers,nearly 2 million of our membersfiled an auto claim in 2007.Many of you called, and more than43,000 filed claims on usaa.COM.However you let us know youneeded us, we were there. Justas we have been for more than85 years.» AUTO INSURANCE» 24/7 CLAIMS SERVICE» ROADSIDE ASSISTANCE4USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS5

Simplify your retirement planningat USAA.COM/RETIREMENT.WE KNOW WHATIT MEANS TO »PLAN FOR RETIREMENTAfter years of work on thebattlefield or in the cubicle,you’re no doubt looking forwardto your retirement. In 2007,more than 900,000 memberhouseholds entrusted USAAto provide the productsand services they need fortheir retirement.» INDIVIDUAL RETIREMENT ACCOUNTS» INSURANCE SOLUTIONS» ANNUITIES6 USAA 2007 REPORT TO MEMBERS USAA 2007 REPORT TO MEMBERS 7

Learn how to protect your lovedones at USAA.COM/FAMILY.WE KNOW WHATIT MEANS TO »RAISE A FAMILYToday preschooler hysterics,tomorrow adolescent angst. In2007, we helped nearly 1 millionmembers protect their lovedones with life insurance. Fora million of you, we providedpersonalized financial advice toanswer questions about reducingdebt, paying for a home orsaving for college.» LIFE INSURANCE» FINANCIAL PLANNING» BANKING8 USAA 2007 REPORT TO MEMBERS USAA 2007 REPORT TO MEMBERS 9

Find out how we can help you prepareat USAA.COM/DEPLOYMENT.WE KNOW WHATIT MEANS TO »BE DEPLOYEDTearful goodbyes, but with mightypurpose. Whether you wereone of the hundreds of unitswe met face to face or oneof the hundreds of units we sentdeployment packets to last year,we reached more than 86,000deploying men and women. Andwhen you come home, we’llcontinue providing the financialproducts and services that gaveyou peace of mind while youwere away.» ONLINE / MOBILE ACCESS» INSURANCE» BANKING10 USAA 2007 REPORT TO MEMBERS USAA 2007 REPORT TO MEMBERS 11

Get the best protection for your homeand belongings at USAA.COM/PROTECT.WE KNOW WHATIT MEANS TO »LOSE EVERYTHINGTo return home to ashes anddebris where your house stoodonly hours earlier is to knowdevastation. For the 213 memberswho lost their homes in 2007 —105 in the Southern Californiawildfires — USAA was there tohelp with fast payouts for livingexpenses, personal belongingsand the house itself.» HOMEOWNERS / renters INSURANCE» VALUABLE PERSONALPROPERTY INSURANCE» AUTO INSURANCE12 USAA 2007 REPORT TO MEMBERS USAA 2007 REPORT TO MEMBERS 13

2007 AWARDSLETTER FROM THE CHAIRMANUSAA seeks to balance the needs of members, the well-being of employees, and the association’sfinancial strength on a foundation of operational excellence. In 2007, the recognition USAA receivedfrom industry and media experts reflected that balance.MEMBERSERVICEFINANCIALSTRENGTHEMPLOYEEWELL-BEINGJ.D. POWER AND ASSOCIATESUSAA was recognized for its performance in the Auto andHomeowner Insurance Studies, as well as the Primary MortgageServicer Study.BusinessWeekUSAA ranked No. 1 on the publication’s list of“Customer Service Champs.”FORTUNEFortune 500 Largest U.S. Corporations180th in Revenue, 84th in Net Worth, 70th in AssetsWARD GROUPUSAA Property & Casualty Insurance Group and USAA LifeInsurance Company named to the Ward’s 50, which benchmarksthe top-performing insurance companies.CALIFORNIA TASK FORCE ON YOUTH AND WORKPLACE WELLNESSCalifornia Fit Business AwardGold LevelG.I. JOBSTop 50 Military‐Friendly EmployersLATINA STYLE50 Best Employers for Hispanic WomenCOMPUTERWORLD100 Best Places to Work in ITThe year 2007 was one of USAA’s mostsuccessful — and one of change.In December, Chairman and Chief Executive O∞cerRobert G. (Bob) Davis retired, after leading USAA througha period of remarkable growth and accomplishments,many of which you can read about in this report.In a unanimous vote, the USAA Board of Directorssubsequently elected me as Chairman of the Board,and retired Army Maj. General Josue (Joe) Robles, Jr.,as President and CEO.During his seven-year tenure as Chairman and CEO,Bob transformed the association into a highly competitivefinancial services company. Under Bob’s leadership, wealso made significant strides in our Internet strategy,while intensifying our focus on member service andmaintaining the best customer loyalty in the industry.As a member of the board since 1996, I have personallywitnessed this transformation. USAA has becomea high-performance organization — financially andoperationally stronger — and will continue on thatsuccessful path under Joe’s leadership.We chose Joe as our new CEO because of his dedicationto USAA, his commitment to its mission and his personalintegrity. I have known Joe for years, going back to ourservice together in the Army, where he rose through theranks from private to major general. Joe is an extraordinaryleader, having commanded troops in Desert Storm andlater commanding an Army division, The Big Red One.A member since 1967, Joe has been a part of USAA for40 years, including four years on the board and 14 yearsin management as chief administrative o∞cer, chieffinancial o∞cer and corporate treasurer.As vice chairman of the board and chairman of the financeand audit committee, I have worked closely with Joeand can assure you that we could not have selected a betterperson to lead this great organization.He is joined by two new directors who were elected tothe board at the 2007 Members’ Meeting: retired ArmyGeneral John P. Abizaid, a USAA member since 1973 whomost recently served as commander of the U.S. CentralCommand, overseeing military operations in a 27-countryregion; and retired Air Force Colonel Eileen M. Collins,a member since 1978, and the first female pilot and firstfemale commander of a space shuttle. Their backgroundsare stellar, and they have both served our country withdistinction.In addition, five directors were re-elected — retired ArmyLt. General Thomas P. Carney, retired Army Lt. GeneralDaniel W. Christman, retired Air Force Colonel Leslie G.Denend, retired Air Force Maj. General Marcelite J.Harris and retired Air Force General Lester L. Lyles —rounding out the association’s 18-member board.(For biographies on all of our USAA board members,please see pages 36–38.)I expect that USAA will continue to grow and change asthe environment and our members demand. Rest assured,however, that some things will never change: USAA’smission, its commitment to the U.S. military and its corevalues of service, loyalty, honesty and integrity.Sincerely,John H. MoelleringLt. General, USA (Ret.)Chairman14 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 15

