American Income Life Insurance Company National Income Life Insurance

American Income Life Insurance Company National Income Life Insurance Company 2006 Report to the Labor Advisory Board Roger Smith President and CEO 005 was a challenging and difficult year for our country, working families, and American Income and our subsidiary National Income. War, weather, corruption, scandals, bankruptcies, and mass layoffs raised public anxiety to new levels. However, 2006 offers new hope and opportunities to turn things around. At American Income and National Income, we understand the importance of the markets we serve — unions, associations, credit unions, and other organizations who advocate for labor related causes. We believe these markets are important because they focus on advancing the interests of working families. Our Company’s history rests on that exact founding principle. This is why we have assembled a sales force of insurance professionals who believe in the working families of the communities they serve. This is their focus — providing affordable family protection — and their goal. Knowing this, we want to, as a Company, broaden our scope and expand our penetration within those communities. The spectrum of the 2006 horizon is already looking bright. A positive development took place with the Solidarity Charter Program which will open doors to a stronger labor movement at the community level. The agreement to move forward with this program is not only welcome news, but will allow the local unions of the disaffiliated national organizations to participate in AFL-CIO state and local bodies. We understand the importance of strong unions at any level, which is why we are proud of our representatives who are also union members, represented by the Office & Professional Employees International Union Local 277. We encourage their participation as union members in state and local organizations, and we support their activities as union members in collective bargaining campaigns, organizing, and political action. In the end, we want people to know that our representatives are union members — just like you — advocating for labor and labor related causes. Given the hope and promise on the horizon for the labor movement as a whole, the opportunities abound for us as well. Our excitement comes by way of the programs we intend to implement in 2006. • First, we plan on opening new Agency offices in communities around the country, in Canada, and New Zealand. 2 2 We plan on hiring more sales, Public Relations, and customer service professionals, thereby adding more members to OPEIU Local 277. • We plan on intensifying our outreach to state and local labor organizations and do all we can to support their success. • Finally, we will expand our community-based services to household members of union families and the families of organizations that are allies of organized labor. This expansion makes good business sense, not only because it is the right thing for working families, but because it is the right thing for others seeking affordable family coverage and protection. I believe we have great opportunities and possibilities for 2006, and I believe if we remain strong in a two part philosophy — having a strong belief system and thinking big for the future — these opportunities and possibilities will serve us well. I understand — and more importantly the Company as a whole understands — that when working families prosper through their unions, our Company prospers, which benefits our shareholders, our employees, and our policyholders. Again, we can only do this by working together in the communities where we live and work. Today, working families are under pressure as never before — health care is more costly and less available, the expectation of retirement with a guaranteed pension is all but disappearing, and job security is definitely harder to achieve. However, what is most discouraging is that individuals of the next generation may not do as well as the generation before, and this offers a profound challenge. Challenging as it may seem, I am eased by the assurance that America is a nation of community builders where problems can be addressed and working families can band together to help each other out. At American Income and National Income, we are committed to doing our part because we have a moral obligation to join together with our brothers and sisters to see all of our struggles through to the end — everyone pulling together to make our communities stronger, our labor movement formidable, and bringing hope that things will be better for the next generation! In solidarity, • 2005 Highlights As is the tradition, this report serves as an overview of our accomplishments for the past year. 2005 offered some challenges, but it also marked many milestones for AIL and NILICO. Our A.M. Best rating remained at A+ “Superior,” their second highest rating, for overall company financial strength. American Income and National Income are 100 percent union companies which operate with an ongoing commitment to integrity, superior capitalization, and the highest levels of service throughout the marketplace. We are proud to say that we believe this is reflected in our rating from A.M. Best, a worldwide insurance-rating and information agency with