Nationwide Posts Solid 2011 First Half Results
Diverse Business Mix Enables Capital Growth Despite Weather-Driven Claims
FOR IMMEDIATE RELEASE
August 12, 2011
Eric Hardgrove (614)-249-6349
Columbus, OH – Nationwide reported today that it recorded $398 million in net operating income during the first half of 2011 despite one of the worst spring storm seasons on record. Results included more than $1.5 billion in weather-related claims to help customers rebuild following devastating storms across much of the country. Positive mid-year operating performance overall reflects continued growth in Nationwide’s financial services business and higher investment income. The company reported $759 million in net operating income during the same period in 2010. Nationwide is a leading provider of property & casualty insurance, financial services, and retirement products.
In the first six months of the year, Nationwide paid more than $6.6 billion to its customers and business partners. These payments included property & casualty claims, life insurance benefits, credited interest, and other accident and health benefits. Total operating revenue for the first half of 2011 was $10.5 billion. Net income was $219 million through mid-year 2011, compared to $483 million in 2010.
“Weather-related claims through mid-year are among the highest we’ve experienced in our history. Yet, because of our disciplined financial management, we’re able to help our policyholders recover and to pay claims with no significant impact to our overall capital position,” said Chief Executive Officer Steve Rasmussen. “In fact, Standard & Poor’s recently affirmed our A+ rating and upgraded our outlook to stable, based on our strength and diversification. We can’t control the weather or the economy, but we can control our risk selection, products and customer service. On all of these fronts, we’re doing better than ever, and that’s why I’m excited about where we’re heading.”
Financial Services Business Highlights
Nationwide offers individual and employer-sponsored retirement savings, banking and insurance products through four operating brands: Nationwide Financial, Nationwide Retirement Solutions, Nationwide Funds Group and Nationwide Bank.
First half net operating income for the financial services business was $443 million, up from $262 million last year. Continuing asset growth driven by strong equity markets and positive net flows were behind the solid first half performance. Several one-time benefits related to customer acquisition costs and taxes also favorably impacted current year results. Insurance premiums and deposits were $9.6 billion compared to $8.5 billion last year. The increase is due to strong variable annuity sales of $3.6 billion, up 56 percent compared to the first half of 2010. Total customer assets managed or administered were $163.8 billion as of June 30, 2011, compared to $160.1 billion at the end of 2010. Nationwide Funds Group, the company’s mutual fund division, reported $41.7 billion in assets under management while life insurance-in-force was $207 billion.
Nationwide Bank continued to enjoy strong momentum in the first half of 2011, reporting total assets in excess of $4 billion. Customer deposits were up to $3.2 billion from $2.8 billion at the end of 2010. Customer loans increased to $1.3 billion from $1.1 billion reported on December 31, 2010.
“Our strong sales performance in financial services is a direct result of our focused efforts to build strategic partnerships with select firms and advisors” said Chief Financial Officer Mark Thresher. “A combination of highly attractive products and service levels that are preferred by our business partners continue to fuel sales momentum. This is allowing us to gain market share faster than the competition as we strive to help our partners help their clients prepare for and live in retirement.”
Property & Casualty Business Highlights
Nationwide also provides personal and commercial property & casualty protection products through five operating brands: Nationwide Insurance, Allied Insurance, Scottsdale Insurance, Titan Insurance and Nationwide Agribusiness.
The property & casualty business reported a net operating loss of $53 million in the first half of 2011, compared to net operating income of $455 million in the first half of 2010. The decrease is due mainly to significant weather-related events that occurred in the spring of 2011. Direct written premium of $7.4 billion was flat relative to prior year. Performance highlights included a 10 percent increase in direct channel premiums and 20 percent growth in affinity channel premiums. Premiums in small “main street” commercial lines grew 4 percent over 2010, driven by company growth strategies and a modest improvement in economic conditions. Improving fundamentals also resulted in lower non-weather claims payments.