DEAR FELLOW USAA MEMBERS,Allow me to introduce some of our outstanding member servicerepresentatives whose dedication to serving you inspired BusinessWeekmagazine to name USAA best in the nation for customer service in2007 and again in 2008.Every day, 22,000 employees come to work at USAA for one reason:to serve you. I am proud to have been one of those employees for the past14 years, and now to be that team’s leader.Joe Robles, Jr.President and CEO16 USAA 2007 REPORT TO MEMBERS USAA 2007 REPORT TO MEMBERS 17

LETTER FROM THE CEOOur mission is to provide you with solutionsthat help protect you and your financial future.With respect for the military service you andyour families have provided to our nation, ourgoal is to provide you the highest possiblevalue and service.USAA is known for its personal service, andour knowledgeable representatives will alwaysbe here to help you. And as the world movesfaster and our lives get busier, memberstell us it is increasingly important to be ableto manage their financial lives on the go —quickly, easily, anytime, anywhere.In 2007, we focused on expanding andenhancing the many ways you can manageyour business with USAA.USAA — EasierIn 2007, USAA was one of the first financialservices companies to make banking,investment and insurance services availableon cell phones and mobile devices. Youcan access your accounts, check your balances,transfer money, make stock trades, orderauto insurance ID cards and pay bills — allon your phone at MOBILE.usaa.COM.During the year, we also made significantimprovements to USAA.COM, enabling thosewho wish to do virtually all of their everydaybusiness with USAA online. Additionalcapabilities we launched or expanded in2007 include:» USAA Deposit@Home. Qualified memberscan deposit checks into a bank account onlinefrom anywhere in the world using a homecomputer and scanner.» Retirement Center. Help evaluate yourretirement plans using interactive toolssuch as the Online Retirement Advisor andRetirement Income Planner.» Auto and Property Claims. File aninsurance claim for your car or home onusaa.COM.» USAA Car Buying Service. Research, locateand finance a new or used car — all online.» MY.usaa.COM. Members ages 13 through17 can view their accounts and documents,and transfer and deposit funds.The Value of MembershipUSAA is the only fully integrated financialservices company in the nation, and we continueto offer our members a wide array of highlycompetitive products and services. As a result,more members are acquiring their banking,insurance and investment products from USAA.Today, USAA’s 5.1 million memberhouseholds trust us to providean average of approximately fiveproducts for their families.While we have always recognized and rewardedmember relationships with USAA, last year weintroduced auto insurance pricing that furtherrecognizes the benefits of member loyalty. Thatmeans members can save money on their autoinsurance premiums based on the numberof USAA products they own and the number ofyears they have had auto insurance with us.18 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 19

One million members benefitedfrom free financial advicefrom our expert financial advisorsduring 2007.Financial advice is central to the association’smission of helping members achieve financialsecurity, and — beyond our free advice —thousands of members took advantage of ourcomprehensive fee-based plans as well.Nothing is more important than being therefor our members when disaster strikes, andUSAA employees responded immediately whenmore than 3,700 members were affected bythe Southern California wildfires last summer.Many members who experienced total losseshad their claims paid and closed within days ofthe fires being extinguished.Financial StrengthFinancially, the association ended the yearstronger than ever. Standard & Poor’s, A.M.Best and Moody’s independent rating agenciesagain awarded USAA’s Property & CasualtyInsurance Group the highest ratings for financialstrength, making USAA one of a small,elite group of companies to retain the highestpossible ratings.In 2007, owned and managed assets grew10.3 percent to more than $125 billion, and networth grew by 9.5 percent to $14.4 billion.Strong net worth ensures USAA can pay yourclaims now and in the future, meet regulatoryand rating agency requirements, and fundcurrent and future operations. It also helps theassociation protect against uncontrollableforces such as interest rates, the stock marketand catastrophes.Our financial strength, expense control ande∞ciency efforts enabled the association tothrive despite the ongoing credit crisis, increasingnon-catastrophe losses, and the seventh-largestcatastrophe in USAA’s history — the SouthernCalifornia wildfires.As a result, we were able to returnmore than $1.5 billion to you in theform of distributions, dividends,rebates, rewards, and auto andproperty insurance rate reductions.One of the benefits of USAAmembership is being partof a community whose collectivebehavior can help lower prices.When you drive safely and maintain yourhome, it helps keep costs down for everyone.Another way you can help is to use usaa.COMfor routine transactions and receive yourdocuments online rather than through themail, a move that benefits the associationand the environment.We Know What It Means to ServeAt USAA, we know what it means to servethe military community. It is our pride andprivilege. We are constantly mindful ofthe sacrifices our military personnel andtheir families make every day to protect ourfreedoms. We are grateful for and honoredby their service.Thank you for trusting USAA. Thank you forallowing us to serve you.Sincerely,membership (in millions)A record 6.4 million memberstrust USAA. More than halfof them served in the military.24% Enlisted29% Officers47%Children andGrandchildren(membership composition as of 2007)Josue (Joe) Robles, Jr.Maj. General, USA (Ret.)President and CEO20 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 21

