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USAA Letter to Members

In 2005, our nation endured a record-breaking hurricane season — one that left entire cities along the nation’s Gulf Coast destroyed. Rebuilding will take years, if not decades, to complete.
USAA stood by members through Katrina and Wilma — hurricanes that rank among the most costly in U.S. history — as well as through tornadoes, fires, and other disasters that made 2005 the most expensive catastrophe year the association has ever experienced. USAA’s second most costly year was 2004, and 2003 ranks fourth.

Successful efforts to increase efficiency and productivity allowed USAA to stand strong against the storms and, at the same time, return nearly $6.5 billion1 — more than half of its $12 billion in revenues — to members in the form of distributions, dividends, claims payments, and other monetary benefits.

USAA Ratings

  • 2.6
    coverage
  • 2.6
    cost
  • 2.2
    service
  • 2.1
    claims
  • 2.4
    overall rating

Based on 168 review – 1 is lowest, 5 is highest

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Member Value

Although 2005 was the worst catastrophe year in USAA’s 83-year history, we were able to return nearly $6.5 billion to you — more than half of USAA’s $12 billion in revenues.

Value of Membership
in millions
Returned to Members (SSA and Auto Dividends) $ 449.4
Reduced Prices 321.0
Bank Rebates and Rewards 199.9
Life Policyholder Dividends 44.5
Eliminated or Reduced Fees 38.8
Free Services 32.8
Increased Interest Paid 5.3
Member Savings and Distributions $ 1,091.6
Claims Paid by P&C and Life Cos. 5,360.2
Total Returned to Members $ 6,451.8

USAA’s financial strength also allowed it to provide members with the support they deserve and have come to expect over the association’s 83-year history. The numbers speak for themselves:

133,000 members turned to USAA in the wake of natural disasters and other catastrophes,
143,000 deploying members relied upon USAA to help them with their financial-services needs, and
541,000 members sought free advice about financial issues both large and small.
A legacy of service to those who defend our nation
In 1922, when 25 Army officers decided to insure each other, they could not have imagined their tiny association would grow to become the only fully integrated financial services company in America.

We believe they would be pleased to know that USAA has remained true to its founding values of service, loyalty, honesty, and integrity. These are the values many of us grew up with, and they are the values of our military personnel — from USAA’s founders to those currently serving our nation. While some may consider them old-fashioned, we consider our values timeless.

Serving you best, because we know you better
Today, 5.6 million members live in 4.5 million households, and they own almost 22 million USAA products, an average of nearly five per household.

Service, loyalty, honesty, and integrity — some may consider these core values old-fashioned; we consider them timeless.

Unfortunately, more than 1.6 million USAA members aren’t getting the full benefit of their USAA memberships. They know us only as a home and auto insurer, and not as:

A full-service online bank that rebates ATM fees2, allows you to pay bills electronically for free, and lets you manage your money from anywhere in the world.

A highly regarded investment company that has received awards and recognition from Morningstar, Lipper, and the financial press.

A life insurance company that issues policies without a war clause. We even issue coverage as our members deploy.

A financial planning company staffed by certified experts who are salaried — not on commission.
usaa.com, where you can check balances, pay bills, transfer money between accounts, get stock quotes, make changes to your auto policy, and even file an auto insurance claim — with world-class security, whenever and wherever it’s convenient for you.
USAA provides more than 150 products and services to its members. Because USAA employees are also members, they know from personal experience that you expect excellent service and high-value products, delivered with your needs in mind.

USAA is not a publicly traded company, so we don’t answer to stockholders — we answer to you. You can rely on us to suggest products and services that meet your financial needs; not those that generate the most income for USAA.

USAA keeps prices as low as possible to give you the best value. Price reductions alone totaled $321 million in 2005.

In fact, some of USAA’s best advice costs absolutely nothing. Advisors in the Financial Advice Center will answer your questions, large and small, at no charge.

Independent research confirms USAA’s commitment to members’ best interests. For the second year in a row, the association placed first in a Forrester Research survey that asked participants whether their financial provider did what was best for them, and not for the company’s bottom line. Eighty-one percent of USAA members surveyed said they consider USAA a consumer advocate. Credit unions placed second with a 67 percent positive rating, and all other financial services companies scored even lower.