more than 100 years of experience. The number of union members covered under our blanket group Accidental Death & Dismemberment coverage increased. The number of members covered under this no cost benefit has risen to over 8.65 million. This means we cover more than 50 percent of all union members and their families. Members from almost every union are covered under this benefit, with total coverage exceeding $14 billion. Approximately 650,000 union households were visited in 2005. All the union households visited by our representatives voluntarily responded to an AIL or NILICO no cost benefit offered through their local union. More working families realized their need for supplemental insurance. Sales premiums from working families exceeded $96 million in net sales. Further, our quality of business through 13-month retention showed an increase of four percent over 2004. This trend reflects our ongoing commitment to policyholder satisfaction and service which has resulted in over $24.1 billion (as of December 2005) of permanent life insurance in force. More than $60 million of life claims and $26 million in accident and health claims were paid to working families through their benefits with American Income and National Income combined. Under the AD&D no cost benefit, over $2.2 million were paid to union families. Plus, our Partners® program saved users approximately $1.3 million on prescription medications alone. With working families needing affordable prescription drugs, there is a renewed commitment to improve the benefits and utilization of this discount program and all of our offered no cost benefits. Our efforts were focused on creating more union jobs. Currently, American Income and National Income provide approximately 2,100 union jobs. While most major industries continued to downsize, AIL and NILICO were expanding markets and career opportunities. AIL and NILICO have always been a fully union company; from knowledgeable representatives writing applications in the field to skilled staff producing and servicing policies in our Home Office, they work under collective bargaining agreements. It is also through increased commissions, production bonuses, and lifetime vesting, that the field force has seen a phenomenal growth in long term net worth and a secure financial future. 3 As labor redefines its priorities and use of resources, one thing becomes completely evident to me — regardless of the need for support in politics or organizing — the members of OPEIU Local 277 at American Income Life and National Income Life continue to be the bedrock of grassroots action. Messaging: A perspective on American Income and National Income’s involvement in the political arena from OPEIU International President, Michael Goodwin. Politics & Organizing — Doing It All When it comes to fighting anti-union initiatives statewide, electing pro-labor candidates in special elections, or supporting municipal campaign reform measures, members of Local 277 are always on the front lines. Mobilizing: The entire Local 277 membership in California was galvanized in the 2005 fight against Proposition 75, a “paycheck deception” bill aimed at public employees. Coordinated activities within the Central Labor Councils and State Federations of Labor with the support of Local 277 members returned results. The distribution of literature through direct mail, in-home delivery, door knocking, and phone banking resulted in the defeat of Proposition 75. This was an outstanding victory for organized labor in demonstrating the strength of union solidarity. Susan Fuldauer, a 20-year member of Local 277, became one of the newest labor candidates to run for elected office. Susan faces a critical state race in Indiana, where she has challenged the rabid anti-union Speaker of the House. She faces a tough election but has labor’s 100 percent support. Money: There is never a shortage of financial contributions by Local 277 members. They have contributed more than $300,000 per Congressional cycle to OPEIU’s J.B. Moss VOTE Fund and remain the largest unit of contributors on a per capita basis within OPEIU. In addition to their monthly contributions, their answer is always a resounding “yes” whenever asked to step up and contribute more. For example, in 2005, more than $20,000 in additional funds were directly contributed to defeat Proposition 75, and $10,000 was pledged by Susan Fuldauer’s peers to her campaign, which will be matched by an AIL contribution. These are just a few examples of the true trade unionism practiced by Local 277 members day in and day out! I look forward to the “full engagement” of Local 277 members in the 2006 Congressional elections. We will continue to coordinate within the structure of the labor movement and effectively direct our financial and human resources toward targeted races. I look forward to this year’s elections and positive results with the full knowledge that OPEIU members will help elect candidates who support working families. I am very proud of the great work and contributions made by Local 277 members. 