financial highlightsproducts (in millions)net worth (in billions)operating expense ratioassets owned and managed (in billions)» p&c industry» usaa p&c insurance group» managed» ownedToday, 6.4 millionmembers trustus to provide26.7 million productsfor them and theirfamilies.A strong net worthensures USAA will bethere for you andyour family now andin the future.USAA’s P&C insuranceoperation continuedto outperform itsindustry * by more than10 percentage points.*A.M. Best 2007 estimateUSAA’s owned andmanaged assets grew10.3 percent due toa well-managedinvestment portfolio andan increase in memberconsumer loans.22 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 23

WE KNOW WHAT IT MEANS TO»GO DIGITAL»anytime, anywhere.Whether you use a computer at home or a paper‐thin laptopon the go, we make it easy for you to manage your accountsor open new ones, go paperless, get free financial advice andplan for your retirement on usaa.COM. Have a mobile devicethat goes everywhere you do? You can check balances, transfermoney, make stock trades, pay bills or request auto ID cardsat MOBILE.usaa.COM. Designed for you — when and whereyou need it.How good is it? In a recent Forrester Research Inc. customersatisfaction survey, USAA received the highest percentage —93 percent — of customer experience satisfaction with recentWeb interaction across nine different industries (The ExperiencesThat Satisfy Consumers, Forrester Research Inc., February 2008).24USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 25

PERFORMANCE OVERVIEWThe financial statements published in this document have been selected so that you can see pertinentand necessary financial information about USAA.» USAA’s owned and managedassets increased 10.3 percent to$125.1 billion.The increase is due to a conservative andwell-managed investment portfolio, combinedwith a significant increase in the number ofconsumer loans taken out by USAA members.» USAA’s net worth grew9.5 percent from $13.1 billionin 2006 to $14.4 billion in 2007.Net worth, the most important indicatorof financial strength, covers members’insurance claims, meets regulatory andrating agency requirements, and fundscurrent and future operations.Standard & Poor’s, A.M. Best and Moody’sindependent rating agencies again awardedUSAA’s Property & Casualty InsuranceGroup the highest ratings for financialstrength, making USAA one of a small,elite group of companies to retain thehighest possible ratings. That financialstrength enables us to pay our members’claims under the most severe catastrophiccircumstances.» Debt levels remained low.Although USAA has access to more than$40 billion through various funding sources,the association remains conservative and hadonly $449 million in outstanding debt atyear-end. This resulted in a debt-to-total-capitalratio of just 3 percent.» Consolidated total revenues grew 7.5 percent to $14.4 billion.Despite lower prices, USAA’s revenues grew as membership expanded and products per householdincreased. Each member household owns an average of five USAA products.» USAA maintained its disciplinedfocus on expense management,process improvements and increasingproductivity.This rigor paid off as USAA’s P&C insuranceoperation kept its expense-to-revenue ratiovery low at 25.6 percent. This ratio continuedto outperform the P&C industry by morethan 10 percentage points.» USAA returned more than$1.5 billion to members in 2007.This came in the form of dividends,distributions, rebates, rewards and auto,homeowners and renters insurance ratereductions.MANAGEMENT’S RESPONSIBILITYFOR 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 accompanying footnotes,we have chosen not to include the full auditedconsolidated financial statements in this Reportto Members. The financial statements thatappear in this document have been selected fromthe audited consolidated financial statementsto give basic and necessary financial informationabout USAA. Certain prior year amounts werereclassified to conform to the current yearpresentation. The selected financial informationwas prepared by USAA in accordance withAccounting Principles Generally Accepted inthe United States of America (GAAP), exceptfor the key statutory data, which was preparedin accordance with Statutory AccountingPrinciples (SAP). Management believes thefinancial information contained in the auditedconsolidated financial statements fairly presentsUSAA’s financial position, results of operationsand cash flows. A copy of the complete auditedconsolidated financial statements of USAA,including Ernst & Young LLP’s unqualifiedindependent auditors’ report thereon, isavailable upon request to USAA headquartersin 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 internal auditorswho monitor these controls on an independentbasis. The Finance and Audit Committee ofUSAA’s board of directors engaged Ernst &Young LLP as independent auditors to auditUSAA’s financial statements and express anopinion thereon. Ernst & Young LLP’s auditincluded reviews and tests of USAA’s internalcontrols to the extent they believe necessary todetermine and conduct the audit proceduresthat support their opinion.The Finance and Audit Committee of USAA’sboard of directors consists of seven members,who are not o∞cers or employees of USAA.This committee meets periodically withmanagement, internal auditors and Ernst &Young LLP to ensure that management fulfillsits responsibility for accounting controlsand preparation of the consolidated financialstatements and related data.Josue (Joe) Robles, Jr.Maj. General, USA (Ret.)President and CEO26USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 27

