Truck Insurance Exchange Update

Los Angeles, April 1, 2013

Dear Fellow Truck Insurance Exchange Member,

2012 was a good year for the Truck Insurance Exchange. Truck Insurance Exchange is one of the insurers comprising Farmers Insurance Group^®. Truck Insurance Exchange along with Fire Insurance Exchange and Farmers Insurance Exchange, and their subsidiaries and affiliates, provide automobile, homeowners, personal umbrella and business owners insurance.

Recent Developments

• Farmers’ nationally acclaimed University of Farmers^® once again received high recognition, placing fourth in this year’s Top 125 Training Awards for corporate training. This is the third year in a row that Farmers has placed in the top four for this prestigious award. The award continues to reflect our goal of providing the best value and experience for every customer we are privileged to serve.
• The e-policy or electronic availability of policy documents have improved customer experience and continued to expand in popularity with our customers in 2012.
  
• The new Farmers All Lines Billing program has improved the overall billing experience for the customer, as reflected by higher Net Promoter Scores, improved on time payments, less notice of cancellations and a lower ratio of service requests to statements.
• Farmers Insurance Group continues to expand geographically into the East, with New York rolling out in the first half of 2013. This continues to be a positive development for the Exchange policyholders, as spreading risks geographically means that a single disaster has less impact on the Exchange.

Community Involvement
Farmers invests in three core philanthropic pillars: education, safety and civic programs, which serve to benefit a diverse crosssection of Americans. Through its various corporate sponsorships, such as the PGA TOUR's Farmers Insurance Open^SM , Farmers supports a variety of programs that benefit the San Diego community. One beneficiary is "Blessings in a Backpack," a program which distributes backpacks filled with food to low-income school children as they head home for the weekend. Farmers is a key contributor to the Monarch School, a school designed to help homeless children succeed in life through education and other life needs. Farmers is a national sponsor of the American Red Cross Disaster Preparedness Program, where our partnership will educate citizens to be better prepared for future disasters. Within the Safety pillar, Farmers invests in driver safety and fire prevention programs. Examples of Civic support include food drives, clothing drives and various Habitat for Humanity programs throughout the country. Farmers continues to be a leading corporate contributor to the March of Dimes, a national organization dedicated to improving the health of babies.

Privileged to Serve
For more than eight decades, Farmers Insurance Group has provided its customers with coverage options for their insurance needs. Every day, we strive to deliver the best value and experience to every customer we’re privileged to serve. Farmers appreciates your business and looks forward to continuing to earn your confidence for many years to come.

Sincerely,
Gary R. Martin
Chair of the Board of Governors of Truck Insurance Exchange

Frequently asked questions

As a member of Truck Insurance Exchange, we want you to understand the basics of the operation of an Exchange because, as you will see below, you are an owner of the Exchange.

What is an Exchange?
An Exchange is an insurance organization which operates in most ways like any other insurance company. But there are a few differences. Truck Insurance Exchange was organized under a provision in the California Insurance Code which allows insureds to “exchange” policies with other insureds. Because the insureds cannot practically be involved in actually issuing policies, collecting premium, paying commissions to agents, etc., they appoint a third party – called an “attorney-in-fact” (AIF) – to perform those duties on their behalf for a fee. That appointment is made through a document called a “Subscription Agreement.” You were asked to sign a Subscription Agreement at the time you applied for insurance with Truck Insurance Exchange and that is how you became a member (aka subscriber).

Who owns the Exchange?
You do. Subscribers of the Exchange are owners until such time as they no longer have insurance from the Exchange. Subscribers elect a Board of Governors which supervises the financial affairs of the Exchange and the performance of the AIF in conformity with the Subscription Agreement terms.

Why is an AIF fee paid to Truck Underwriters Association (TUA)?
Under the Subscription Agreement mentioned above, members appoint TUA to perform certain of the tasks, such as policy issuance and collection of premium, which are involved in running an insurance operation. The Subscription Agreement specifies an AIF fee of 20 percent of premium although TUA has taken less than that amount.

What is TUA?
TUA is a wholly owned subsidiary of Zurich Insurance Group Ltd (ZIG), a Swiss company. TUA and ZIG have no ownership interest in Truck Insurance Exchange, which is owned by its subscribers (insureds).

How was your premium dollar spent by Truck Insurance Exchange in 2012?
Your premium dollar covers Exchange costs including losses incurred, acquisition costs, taxes, license fees, the AIF fee, and any contributions to surplus. For 2012, the AIF fee was 15.3 percent of the premium dollar, which included the AIF profit of 7.22 percent of the premium dollar for that year. The results of the Truck Insurance Exchange were impacted by the large number of catastrophe losses but the company still maintained a strong capital base with surplus of $535 million.

Can the Exchange lose money?
If premiums collected exceed claims payments and other expenses (including the fee for the AIF), then the Exchange retains those net premium earnings (as contributions to surplus). If premiums are not sufficient to cover claims and expenses, the Exchange will lose money. That’s one reason it is important to build a cushion against possible future losses. The AIF does not participate in claims losses and does not enjoy any net premium earnings. Importantly, subscribers are not responsible for any losses the Exchange might suffer.

Where can I get more information about the Exchange?
If you have additional questions, please contact:
Subscriber Relations Office
Truck Insurance Exchange
Attn: Corporate Secretary
P.O. Box 51161
Los Angeles, CA 90051-5461