4 Not just in word, but in deed. Not just in good times, but in bad. With a strong commitment, American Income and National Income are there with an outreached helping hand! What does labor want? The answer may be as varied as this historic paraphrased response of Samuel Gompers, “more schoolhouses, more books, more learning, more leisure, and more justice.” Regardless of time, the answer always comes back to community and justice. The stories of individual 277 members and their involvement in their communities reflect both the historical desires of labor and modern day “giving back” — a culture nurtured at AIL/ NILICO. I continue to be amazed at how Local 277 members manifest their commitments in their local communities. When an executive board presentation is made, an insurance policy is sold, or a claim is paid, real people — members of Local 277 — are providing the service. I would like to share a few of their stories. Last year, the Shoot for the Cure benefiting the UFCW Leukemia/Lymphoma Fund exceeded all expectations! Mark Gagliardi, Larry Lozano, and Chuck Hill produced another successful event in Northern California and Las Vegas. In 2006, they will produce four additional shoots by request of Leukemia and UFCW from Washington State, Detroit, Dallas, and New York. The total donation should easily exceed $100,000! David Blaisdell and Susan Kelleher have spearheaded local agency involvements; raising money and awareness for Guide Dogs of America. Their activities have resulted in an increased corporate donation to the William Winpisinger Charity Banquet. Politics are personal and local. PR activist George Farenthold is an elected member of the board of trustees in an upstate New York village, Susan Fuldauer is running for State Representative in Indiana, and Renee Flannery is supporting her husband’s Gubernatorial bid in Ohio. This is taking elected union-minded candidates to a whole new level! Our members are always advocating on behalf of those less fortunate. Laurie Onasch and the Joe Manone Agency increased their food bank collections from 7.6 tons to 10.2 tons in the Milwaukee area. Team NILICO of New York is involved in supporting the striking graduate students at NYU. Richard Suarto is helping ensure that New York remains a Wal-Mart free zone by coordinating NILICO literature distribution in the various boroughs. Local 277 members know how to live and love to have fun while supporting labor — and if you’ve ever been to a Texas Hold ’Em tournament with them, you would know it’s true! Roger Smith along with Rona Spano sponsored and hosted the Teamsters’ Scholarship “Texas Hold ’Em Tournament,” raising the stakes and lots of money for Teamster kids everywhere. Our members are there when our own need help too. When Hurricane Katrina struck, Patti Morgan and Marc Rosen spearheaded the American Income relief efforts, caring for our own affected by the storm’s destruction. The Home Office and Agency force contributed over $113,000 that went directly to Local 277 families along the devastated Gulf Coast. In addition to these funds, OPEIU members across the country donated to an OPEIU relief fund that also benefited Local 277 families. These are just a few of the many things Local 277 members do each day. I thank every one of them for their commitment and for living the mission of labor. Community and justice for all! Contributed by Becky Turner, President & Business Manager OPEIU Local 277 5 Our no cost benefits have been the pride of American Income and National Income since their inceptions. These products and services are a great asset to all of our member groups, and their incredible value has been proven time and again. The goal of these products has always been to provide basic yet effective supplemental benefits, and we strive to make these available to every working family. Our Accidental Death and Dismemberment benefit continues to be a vital component of our no cost benefits package. Under this plan, each member in good standing with their union receives at least $1,000 of coverage in case of an accident. This plan can also extend to the members’ families, with $500 for the spouse and $250 for each dependent child. The Partners® Plan has shown itself to be invaluable. It provides unbelievable savings on services not normally covered under health insurance programs. In 2005, this program provided a net savings of over $1.3 million on prescription drugs with an average savings of over 30 percent. Members were also able to take advantage of up to 60 percent additional savings on vision care, chiropractic work, hearing aids, and dental options. We continue to encourage members to check on their Social Security records. To help them do so, we provide the Social Security Request for Benefits and Earnings Statement at no cost. Those members who fill out this form and send it to the Social Security Administration office will receive a report which allows them to ensure their earnings are being credited properly. It is important for everyone to send in this form at least once every three years, because Social Security will not adjust any needed corrections after that three year period. The Family Information Guide is provided to our members for their convenience. We have found that there are times when a person’s family does not know what benefits they are entitled to should something unfortunate happen to the individual. The Family Information Guide allows vital data to be stored on one easily retrievable document. We encourage the members to complete the form in the privacy of their home and inform other family and close friends of its existence. 