USAA HIGHLIGHTSconsolidated balance sheetsYears Ended December 31 2007 2006 2005» TOTAL MEMBERS (In millions) 6.4 5.9 5.5» TOTAL PRODUCTS (In millions) 26.7 23.9 21.8» TOTAL EMPLOYEES (In thousands) 22.7 21.7 21.8USAA Consolidated (Dollars in millions)Revenue $14,418 $13,416 $11,980Expenses 12,563 11,086 10,592Net Income 1,855 2,330 1,388Assets owned$67,177 $60,269 $51,038Assets owned and managed 125,140 113,475 96,094Total liabilities 52,810 47,145 39,882Net worth 14,367 13,124 11,156member distributionsYears Ended December 31 (Dollars in millions) 2007 2006 2005AssetsInvestments $23,708 $25,884 $18,922Bank loans, net 25,874 20,159 17,536Real estate investments, net 1,111 1,195 1,287Cash and cash equivalents 5,580 2,191 3,376Premiums due from policyholders 1,692 1,681 1,612Property and equipment, net 1,461 1,398 1,383Securities lending collateral 2,759 2,688 1,455Other assets 4,992 5,073 5,467» Total assets 67,177 60,269 51,038LiabilitiesInsurance reserves $11,502 $10,641 $10,214Life insurance — funds on deposit 8,444 8,095 7,740Bank deposits 26,886 22,061 16,407Borrowings 449 808 991Securities lending payable 2,759 2,688 1,455Other liabilities 2,770 2,852 3,075» Total liabilities 52,810 47,145 39,882Years Ended December 31 (Dollars in millions) 2007 2006 2005Subscriber’s Savings Account (SSA) distributions $255 $221 $208Automobile policyholder dividends 108 105 103Total automobile policyholder dividends and SSA distributions 363 326 311SSA senior bonus 104 88 80SSA terminations 71 62 58Net WorthTotal net worth 14,367 13,124 11,156» Total liabilities and net worth $67,177 $60,269 $51,038Total property and casualty distributions 538 476 449Life Insurance Company policyholder dividends 45 44 45Federal Savings Bank rebates and rewards 327 275 200» Total distributions to members $910 $795 $69428 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 29

consolidated statements of incomeconsolidated statements of net worthYears Ended December 31 (Dollars in millions) 2007 2006 2005Years Ended December 31 (Dollars in millions) 2007 2006 2005RevenueInsurance premiums $9,324 $9,163 $8,670Investment income, net 1,825 1,551 981Fees, sales and loan income, net 2,254 1,865 1,618Real estate investment income 241 313 318Servicing and contractual income on securitizations 362 212 93Other revenue 412 312 300» Total revenue 14,418 13,416 11,980Losses, Benefits and ExpensesLosses, benefit payments and loss adjustment expenses 7,509 6,737 6,894Deferred policy acquisition costs 477 435 429Real estate investment expenses 123 254 241Interest expense 1,001 727 445Dividends to policyholders 153 149 148Other operating expenses 2,767 2,197 2,064Net WorthBeginning of year $13,141 $11,182 $10,140Subscriber’s Savings Account distributions (430) (371) (346)Net income 1,855 2,330 1,388» End of Year 14,566 13,141 11,182Accumulated Other Changes in Net Worth from Nonowner SourcesBeginning of year (17) (26) 4Unrealized (losses)/gains on securities during year,net of income taxes and reclassification adjustments 30 12 (39)Other adjustments (includes change in accounting principle) (212) (3) 9» End of Year (199) (17) (26)» Total net worth $ 14,367 $13,124 $11,156» Total losses, benefits and expenses 12,030 10,499 10,221Pre-tax income 2,388 2,917 1,759Income tax expense 533 587 371» Net income $ 1,855 $2,330 $1,388RATINGS OF FINANCIAL STRENGTHUSAA PROPERTY& CASUALTYINSURANCE GROUPA++(Superior)A.M. Best CompanyAaa(Exceptional)Moody’s Investors ServiceAAA(Extremely Strong)Standard & Poor’sUSAA LIFEINSURANCECOMPANIESA++(Superior)A.M. Best CompanyAa1(Excellent)Moody’s Investors ServiceAAA(Extremely Strong)Standard & Poor’sUSAA FEDERALSAVINGS BANKTop 20% of peer groupHighline Banking Data ServicesSuperiorIDC Financial Publishing Inc.30 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 31

