CUNA Mutual Reaps $87M Net As Result Of Sowing New Oats

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MADISON, Wis. — CUNA Mutual Group is reporting net income for 2010 of $87-million, a 58% increase over one year earlier, despite a struggling economy and flat to negative growth at most credit unions.

The gain comes despite only a small increase in total operating revenue to $2.5 billion in 2010, up from $2.4 billion in 2009. The $87 million in net income, up from $51 million one year earlier, was driven by a source that may surprise many credit unions: crop insurance. As part of a diversification effort by CUNA Mutual, the company completed in 2009 its acquisition of Amarillo, Texas-based Producers Ag Insurance Group (ProAg).

A second income driver for CUNA Mutual in 2010, according to CEO Jeff Post, has been the run up in the market. "Our asset accumulation business has done very well," said Post, adding that unlike 2009, the company had fewer asset write-downs.

The CUNA Mutual numbers are from unaudited financials; audited financials will be released in April.

Income Compensates For 'Challenges'

Income from those areas helped compensate for what it called "challenges" in other product lines. Primarily known for its bond insurance coverage, CUNA Mutual's loss ratio on that product was approximately 150% in 2010 ($1.50 in claims for every $1 in premiums). "We know it's a tough time for credit unions and we are trying to keep our rates down," said Post, "despite all the fraud in the system."

The recession has led to many of those increased losses from fraud, and Post said CUNA Mutual has responded by setting higher deductibles and doing better risk management with those policies. One area where CUNA Mutual has largely escaped significant losses has been the corporate credit unions. CUNA Mutual did not insure corporates, with the exception of D&O coverage, and in the case of WesCorp caught a break when NCUA declined to renew that coverage after placing the California corporate in conservatorship.

Post did note that CUNA Mutual has been watching what will develop related to outside directors in WesCorp and believes it has found a way to provide retroactive coverage to directors who are being "bled to death" by legal costs. In addition, CUNA Mutual noted that during the renewal process in January 2010, CUNA Mutual offered all of its corporate CU customers expanded coverage as it relates to defense costs for investment related losses as part of an effort to provide more protection for directors and officers beyond the $100,000 limit. In some situations where there were pending claims, CUNA Mutual said the coverage was offered retroactively to prior policy periods.

Investments Had 'Very, Very Good Year'

Meanwhile, since taking over as CEO, Post has overseen the expansion of CUNA Mutual's investment area, which he said had a "very, very good year last year, not just on the insurance side, but in the dollars we invest for credit unions, for members and for employees."

The operating revenue growth and net income gains are being seen in funds provided for credit union advocacy. CUNA Mutual reported that in 2010 it paid state leagues reimbursements of $35 million, with total funds for industry advocacy $39 million. Those two figures are up from $30 million and $33 million, respectively, in 2009.

Post said income gains at CUNA Mutual are not coming from any significant cost reductions. While costs remain a daily focus, it did not make any moves in 2010 similar to the layoffs the company made four years ago.

"The idea is to make us a cost-competitive company," said Post, who on one hand says he sees "signs of life" in an economy whose shape he describes as a "lumpy L," but who on the other hand says the company remains "in cash."

"We have proven that we can make money through a recession, and that's what a good company does," said Post. "That's what diversification does."

He acknowledged there will be future years unlike 2010 when there are droughts and freezes and when crop insurance suffers, but that will also be when other parts of the company pick up the slack.

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