6 American Income and National Income’s No Cost Benefits — Extra Support for Our Working Families American Income and National Income strive to protect the world’s future – our children. Child safety is a huge concern, and we want all working families to be prepared should the unthinkable happen. Our no cost Child Safe Kits make that possible. These kits, which are endorsed by the International Union of Police Associations, instruct parents to collect vital information on each of their children, such as photographs and fingerprint records. Should a child go missing, the kit could then be delivered to authorities to help expedite the search. Our newest no cost benefit is the Identity Theft Brochure. According to the Federal Trade Commission, 9.3 million Americans were victims of identity theft during 2005. More efforts need to be taken now to safeguard our personal information, and this brochure gives the members information on how to do that. It suggests how to protect oneself from credit card fraud, e-mail scams, and other incidences. It also provides steps that need to be taken should a member fall victim to identity theft. 7 Communicating with Labor Leaders — The AIL Labor Letter American Income and National Income are committed to the labor movement in both word and deed. That is why we established the Labor Advisory Board, made up of more than 50 labor leaders from various international unions and labor organizations. This board supports our quality, affordable supplemental insurance benefits that carry the union label. For this reason, American Income also established a monthly Labor Letter, a newsletter designed to keep labor leaders and those who advocate for labor related causes abreast of news and information related to the topics that are of interest to them. This newsletter is the only one of its kind distributed for the use and dissemination of information to those most committed to the labor movement and working families. The Labor Letter reaches approximately 23,000 labor leaders and activistists with many labor leaders contributing articles relative to news and information in their particular industry. American Income, National Income, and the labor movement have been partnered for more than 50 years and the Labor Letter is just another tool utilized to solidify that 8 Supporting Labor in All That We Do Strike & Lay-Off Waiver and Other Donations and Support American Income and National Income have a commitment, a dedication if you will, to helping working families in their times of need. The Company and our representatives rally to union members’ aid by walking picket lines, setting up food banks, and offering other support as needed. We contribute generously every year to causes that promote and benef it working families and the labor movement. One of the most financially challenging situations for a union family is the time during a strike or lay-off. One important thing members do not have to worry about is their insurance premiums when they are insured by American Income or National Income. In the last five years combined, AIL and NILICO have waived over $2.5 million in premiums for policyholders on strike or lay-off. This figure is almost double that of the $1.3 million waived in the previous five years, substantiating the growing need for these valuable benefits. The Strike and Lay-Off Waiver of Premium benefits do exactly what their names imply — waive premium payments. For policyholders involved in an authorized strike, monthly premiums are waived from the very first day the member walks out and continue to be waived for up to a year. Member benefits remain in force during the strike, when the family needs their insurance protection most. Policyholders who are part of a qualified lay-off have premiums waived for up to three months, allowing them time to begin working again. In either case, once the member is back to work, waived premiums never have to be re-paid. We understand that this little bit goes a long way during these trying times for working families. This is just one of the many ways we show our support and dedication to the labor movement – in word and deed! Friends of the Yitzbak Rabin Center. . . .$55,000 Economic Policy Institute. . . . . . . . . . . . $35,000 Union Label & Service Trade Dept., AFL-CIO Project Union Made. . . . . . . $35,000 A. Philip Randolph Institute. . . . . . . . . . $30,000 Labor Council for Latin American Advancement. . . . . . . . . . . . . . . . . . . . . . . $30,000 American Rights at Work. . . . . . . . . . . . . $25,000 BCTD Coalition to Defend the American Dream. . . . . . . . . . . . . . . . . . . . $25,000 The Workers’ Rights Protection Fund. . $22,500 UFCW Leukemia & Lymphoma Society’s Shoot for a Cure. . . . . . . . . . . . $20,400 Campaign for America’s Future. . . . . . . $12,500 Highlights of Other Financial Support Offered in 2005 Another way American Income and National Income show their support to labor and labor related causes is through the funds we donate year after year. Over the last five years, American Income and National Income have contributed a combined total of over $1,930,010.76 to labor and labor related organizations. Again, this