CUNA Mutual Turns Profit in Tough Times
CUNA Mutual's decision to diversify helped the credit union insurance giant increase its net income year over year despite the poor economic times.
The company's net income grew from $51 million in 2009 to $87 million in 2010. "The difference between those two numbers is almost exclusively-well, part of it was the operating gain which was driven by crops. The other part was we still had some assets that were impaired from the recession in 2009 that we wrote off; we still had some in 2010 but they're fewer," CUNA Mutual President/CEO Jeff Post explained.
He continued, "2010 is a perfect example of why we went out to diversify the company several years ago. To be honest with you our strongest performing business in 2010 was our crop insurance." Record crop production in the U.S. and droughts elsewhere, like Russia, bolstered that business sector.
To credit unions' benefit, Post said, this allowed CUNA Mutual to hold rates as low as possible because they are struggling in the current environment.
"Our loss ratio on the bonds' side exceeds 150%," Post said. "In layman's terms what that means is we're paying out a dollar-fifty in claims for every dollar we take in in premiums...That's not sustainable." However, the insurer can make it work for some time as long as other areas are doing well.
But why crop insurance? Post went that route following the positive experience he had with it when he was running the Fireman's Fund, which had partnered with Wells Fargo and was the largest crop insurer in the country. He quipped, "In show biz terms we put the band back together again."
And Post said it's relatively simple to manage. "If it rains in the right places at the right time, all you're doing is you're insuring yields and essentially price," he said.
CUNA Mutual also bought a 401K administration business for diversification and is looking for other opportunities that can tie back to credit unions. He admitted that crop insurance is a bit of a stretch but there is some crossover.
Earlier this month, CUNA Mutual announced the sale of its Australian business, saying it concluded that its Australian business would be better positioned to serve its customers and for future growth under a different ownership structure. Part of the decision was CUNA Mutual acknowledging its difficulties building a motor and home insurance product base in Australia.
The company rounded out its profitable year with well-performing investments.
Post pointed out, though, that credit unions are still facing two key challenges. "I'm not a credit union CEO but basically as you look at most of the credit union CEOs that I talk to and talk about their business, right now we're all kind of victims of the economic malaise that this country is in. Despite the marketing of our government officials in Washington, D.C., the fact of the matter is the economy is better. It's not in freefall anymore, but you surely aren't in what would traditionally have been a U- or a V-shaped recovery... We really see the economy as what we call a lumpy L." Credit union executives need two things to happen: home prices to stabilize and employment to increase.
Similar to credit unions, CUNA Mutual's gains were paid out to its members in a number of ways. Reimbursements to the state leagues increased from $30 million to $35 million. For example, according to Post this helped the Maryland & D.C. Credit Union Association suspend dues for smaller credit unions. The leagues drive revenue to CUNA Mutual so the insurer returned the favor, and it saves credit unions money on dues.
Other dividends have included financial and advocacy support on issues including Reg Z, unrelated business income tax and Dodd-Frank.
Additionally, CUNA Mutual is a big sponsor of the Credit Union 10-Mile Cherry Blossom Race held in Washington every spring."