In a year marked by unprecedented severe weather and volatile market conditions, Nationwide maintained a stable capital position while meeting customer needs.
Nationwide on Friday reported $585 million in net operating income1 in 2011, compared to $1.1 billion in 2010. Operating earnings in 2011 reflect strong performance in the company’s financial services business, offsetting weather-driven losses in its property & casualty businesses. Nationwide paid a record $2.3 billion in weather-related claims, nearly $1 billion more than in 2010.
Total sales in Nationwide’s property & casualty and financial services businesses improved overall in 2011. Momentum further accelerated in the fourth quarter as Nationwide set record sales for variable annuities, and saw two percent growth in property & casualty direct written premiums over fourth quarter 2010.
“There’s no question 2011 was an extremely difficult year, but we’re strong, stable and ready for whatever the market and Mother Nature can throw at us in 2012,” said Chief Executive Officer Steve Rasmussen. “As a mutual insurance company, it is our mission to be there for our members when they need us most. Nationwide’s solid business fundamentals and diverse businesses, each with a strong market position, allow us to deliver our On Your SideSM promise while protecting our capital and enhancing our long-term competitive position.”
In 2011, the Columbus, Ohio-based insurer and financial services provider paid more than $13.2 billion to customers and business partners in the form of property & casualty claims, life insurance and other benefits. Total operating revenue for 2011 was $20.7 billion, the same amount reported in 2010.
The company ended 2011 with $154.8 billion in total assets, including $68.2 billion in general account investment assets. Policyholder equity increased to $17.0 billion, up from $16.8 billion in 2010.
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.
Net operating income for the financial services business grew to $737 million in 2011, up from $528 million last year. Results were driven by an increase in policy charges and fee revenues collected, reflecting an increase in average customer assets managed, and by one-time benefits related to customer acquisition costs and taxes. A record year of sales for variable annuities helped propel overall sales to $19.6 billion, up 14 percent from 2010. Nationwide’s exclusive agency channel posted strong life insurance sales, with more than 50,000 policies sold to existing property & casualty policyholders.
“We are very pleased with our strong sales performance, and we plan to continue that success by leveraging our diverse product portfolio to drive future growth,” said Kirt Walker, President and Chief Operating Officer of Nationwide Financial. “Our goal remains focused on building strategic partnerships and offering a combination of highly attractive products and services that help our partners help their clients prepare for and live in retirement.”
Financial services customer assets under management totaled $160.4 billion in 2011, including nearly $41 billion managed by Nationwide Funds Group, the company’s mutual fund division. Nationwide Bank continued its strong momentum, reporting total assets of $4.4 billion. In 2011, customer deposits increased by 19 percent to $3.4 billion, up from $2.8 billion in 2010. Customer loans increased to $1.5 billion from $1.1 billion this time last year. Life insurance in force topped $196 billion at the end of 2011, and the company served more than 1.7 million participants through public- and private-sector sponsored retirement plans.
Property & Casualty Business Highlights
Nationwide also provides property & casualty protection by selling personal and commercial 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 $203 million in 2011, compared to a net operating income of $645 million in 2010. Property & casualty results were heavily impacted by severe weather claims of $2.3 billion, a record for the company.
Direct written premium (DWP) was $14.7 billion, compared to $14.6 billion in 2010. Premiums through the company’s direct and affinity channels surpassed $1 billion for the first time, up 13 percent from last year. Premiums also were up strongly in the company’s excess and surplus, “main street” commercial and agribusiness lines, which offset modest declines in personal lines premiums.
“While we saw tremendous growth in several key areas, an uneven economic recovery in 2011 pressured our personal lines, particularly auto and homeowners. However, as the economy gradually improved during the year, we saw positive trends emerge in new business, average commercial premiums and customer retention,” said Chief Financial Officer Mark Thresher. “Additionally, we’re beginning to see benefits materialize from investments aimed at growing our business and expanding strategic partnerships.”
Investments and Capital
Net investment income was $3.1 billion in 2011, the same amount reported in 2010. Higher returns from alternative investments and Treasury Inflation Protected Securities offset lower bond prepayment income. Lower interest rates during the year resulted in an increase in the fair value of fixed maturity investments, driving general account investments to $68.2 billion at the end of 2011, up from $66.1 billion at the end of 2010.
Declining interest rates during the second half of the year also negatively impacted the value of certain investments. These investments are designed to offset some product liabilities that are sensitive to interest rate changes and stabilize capital over time. These losses contributed to an overall net loss of $582 million in 2011. While the company’s investment risk management program can cause volatility in reported earnings, statutory capital remained stable at $12.8 billion at the end of 2011, compared to $13.0 billion at the end of 2010. Statutory capital is the primary measure of financial strength and claims-paying ability used by rating agencies and insurance regulators.
“Our diverse product line-up and unique distribution capabilities enable us to deliver protection and retirement solutions in a way competitors simply cannot offer,” Rasmussen said. “We also have the scale to deliver efficiently, with nearly all of our businesses ranked in the top ten in the markets where we compete.This combination of product, distribution and size provides Nationwide with a unique financial balance in an unpredictable marketplace, and we are well-positioned to take advantage of this opportunity.”