Nationwide Posts Strong First-Half 2010 Results

COLUMBUS, Ohio--Better claims experience, combined with improved equity and credit markets, enabled Columbus, Ohio-based Nationwide to earn net income of $483 million in the first half of 2010. That represents a 45 percent increase over the $332 million in net income reported in the first half of 2009. Total operating revenue through June 30, 2010 was $10.4 billion, essentially flat compared to the first six months of 2009.

“While I am pleased with our progress so far this year, there are still several challenges on the horizon that could directly impact business results”

“In spite of the ongoing challenges posed by a sluggish economic recovery, we’re pleased with the progress we’re making both to deliver our On Your Side brand promise to our customers and to further reinforce our financial strength,�?? said Steve Rasmussen, chief executive officer. “In the first six months of 2010 alone, Nationwide returned nearly $6 billion to our customers in the form of auto, home and life insurance claims payments and other benefits. At the same time, rating agencies continued to recognize our ongoing financial stability, strong risk management capabilities, broad product array and diverse distribution channels.�??

The company’s property and casualty and financial services operating units both reported significantly improved results in the comparable first-half periods. In property and casualty, better-than-expected claims experience – primarily favorable experience on previous years’ reserves – drove improved operating performance. In financial services, improved equity and credit market conditions in the first half of 2010 compared to 2009 drove an increase in asset-based fees and policy charges. Total net operating income for the first half was $739 million compared to $398 million for the same period in 2009. ⁽ⁱ⁾

Property and Casualty Business Highlights

Nationwide provides personal and commercial protection products through five operating brands: Nationwide Insurance, Allied Insurance, Scottsdale Insurance, Titan Insurance, and Nationwide Agribusiness.

Net operating income for the property and casualty business lines for the first half of 2010 was $459 million, up significantly from $188 million in the first half of 2009.

“A continued pattern of severe winter and spring storm losses in the first half of 2010 was more than offset by lower non-weather home and auto claims,�?? said chief financial officer Mark R. Thresher. “Property and casualty results benefited from the combined impact of underwriting actions and improvements to claims processes, which were a significant driver of payments on previously filed claims emerging lower than previously estimated.�??

An increase in investment income also contributed to better 2010 first half results. Last year’s investment results reflected significantly lower private equity income due to poor market conditions in the first half of 2009. Increased levels of fixed income investments in 2010 have more than offset a decline in investment yields.

Earned premiums of $7.3 billion through the first six months of 2010 were down 4 percent compared to the first half of 2009. The decline reflects risk management and underwriting initiatives, as well as consumer-driven actions in a challenging economic climate. Ongoing soft market conditions in commercial lines also continue to challenge premium growth.

Financial Services Business Highlights

Nationwide also provides individual and employer-sponsored investment and retirement savings vehicles through three operating brands: Nationwide Financial, Nationwide Retirement Solutions and Nationwide Bank.

Net operating income for the financial services business was $262 million for the first half of 2010, compared to $159 million in the first half of 2009.

“The improved performance reflects improved equity and credit markets in 2010 compared to a year ago, which drove higher asset-based fees on variable products, including annuities, retirement plans, mutual funds, and variable life insurance,�?? Thresher added. “Sales momentum continued in fixed life insurance and variable annuities, reflecting very competitive offerings and strong customer demand for guarantees.�??

First half core product sales were $8.5 billion in 2010 compared to $7.9 billion in 2009. Sales results reflect strong growth in first-year fixed individual life insurance premiums, which were $262 million in the first half of 2010, compared to $80 million in the same prior year period. Variable annuity sales also contributed to continued sales momentum, growing 20 percent in the first half of 2010, to $2.3 billion.

Separate account assets stood at $55.2 billion at the end of the first half of 2010, down from $57.4 billion at the end of 2009, up 9 percent from $50.5 billion at the end of the first half in 2009. Net flows were $1.2 billion through the first six months of 2010, excluding Nationwide Bank, and reflect sales growth and improving retention, especially in individual annuity products.

Nationwide Bank net deposits were $400 million for the first six months of 2010 and total customer deposits grew to $2.85 billion, up from $2.45 billion at the end of 2009. Loans grew to $735 million at the end of the first half of 2010, compared to $684 million at the end of 2009.

Investments and Capital

Policyholders’ equity increased to $16.5 billion as of June 30, 2010, up from $15.1 billion at the end of 2009. The increase was driven by earnings and unrealized appreciation on invested assets over the first six months of the current year.

Statutory surplus—a measure of financial strength and claims-paying ability evaluated by major rating agencies and insurance regulators—ended June at $12.5 billion, more than three times the amount required by regulators to cover Nationwide’s obligations to its customers.

A combination of declining interest rates and the resurgence of equity market volatility had a substantial impact on investments and capital in the first half of 2010. Nationwide’s total assets at the end of the first half of 2010 were $139.8 billion, including $66.0 billion in general account invested assets. At the end of 2009, total assets were $140.1 billion including general account invested assets of $63.9 billion. General account investments reflect a continued shift toward high-quality fixed income securities, and lower exposure to commercial mortgage loans.

“We’re very pleased that, in spite of challenging market conditions, Nationwide policyholders continue to benefit from our solid position of capital strength,�?? Thresher said. “To be able to grow policyholder equity and to exceed levels of capital required by regulators means we are well positioned to meet our customers’ needs now and over the long-term. It is a key element of the value we bring to customers who are seeking stability in a market full of uncertainty.�??

Outlook

“While I am pleased with our progress so far this year, there are still several challenges on the horizon that could directly impact business results,�?? Rasmussen added. “The pace and extent of the economic recovery, market volatility, and the potential threat of hurricanes will impact our performance. We will continue to execute against our strategy of offering ever-improving value for our customers over the long term.�??

A table of financial highlights is available at www.nationwide.com.

About Nationwide

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 & Poors. 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, long-term savings plans and health and productivity services. For more information, visit www.nationwide.com.

Nationwide, the Nationwide frame mark, and On Your Side are service marks of Nationwide Mutual Insurance Company

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Nationwide 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.