|Financial Review Tuesday, 19-Dec-2000 00:30:14 EST
In 1998, Farmers Group, Inc.'s net income was $576.8 million. Excluding $21.1 million of
costs associated with the merger with Zurich and a $46.0 million write-off of impaired
assets, net income before realized capital gains and losses totaled $591.2 million for the
year, an increase of nearly 10 percent over 1997.
Revenues, which primarily consist of management fees from the Exchanges and their
subsidiaries, continued to grow, reaching a record level of $1,358.2 million for the year,
up 2.5 percent over 1997. This growth was directly attributable to growth in the P&C
Group's gross earned premiums, which increased from $10.1 billion in 1997 to $10.3 billion
in 1998, despite increasingly competitive market conditions. Excluding the merger and
write-off expenses, total operating expenses, at $735.0 million, decreased as a percentage
of revenues for the fourth consecutive year. This decrease reflects continued attention to
cost control and further efficiencies realized through the greater use of information
technology systems. Investment income decreased by 6.3 percent in 1998 to $135.1 million,
primarily due to the capital contribution made to Farmers Re during the year. Net income
from providing management services, excluding realized capital gains and losses and the
merger and write-off expenses, totaled $425.6 million, a $21.8 million, or 5.4 percent,
increase over 1997.
Beginning in 1998, Farmers Re entered into a reinsurance agreement with the Exchanges and
their subsidiaries under which it reinsures a per-centage of the auto physical damage
business written. This reinsurance agreement increases the P&C Group's underwriting
capacity, while providing another source of revenue for Farmers Group, Inc. In 1998,
Farmers Re contributed $26.3 million to Farmers Group, Inc.'s consolidated net income
before realized capital gains and losses.
In 1998, Farmers Life's sales volume increased to a record $16.9 billion and, as a result,
total insurance in-force grew 7.6 percent to $106.5 billion at year-end. Revenues from
traditional life policies increased $19.8 million, or 14.7 percent, and revenues from
universal life policies increased $5.6 million, or 2.8 percent, reflecting the higher
volume of insurance in-force. A reduction in the level of net realized gains in 1998 led
to a slight reduction in life insurance net income compared to the previous year but,
excluding realized capital gains and losses, Farmers Life's net income increased 6.2
percent over 1997.