consolidated statements of cash flowsWe Know What It Means To GiveYears Ended December 31 (Dollars in millions) 2007 2006 2005Cash Flows from Operating ActivitiesNet income$1,855 $2,330 $1,388Adjustments to reconcile net income to net cashprovided by operating activities:Increase in insurance reserves 647 529 512Interest credited on policyholder deposits 380 350 338Net realized (gains)/losses (315) (272) (74)Increase in premiums due from policyholders (11) (70) (118)Depreciation and amortization 43 54 188Equity earnings in real estate partnership (62) (23) (33)(Increase) decrease in loans held for sale (426) 145 (926)Change in other assets/liabilities 112 (314) 186Net cash provided by operating activities 2,223 2,729 1,461Cash Flows from Investing ActivitiesProceeds from investments sold or matured 20,866 14,626 9,886Cost of investments acquired (18,287) (21,046) (10,202)Net increase in bank loans (5,551) (2,743) (1,143)Other uses 18 60 (204)Net cash used in investing activities (2,954) (9,103) (1,663)Cash Flows from Financing ActivitiesSubscriber’s Savings Account distributions (430) (371) (343)Net (repayment) borrowing of debt (359) (184) (1,410)Net increase in bank deposits 4,824 5,655 3,490Other 85 89 (131)Every year USAA’s employees and retirees give back to their communities with selfless gifts of timeand money. From hundreds of thousands of volunteer hours to more than 98 percent of employeesgiving to United Way, USAA takes pride in being an outstanding corporate citizen.Like its people, USAA, the USAA Federal Savings Bank and The USAA Foundation give back and,in 2007, combined to distribute $12.9 million to improve our communities.Your association continues to make life better for people from all walks of life by comforting thesick and wounded, promoting community development, aiding medical research and ensuring thesuccess of community campaigns through exceptional participation and financial generosity.» United WayEmployees and retirees pledged $4.9 millionto the 2007 United Way campaign. Withmatched funds from The USAA Foundation,we raised nearly $7.5 million to improveour communities and better the lives of thosein need.» Season of Sharing» Giving of TimeIn 2007, USAA employees and retireesreported 355,400 hours in community service.Their family members joined them foranother 61,400 volunteer hours, continuingthe association’s spirit of giving back toour communities.USAA’s Season of Sharing program, now in its 45th year, provides holiday cheer to thousands ofindividuals and their families. In 2007, nearly 16,000 employees participated, delivering food andgifts to more than 18,300 individuals.Net cash provided by financing activities 4,120 5,189 1,606Net increase (decrease) in cash and cash equivalents 3,389 (1,185) 1,404» Cash and cash equivalents — Beginning of year 2,191 3,376 1,972» Cash and cash equivalents — End of year$5,580 $2,191 $3,376» Educational InitiativesAlmost 4,000 employees, retirees and theirfamilies assisted more than 6,000 studentsthrough USAA’s Community EducationalPrograms.» The USAA Educational FoundationThe USAA Educational Foundation distributednearly 3 million free publications to individuals,organizations and military groups throughoutthe country. Topics ranged from basic moneymanagement, to investing, to planning for acomfortable retirement.32 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 33

BOARD OF DIRECTORSEighteen accomplished individuals who have distinguished themselves throughtheir military and civilian careers comprise the USAA Board of Directors. Board membersconduct regular, formal evaluations of the CEO and corporate performance.FROM LEFT TO RIGHT:John P. Abizaid, Eileen M. Collins, John D. Buckelew, Patricia C. Barron, Thomas B. Fargo, Stephen B. Croker,Leslie G. Denend, Lester L. Lyles, Josue Robles, Jr., John H. Moellering, Daniel W. Christman, Marcelite J. Harris,Frederick M. Hamilton, Michael E. Ryan, Jay L. Johnson, Thomas P. Carney, William J. Hybl, Joseph C. Strasser, Sr.USAA Conference Center, San Antonio, Texas34 USAA 2007 REPORT TO MEMBERS USAA 2007 REPORT TO MEMBERS 35