We remain committed to providing you a full range of competitively-priced products and services. In fact, our goal is to provide you the best value anywhere.

Building financial strength for today and for the future
USAA owns and manages $96.1 billion in assets, has revenues of $12 billion, and a net worth of $11.2 billion.

In terms of assets, it is the 78th largest company on the Fortune 500 list. However, it ranks 191st in revenues and 90th in net worth. Why the disparity?

Because USAA keeps prices as low as possible to give members the best value, which, in turn, reduces revenues. In fact, price reductions alone totaled $321 million in 2005.
USAA returns to members any capital in excess of that required by regulatory authorities or for the financial stability of USAA, as determined by the board of directors. This reduces net worth. In 2005, USAA authorized Subscriber’s Savings Account (SSA) distributions and policyholder dividends of $449.4 million.

Financial Strength

A strong net worth position ensures USAA can pay your claims now and in the future, meet regulatory and rating agency requirements, and fund current and future operations. USAA’s strong net worth helps protect it from uncontrollable forces like interest rates, the stock market, and catastrophes.

USAA’s investment style is conservative, and much of its financial success can be attributed to its focus on productivity and operational efficiency, rather than on income from the stock market.

In fact, USAA’s superior financial strength allowed it to pay last year’s record catastrophe claims without borrowing money or liquidating assets.

Three key measures of a company’s financial strength are its net worth, liquidity, and debt ratio.

USAA’s $11.2 billion net worth ensures we can pay your claims now and in the future, meet regulatory and rating agency requirements, and fund current and future operations. With meteorologists predicting more frequent and severe storms in the years ahead, USAA’s strong net worth is a necessity, not an option.

USAA maintains a highly conservative ratio of debt to total capital at 8.2 percent, and finished the year with only $1 billion in outstanding debt, compared to more than $32 billion available from various funding sources.

Financial ratings are another important indicator of a company’s financial strength, and in 2005 USAA maintained superior ratings from all three of its rating agencies.

USAA was one of just two U.S. property and casualty insurance companies with the highest ratings for financial strength from A.M. Best, Moody’s Investors Service, and Standard & Poor’s.

Membership

USAA provides more than 150 products and services to its members. And because USAA employees are also members, they know from personal experience that you expect excellent service and high-value products, delivered with your needs in mind.

Member Growth

USAA continues to grow. Today, 5.6 million USAA members live in 4.5 million households, and they own almost 22 million products — an average of nearly five products per household.

Member Composition

USAA’s membership is nearly evenly divided between those who have personally served in the military, and their grown children and grandchildren.

Supporting employees, so they can support you
Employee well-being is important, not only to the daily workings of USAA, but also for member service.

USAA is dedicated to maintaining an environment that allows its nearly 22,000 employees to reach both personal and professional goals.

At the same time, USAA seeks to hire men and women with strong work ethics, strong character, and strong value systems — in other words, individuals who embody USAA’s core values.

Some of USAA’s best advice costs absolutely nothing. Advisors in our Financial Advice Center will answer your questions, large and small, at no charge.

Staying strong through good governance
USAA could not support its members or sustain its financial strength without sound governance by its board of directors, which operates under a corporate governance process that is among the most rigorous in the nation.

At the 2005 Members’ Meeting, one director was unanimously re-elected: Michael E. Ryan, president of the Ryan Associates consulting firm, a former NATO Air Commander directing combat operations in Bosnia, and the 16th Chief of Staff of the U.S. Air Force.

Trusted advice from a company you can count on
Since 1922, military families have known USAA as a company they can trust. After all, USAA was founded by military personnel for military personnel, and our commitment to serving the financial needs of those who serve our nation will not waver.

We are proud to support those who defend our freedom, both stateside and abroad. Our financial strength ensures that no matter what happens, no matter what catastrophes we face, or what challenges the future brings, USAA will endure.

No other company is as strong as USAA is today. We intend to keep it that way, for today’s generation of USAA members, and for generations of members to come.

Sincerely,

ROBERT G. DAVIS
Chairman and Chief Executive Officer

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