is just another way we gladly show our support in word and deed! Listed to the left are 2005’s most notable contributions. Total Contributions Over the Last Five Years to Labor and Related Causes $1,930,010.76 9 Labor Advisory Board LAB Leadership Team President Emeritus, Communications Workers of America Chairman, Labor Advisory Board Morton Bahr President, Labor Advisory Board Founder & Chairman Emeritus AIL & NILICO Bernard Rapoport President & CEO, AIL & NILICO Vice President, Labor Advisory Board Roger Smith Vice President, AIL & NILICO Executive Director, Labor Advisory Board Jules Pagano The Labor Advisory Board wishes to welcome its newest members for 2005. In joining, these ladies and gentlemen bring their own fresh insight to the board and its operations. Their new perspectives are a great contribution to the company. Welcome aboard! Clayola Brown President A. Philip Randolph Institute Linda Chavez-Thompson Vice President AFL-CIO Richard Gephardt Former Democratic Majority & Minority Leader of the U.S. House of Representatives Asst. Executive Director, Labor Advisory Board Asst. Vice President, AIL & NILICO Hugh Walsh 10 The Labor Advisory Board is made up of labor leaders from various international unions and organizations advocating labor related causes. Board members recognize that AIL and NILICO are 100 percent union companies offering union members products they truly need: quality, affordable, supplemental insurance plans that carry the union label. We are best able to serve our labor union market because we have the benefit of advice from outstanding labor leaders. Paul E. Almeida President, Dept. for Professional Employees, AFL-CIO Stuart Appelbaum President, Retail, Wholesale & Department Store Union/ UFCW Baxter Atkinson National President, American Federation of School Administrators Ronald Ault President, Metal Trades Dept., AFL-CIO Dave Barrett Former Premier of Province of British Columbia Honorary Member, Labor Advisory Board Theodore Bikel President, Associated Actors & Artistes of America William Burrus President, American Postal Workers Union Samuel Cabral President, International Union of Police Associations John Connolly President, American Federation of Television and Radio Artists John J. Dougherty President, Operative Plasterers and Cement Masons Int’l Association Gerald Feder Attorney, Feder & Assoc. Secretary, Labor Advisory Board Patricia A. Friend International President, Association of Flight Attendants/CWA Larry Gregoire President, International Chemical Workers/UFCW James Grogan Jr. General President, International Association of Heat and Frost Insulators and Asbestos Workers Don Hahs International President, Brotherhood of Locomotive Engineers/IBT Sonny Hall President, Transport Workers Union of America Joe Hansen President, United Food and Commercial Workers William Lucy International SecretaryTreasurer, American Federation of State, County & Municipal Employees Warren Mart General Secretary-Treasurer, International Association of Machinists & Aerospace Workers Terence O’Sullivan President, Laborers’ International Union of North America Oscar Owens Secretary-Treasurer, Amalgamated Transit Union W.D. “Dan” Pickett President, Brotherhood of Railroad Signalmen Clyde Rivers President Emeritus, California School Employees Association Cecil Roberts President, United Mine Workers of America Arturo Rodriguez President, United Farm Workers of America Thomas C. Short Int’t President, Int’l Alliance of Theatrical Stage Employees, Moving Picture Technicians, Artists and Allied Crafts Freddie Simpson President, Brotherhood of Maintenance of Way Employes/IBT Ed Sullivan President, Building & Construction Trades Department, AFL-CIO Michael Sullivan General President, Sheet Metal Workers Int’l Assoc. John J. Sweeney President, AFL-CIO George Tedeschi President, Graphic Communications International Union/IBT Richard Trumka Secretary-Treasurer, AFL-CIO Gene Upshaw President, Federation of Professional Athletes Donald E. Wightman National President, Utility Workers of America James Williams General President, International Union of Painters & Allied Trades Jim Wright Former Speaker of the House Honorary Member, Labor Advisory Board James Hoffa General President, International Brotherhood of Teamsters Joseph Hunt General President, International Association of Bridge, Structural, Ornamental & Reinforcing Iron Workers Newton B. Jones International President, International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers Greg Junemann President, International Federation of Professional & Technical Engineers George Kourpias President, Alliance for Retired Americans, AFL-CIO Former International President, IAM Thomas Lee President, American Federation of Musicians of U.S. & Canada Milton Rosado President, Labor Council for Latin American Advancement Michael Sacco President, Maritime Trades Department, AFL-CIO President, Seafarers’ International Union Robert A. Scardelletti International President, TransportationCommunications International Union, IAM Harold Schaitberger President, International Association of Fire Fighters 11 “Building a stronger tomorrow together.” AmerICAN INCOme LIfe Insurance Company www.ailife.com NATIONAL INCOme LIfe Insurance Company www.nilife.com UL-42 (R506)