oard of directors biographies» Lt. General John H. Moellering, USA (Ret.)Member since 1959. Elected 1996.The former president and chief executive o∞cer 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 the Universityof North Carolina. He is a retired senior o∞cer whose 28-yearU.S. Army career included key command assignments.Moellering was also a White House Fellow, Commandant atWest Point, and assistant to the Chairman of the Joint Chiefs ofStaff. A graduate of the U.S. Military Academy, Moellering holdsa master’s degree in engineering from the University ofCalifornia, Berkeley, and is a graduate of the StanfordBusiness School Marketing Management Course for SeniorExecutives. Chairman of the board of directors; chair,Governance and Executive committees; ex o∞cio member,Compensation and Benefits, Finance and Audit, and Marketingand Programs committees.» Maj. General Josue Robles, Jr., USA (Ret.)Member since 1967. Elected 2007.Robles is president and chief executive o∞cer of USAA. Healso served as the executive vice president, chief financial o∞cerand corporate treasurer. From 1990 to 1994, Robles was amember of the USAA Board of Directors. He joined USAA in1994 after 28 years of distinguished military service, whichincluded serving in Korea, Vietnam, Germany and the MiddleEast. He was the Director of the Army Budget and was theCommanding General, 1st Infantry Division (The Big Red One).Robles holds a bachelor of business administration degree inaccounting from Kent State University and a master’s degree inbusiness administration from Indiana State University.Member, Governance and Executive committees.» General 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, andSouth and Central Asia, covering much of the Middle East whilesupervising 250,000 U.S. troops. A graduate of the U.S.Military Academy at West Point, Abizaid holds a master’sdegree in area studies from Harvard University, and wasan Olmsted scholar at the University of Jordan. Member,Marketing and Programs Committee.» Patricia C. BarronMember since 1972. Elected 2000.Barron is the board chair of Ultralife Batteries Corporationand former professor at the Stern School of Business, New YorkUniversity. She serves as a director of several corporations and isa trustee of several nonprofits that focus on her interests ineducation and health. She also served as president of twoXerox divisions and as vice president, Business OperationsSupport. Barron graduated from Bedford College of PhysicalEducation in the United Kingdom and holds a master’s degreein business administration from Harvard Business School.Vice chair, Finance and Audit Committee.» Colonel 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 of the U.S.Naval Academy and served in the U.S. Marine Corps as acombat engineer o∞cer and as a data systems o∞cer. His finalactive-duty assignment was oversight of the defense budgetand organization in the O∞ce of the Chairman, Joint Chiefs ofStaff. A Fulbright scholar at the University of Vienna and theUniversity of Bonn, Buckelew holds a doctorate in historyfrom the University of California, San Diego. Member, Executiveand Finance and Audit committees.» Lt. General Thomas P. Carney, USA (Ret.)Member since 1963. Elected 1997.A graduate of the U.S. Military Academy, Carney is anindependent consultant to the defense industry and chairmanof CALIBRE Systems Inc. His last three Army assignmentswere Deputy Chief of Staff for Personnel, Director of ProgramAnalysis and Evaluation, and commander of the 5th InfantryDivision. After a 31-year military career, he served as DeputyLibrarian of Congress, where he was chief executive o∞cer.Carney earned a master’s degree in operations research andsystems analysis from the U.S. Naval Postgraduate School.Chair, Marketing and Programs Committee; member,Governance and Executive committees.» Lt. General Daniel W. Christman, USA (Ret.)Member since 1963. Elected 1995.Christman is senior vice president, international affairs, for theU.S. Chamber of Commerce. During his 36-year militarycareer, Christman served as assistant to the Chairman of theJoint Chiefs of Staff, U.S. representative to the North AtlanticTreaty Organization’s Military Committee and member of theNational Security Council staff in the O∞ce of the President.He also served as Superintendent of the U.S. Military Academyat West Point. He graduated first in his class from the U.S.Military Academy, holds master’s degrees in public affairsand civil engineering from Princeton University, and a jurisdoctorate degree from George Washington University.Member, Marketing and Programs Committee.» Colonel Eileen M. Collins, USAF (Ret.)Member since 1978. Elected 2007.A former military instructor and test pilot, Collins was thefirst female pilot and first female commander of a space shuttle.She has logged more than 6,751 hours in 30 different types ofaircraft and more than 872 hours in space as a veteran of fourspace flights. Collins earned a bachelor’s degree in mathematicsand economics from Syracuse University, a master’s degree inoperations research from Stanford University, and a master’sdegree in space systems management from Webster University.Member, Finance and Audit Committee.» Lt. General Stephen B. Croker, USAF (Ret.)Member since 1963. Elected 1996.An independent consultant, Croker trains o∞cers and theirstaffs from the 26 nations of NATO, as well as all U.S. militaryservices, in joint warfare. During his Air Force career, Crokerserved with the Air Combat Command and the Strategic AirCommand, and commanded the 8th Air Force at BarksdaleAir Force Base, Louisiana. He served in the O∞ce of theChairman of the Joint Chiefs of Staff and was the militaryassistant to the President’s special emissary on POW and MIAaffairs. A U.S. Air Force Academy graduate, Croker earned amaster’s degree in international relations from GeorgetownUniversity and a master’s degree in business administrationfrom Golden Gate University. Chair, USAA Advisory Panel;member, Finance and Audit Committee.» Colonel Leslie G. Denend, USAF (Ret.)Member since 1962. Elected 1996.A director of McAfee Inc. and VeriFone Corporation, Denend isthe former president and chief executive o∞cer of NetworkGeneral Corporation. During his 20-year Air Force career, heserved 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 ineconomics, public policy and business from Stanford University.He was a Fulbright scholar in economics at the University ofBonn and a White House Fellow under President Ford.Member, Marketing and Programs Committee.» Admiral Thomas B. Fargo, USN (Ret.)Member since 1970. Elected 2006.Fargo is president of Trex Enterprises and Chairman of Trex’ssubsidiaries — Loea Corp., a leader in high-speed, highbandwidthwireless communications; and Sago Systems Inc.,a defense and homeland security company. His 35-year Navalcareer included six assignments in Washington, D.C., and fivecommands in the Pacific, Indian Ocean and Middle East.He was the 20th o∞cer to hold the position of CommanderU.S. Pacific Command and also served as the 29th commanderin chief of the U.S. Pacific Fleet. Fargo earned a bachelorof science degree from the U.S. Naval Academy and hasadditional business and related training from HarvardUniversity and Stanford University. Member, Compensationand Benefits Committee.» Captain 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 shaping thatindustry’s new competitive market. He was formerly a vicepresident of network construction and maintenance for TycoTelecommunications in Morristown, New Jersey. The companydesigned, manufactured and installed, as well as owned andoperated, fiber optic telecommunications submarine cablesystems. During almost 27 years of military service, Hamiltonheld key command and staff positions in the U.S. Coast Guard.An honors graduate of the U.S. Coast Guard Academy, Hamiltonholds a master’s degree in naval architecture and marineengineering and a master’s degree in mechanical engineering fromMassachusetts Institute of Technology (MIT). He also earneda master’s degree in management from the MIT Sloan Schoolof Management. Member, Finance and Audit Committee.36 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 37

