Insurance Operations

Results of Operations

The following table summarizes the operating results of GMAC Insurance for the periods indicated. The amounts presented are before the elimination of balances and transactions with our other operating segments.

($ in millions) Year ended December 31,   2005     2004   Change     %  
Revenue                        
Insurance premiums and service revenue earned $ 3,729   $ 3,502   $ 227     6  
Investment income   408     345     63     18  
Other income   122     136     (14 )   (10 )
Total revenue   4,259     3,983     276     7  
Insurance losses and loss adjustment expenses   (2,355 )   (2,371 )   16     1  
Acquisition and underwriting expense   (1,186 )   (1,043 )   (143 )   (14 )
Premium tax and other expense   (86 )   (83) )   (3 )   (4) )
Income before income taxes   632     486     146     30  
Income tax expense   (215 )   (157 )   (58 )   (37 )
Net income $ 417   $ 329   $ 88     27  
Total assets $ 12,624   $ 11,744   $ 880     7  
Insurance premiums and service revenue written $ 4,039   $ 3,956   $ 83     2  
Combined ratio  (a)   93.6 %   95.7 %            
(a)  Management uses combined ratio as a primary measure of underwriting profitability, with its components measured using accounting principles generally accepted in the United States of America. Underwriting profitability is indicated by a combined ratio under 100% and is calculated as the sum of all reported losses and expenses (excluding interest and income tax expense) divided by the total of premiums and service revenues earned and other income.

 

Our Insurance operations generated record net income of $417 million in 2005, up $88 million or 27% over the previous record earnings in 2004 of $329 million. The higher net income is evidenced by a decrease in the combined ratio to 93.6% from the prior year of 95.7%, primarily driven by lower incurred losses. The increase reflects a combination of strong results achieved through increased premium revenue, higher capital gains and improved investment portfolio performance. The favorable impact of these items during 2005 was partially mitigated by increased acquisition and underwriting expenses and higher income taxes, commensurate with increased volumes and revenues.

The 6% increase over the prior year insurance premiums and service revenue earned was driven by business growth across our major product lines (domestic and international). Our personal lines operations experienced higher volumes in a highly competitive market, partly driven by the acquisition of several fleet contracts in Mexico. In addition, automotive extended service contracts experienced volume growth, with strong growth outside of the traditional General Motors Protection Plan. Increased earnings were also driven by multi-year extended service contracts and the GAP product written in prior years entering higher earning rate periods. This was partially offset by lower revenues for the auto dealer physical damage product due to lower dealer inventories.

The increase in investment income was attributable to higher interest and dividends from a larger portfolio balance through the majority of the year, as well as a higher yield on the fixed income portfolio. In addition, a higher amount of capital gains was realized in comparison to 2004. Certain securities were liquidated in December 2005 in anticipation of the acquisition of MEEMIC Insurance Company, completed on January 4, 2006 with a purchase price of $325 million.