“Personal lines results continue to be challenged due to the severe spring storm season and the uneven economic recovery. Yet, we are encouraged by improving trends with regard to new business and retention levels,” Thresher said. “Commercial lines growth is also positive. Our surplus lines business, Scottsdale Insurance, posted 12 percent premium growth over last year, as growth initiatives aimed at penetrating markets with new product offerings across new channels are gaining traction. At the same time, we continue to carefully manage expenses for our entire property & casualty business while investing resources to improve distribution and service delivery to bring the best long-term value to our members and business partners.”
Investments and Capital
Net investment income was $1.7 billion for the half, compared to $1.5 billion in the same period of 2010. This increase was driven by stronger alternative investment performance led by private equity and real estate funds. The continued improvement in credit markets also resulted in lower investment impairments.
As of June 30, 2011, general account investments totaled $66.9 billion, up from $66.1 billion at December 31, 2010. Declining interest rates during the first half of 2011 drove an increase in the value of fixed income investments. During the six-month period, the company continued to add investment-grade corporate debt to its holdings.
Nationwide ended the second quarter with total assets of $152.6 billion, up from $148.7 billion at the end of 2010. Policyholder equity increased to $17.3 billion, up from $16.8 billion at the end of 2010.
Statutory surplus—a measure of financial strength and claims-paying ability evaluated by regulators and rating agencies—was $13.1 billion, more than three times the amount required by regulators to cover Nationwide’s obligations to its customers.
Rating Agency Updates
In July, Standard & Poor’s reaffirmed Nationwide’s “A+” rating and upgraded its outlook from “negative” to “stable”, citing Nationwide’s “very strong capital adequacy, strong enterprise risk management program, and earnings diversification through its life insurance operations.” Earlier this year, A.M. Best also reaffirmed Nationwide’s “A+” rating.
“Obviously, the adverse weather created great hardship for many of our policyholders and for their communities. But as terrible as these events were, they are a natural part of our business,” said Rasmussen. “As a mutual, our sole purpose is to serve the needs of our customers and to help them protect what’s most important and build a secure financial future. Our capital strength and financial stability ensure our ability to meet their needs now and in the future. I’m proud of how our associates, agents and business partners have responded to help our customers in this first half of the year. While Mother Nature and the economy do create great challenges, they also give us a chance to prove to our members why their decision to go with Nationwide was a good one.”
Nationwide Mutual Insurance Company, based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by both A.M. Best and Standard & Poor’s. The company provides customers a full range of insurance and financial services, including auto insurance, motorcycle, boat, homeowners, life insurance, farm, commercial insurance, administrative services, annuities, mortgages, mutual funds, pensions and long-term savings plans. For more information visit www.nationwide.com
Nationwide, the Nationwide frame mark, and On Your Side are service marks of Nationwide Mutual Insurance Company
1Nationwide analyzes operating performance using non-GAAP financial measures called “net operating income” and “net operating revenue”, which the company believes enhances understanding and comparability of its performance by highlighting its results from continuing operations and the underlying profitability drivers. Net operating income and net operating revenue exclude the impact of realized gains (losses) on sales of investments and hedging instruments, certain hedged items, other-than-temporary impairments, discontinued operations and extraordinary items, all net of taxes. Certain prior- period amounts have been reclassified to conform to current year presentation.
2Standard & Poor’s A+ ranking is 5th strongest of 22. A.M Best’s A+ ranking is 2nd strongest of 16. These ratings and rankings reflect Rating Agency assessment of the financial strength and claims-paying ability of Nationwide Life Insurance Company and are subject to change at any time. They are not intended to reflect the investment experience or financial strength of any variable account, which is subject to market risk. Because the dates are only updated when there’s a change in the rating, the dates above reflect the most recent ratings we have received.
3Standard & Poors Press Release “Nationwide Mutual Insurance Co. And Insurance Operating Companies Outlook Revised to Stable; Ratings Affirmed” issued on July 8, 2011.