oard of directors biographies (continued)EXECUTIVE COUNCIL (as of March 1, 2008)» Maj. General Marcelite J. Harris, USAF (Ret.)Member since 1967. Elected 1993.Harris is a founder, president and chairman of the board ofNational Urgent Care Centers. She is also the former chief ofstaff to the chancellor of the New York City Department ofEducation and was logistics process director and Florida sitedirector of United Space Alliance. During her 31-yearU.S. Air Force career, Harris was the first woman aircraftmaintenance o∞cer, one of the first two women air o∞cerscommanding at the U.S. Air Force Academy, and the firstwoman deputy commander for maintenance for the U.S. AirForce. Harris holds a bachelor’s degree in speech and drama,and an honorary doctorate degree of humanities from SpelmanCollege. She also holds a bachelor’s degree in businessmanagement from the University of Maryland. Member,Marketing and Programs Committee.» William J. HyblMember since 1969. Elected 1994.Hybl is chairman and chief executive o∞cer of the El PomarFoundation, which makes grants for education, health care, theenvironment, amateur sports, human services and the arts. Aformer member of the Colorado House of Representatives, andcurrently vice chairman of the Broadmoor Hotel Board ofDirectors, Hybl also served as president of the U.S. OlympicCommittee from 1991–1992 and 1996–2000 and currentlyserves as president emeritus. After graduation from ColoradoCollege and the University of Colorado Law School, Hyblbecame an o∞cer in the U.S. Army. He was the U.S.representative to the 56th General Assembly of the UnitedNations for 2001–2002. Vice chair, Compensation and BenefitsCommittee; member, Executive Committee.» Admiral Jay L. Johnson, USN (Ret.)Member since 1968. Elected 2000.Johnson is chief executive o∞cer of Dominion Virginia Power,a subsidiary of Dominion Resources Incorporated in Richmond,Virginia. As such, he is responsible for electric transmission anddistribution services for 2.4 million customers in Virginia andNorth Carolina, as well as competitively priced energy andrelated services to another 1.6 million customers in 11 states.A U.S. Naval Academy graduate and carrier aviator, heculminated a 32-year Naval career with service as 26th Chief ofNaval Operations and as a member of the Joint Chiefs of Stafffrom 1996 to 2000. Johnson serves on the board of directors atGeneral Dynamics. Vice chairman of the board of directors;chair, Compensation and Benefits Committee; vice chair,Governance and Executive committees.» General Lester L. Lyles, USAF (Ret.)Member since 1968. Elected 2004.Lyles is an independent technology consultant, partner inFour Seasons Ventures and member of the NASA AdvisoryCouncil. He is also a director of Analytic Services Inc., BatelleMemorial Institute, Dayton Power & Light, General DynamicsCorp., KBR Corp. and MTC Technologies Inc. During his35-year military career, this distinguished graduate of the AirForce ROTC program served as commander of the Air ForceMateriel Command, vice chief of staff of the headquarters ofthe U.S. Air Force, director of the Ballistic Missile DefenseOrganization and commander of the Space and Missile SystemsCenter. Lyles received a bachelor’s degree in mechanicalengineering from Howard University. He received a master’sdegree in mechanical and nuclear engineering, as well as anhonorary doctor of laws, from New Mexico State University.Vice chair, Marketing and Programs Committee.» General 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, heflew more than 150 combat missions and commanded at alllevels, from squadron through major command. He served asthe NATO Air Commander, directing combat operations inBosnia. A graduate of the U.S. Air Force Academy, Ryan earneda master’s degree in business administration from AuburnUniversity and completed the National Security Program atHarvard University. Vice chair, USAA Advisory Panel; member,Compensation and Benefits Committee.» Rear 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 andthe U.S.S. Enterprise carrier battle group. He also served asexecutive assistant to the Chairman of the Joint Chiefs of Staffand as president of the Naval War College. A U.S. NavalAcademy graduate, Strasser earned master’s degrees ininternational relations and international law and diplomacy,and a doctorate in political science, all from Tufts University.Chair, Finance and Audit Committee; member, Governanceand Executive committees.The day-to-day operations of USAA’s companies and staff agencies are managedby the nine members of USAA’s Executive Council.FROM LEFT TO RIGHT:Wendi E. StrongExecutive Vice President,CorporateCommunicationsChristopher W. ClausPresident, USAAFinancial Services GroupF. David BohnePresident,USAA FederalSavings BankElizabeth D. ConklynExecutive Vice President,People ServicesSteven A. BennettExecutive Vice President,General Counsel &Corporate SecretaryKristi A. MatusChief Financial O∞cerUSAA Headquarters, Lobby Entrance, San Antonio, TexasStuart ParkerPresident, USAAProperty & CasualtyInsurance GroupWayne PeacockExecutive Vice President,Enterprise BusinessOperationsJosue Robles, Jr.President and ChiefExecutive O∞cer38 USAA 2007 REPORT TO MEMBERSUSAA 2007 REPORT TO MEMBERS 39

ADVISORY PANELUSAA’s 14-member Advisory Panel includes members of all ages and fromall walks of life. Panel members provide candid and valuable feedback aboutUSAA’s products, services, marketing campaigns and delivery methods.Additional InformationUSAA HeadquartersUSAA9800 Fredericksburg RoadSan Antonio, Texas 78288(800) 531-8646(annual report inquiries only)Independent PublicAccountantsErnst & Young LLPSan Antonio, TexasUSAA is not a publicly heldcompany and does not file anSEC form 10-K.Annual Meeting ofUSAA MembersSaturday, November 15, 20089 a.m. (Pacific Standard Time)The Fairmont Olympic Hotel411 University StreetSeattle, WA 98101The USAAEducational FoundationUSAA9800 Fredericksburg RoadSan Antonio, Texas 78288www.usaaedfoundation.orgWatch the video version of this report, includingmessages from the Chairman and the CEO,at USAA.COM/REPORTTOMEMBERS.Marcelite HarrisChairUSAA Advisory PanelMaj. General (Ret.)U.S. Air ForceRockledge, FloridaMember since 1967Stephen CrokerVice ChairUSAA Advisory PanelLt. General (Ret.)U.S. Air ForceChestertown, MarylandMember since 1963Carolyn AumanDaughter of anArmy o∞cerSanta Cruz, CaliforniaMember since 1992Veronica BandrowskyChief Warrant O∞cerU.S. Coast GuardCape May Court House,New JerseyMember since 1998Jabari CraddockCaptainArmy National GuardDurham, North CarolinaMember since 1997Regulatory DisclosuresEach company has sole financial responsibility for its own products.OtherInvestments/Insurance:Not FDIC Insured • Not Bank Guaranteed • May Lose Value40Carolyn DeKokWidow of anAir Force o∞cerColorado Springs, ColoradoMember since 1968Flora OrahoodMarried to a retiredArmy o∞cerAnderson, IndianaMember since 1968USAA 2007 REPORT TO MEMBERSMatthew DuffyLt. CommanderU.S. NavyNorfolk, VirginiaMember since 1995Jason RossSon of an Air Force o∞cerMurfreesboro, TennesseeMember since 1998Deanna GeorgeMarried to aMarine Corps o∞cerPapillion, NebraskaMember since 1993Stephen SheehyColonelU.S. Air ForceBeale Air Force Base,CaliforniaMember since 1980Andrew KellySon of a Naval o∞cerSan Francisco, CaliforniaMember since 1993Debra StricklandCommand Sergeant MajorU.S. ArmyWoodbridge, VirginiaMember since 1999Patricia LawrenceSenior Master SergeantAir Force ReserveSan Antonio, TexasMember since 1993Design: VSA Partners Inc. Principal Photography: Paul Elledge Photography“USAA” and “association” mean United Services AutomobileAssociation and its affiliates. Property and casualty insuranceprovided by United Services Automobile Association, USAA CasualtyInsurance Company, USAA General Indemnity Company, GarrisonProperty and Casualty Insurance Company, USAA County MutualInsurance Company, USAA Texas Lloyds Company and USAA Ltd.(Europe), San Antonio, TX, and is available only to persons eligible forP&C group membership. Investments provided by USAA InvestmentManagement Company and USAA Financial Advisors Inc., bothregistered broker dealers. Life insurance and annuities provided byUSAA Life Insurance Company, San Antonio, TX, and in New York byUSAA Life Insurance Company of New York, Highland Falls, NY.Financial planning services and financial advice provided by USAAFinancial Planning Services Insurance Agency Inc. (known as USAAFinancial Insurance Agency in California), a registered investmentadviser and insurance agency and its wholly owned subsidiary, USAAFinancial Advisors Inc., a registered broker dealer. Merchandiseprovided by USAA Merchandise Services Company. Alliance servicesprovided through USAA Alliance Services L.P. Credit cards providedby USAA Savings Bank. Other banking products provided by USAAFederal Savings Bank. Both Member FDIC.MemberThe term “member” generally refers to current USAA customers whoare eligible for property and casualty insurance, and their spousesand children who are current USAA customers. Use of the term“member” does not convey any legal, eligibility or ownership rights.To be a member of the USAA property and casualty insurance group,individuals must meet certain eligibility requirements and purchase aUSAA property or casualty insurance group policy. Eligible parentmust purchase property and casualty insurance for eligibility to passdown to children. Ownership rights are limited to policyholders ofUnited Services Automobile Association.BusinessWeek March 5, 2007 issue; BusinessWeek March 3, 2008 issue.A++ (Superior) from A.M. Best Co., highest of 16 possible ratings;Aaa (Exceptional) from Moody’s Investors Service, highest of21 possible ratings; Aa1 (Excellent) from Moody’s, second highestof 21 possible ratings; AAA (Extremely Strong) from Standard &Poor’s, highest of 21 possible ratings.The USAA Foundation and The USAA Educational Foundation (the“Foundations”) are nonprofit organizations sponsored by USAA.The Foundations do not endorse or promote any commercial supplier,product or service.

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