UltimateParent:BerkshireHathawayInc GOVERNMENTEMPLOYEESINSURANCECOMPANY ChevyChase,Maryland,UnitedStates OneGEICOPlaza,Washington,DistrictofColumbia,UnitedStates200760001 Web:www.geico.com ReportRevisionDate:07/14/2012 BEST'SCREDITRATINGS Best'sFinancialSizeCategory:XV Tel:8008413000 AMB#:002205 UltimateParent#:058334 Fax:3019863225 NAIC#:22063 FEIN#:530075853 Best'sFinancialStrengthRating:A++ Outlook:Stable Best'sIssuerCreditRating:aaa Outlook:Stable Powered by A.M. Best's Global Insurance Database Page1of17 RATINGRATIONALE RatingRationale:ThecompanyisincludedaspartoftheGovernmentEmployeesGroup,asitsharesallthesamemanagementandoperational infrastructurewithitsaffiliategroupmembers.Inaddition,thecompany'simportancetothegroup'soverallstrategyisdemonstratedbyitsstanding asthewriterofpreferredpersonalautomobileinsuranceforthegovernmentandmilitarypopulations. ThefollowingtextisderivedfromthereportofGovernmentEmployeesGroup. TheratingsandoutlooksreflectGovernmentEmployeesGroupmembers'superiorriskadjustedcapitalization,consistentlystrongoperating performance,brandnamerecognitionandmarketpositionasoneofthetopfivepersonalautomobilewritersintheUnitedStates.Thesestrengths arepartiallyoffsetbyhighinvestmentleverage,significantstockholderdividendpaymentsinrecentyearstoitsparentcompany,aswellas exposuretopotentialregulatoryissuesinseveralofitslargerstates. TheratingsofnewlyestablishedcompaniesGEICOAdvantageInsuranceCompany,GEICOChoiceInsuranceCompany,andGEICOSecure InsuranceCompanyreflectthebenefitsderivedfromutilizingthesameinfrastructure,platforms,andpersonnelofGEICO.Asaresult,itis expectedthattheoperatingperformanceandriskadjustedcapitalpositionofthesecompanieswillbecommensuratewiththeothermembersof GEICO. Thegroup'scontinuedstrongoperatingresultsreflectaconsiderableunderwritingexpenseadvantage,whichisdrivenbyitsdirectdistribution businessmodel.Inaddition,itsfavorablelossexperienceoverthepreviousfiveyearperiodandasolidstreamofinvestmentincomehave generatedsubstantialcapital,supportingsteadygrowthinpremiumsandenabledittopaysignificantdividendstoitsparent.Furthermore,thegroup maintainsastrategicadvantageduetoitsleadershippositioninthegovernmentandmilitaryemployeemarket,aswellasanexcellentreputationfor providingqualityservice.Thegroupalsobenefitsfromstrategicallianceswithunaffiliatedinsurers,aswellasitsownershipofanindependent agency,whichprovidesthegroupwiththeabilitytosupplementitsautomobileproductswithhomeownercoveragewithoutassumingthe correspondingcatastropherisk.Theratingsalsorecognizetheconsiderablefinancialstrengthofitsintermediateparentcompany,National IndemnityCompany,aswellasitsultimateparent,BerkshireHathawayInc.,whosefinancialprofileincludesapproximately$165billionof stockholders'equityatyearend2011,minimaldebtandalonghistoryofstrongprofitability. Thegroup'snegativeratingfactorsincludehighinvestmentleverage,derivedfromitssignificantallocationtoequities.Thiswasevidentin2008, whenthegroupreportedapproximately$1.2billioninaftertaxunrealizedcapitallossesand$647millioninaftertaxrealizedcapitallossesdue primarilytounfavorableequitymarketconditions.Thesecapitallossesresultedinapproximatelya$1.0billiondeclineinstatutorysurplusin2008 andasubstantialdeclineinriskadjustedcapitalization.However,asequitymarketconditionsimprovedin2009andsolidoperatingearnings continued,thegrouphaspostedsurplusgrowthandimprovementinriskadjustedcapitalizationsincethattime.Thissurplusgrowthoccurred despitesignificantstockholderdividendpaymentstoitsparentinrecentyears.Despitethesefactors,thegroupcontinuestomaintainsuperiorriskadjustedcapitalizationthatcontinuestosupportitsratings.Historically,thegrouphasbeensuccessfulinmanagingitsinvestmentportfoliothrough marketvolatility.Lastly,thegroupmaintainsamodestgeographicconcentrationthatexposesittolegislativechangesandjudicialdecisions,asits topfivestatesaccountforapproximatelyonehalfofitsdirectpremiumswritten.However,thisriskislargelymitigatedbythegroup'sadditional geographicspreadthroughouttherestoftheUnitedStatesandmanagement'sprovenabilitytoquicklyadapttochangingmarketconditions. A.M.BestbelievesthatthemembersofGEICOarewellpositionedattheircurrentratings.Ifeitherdeterioratingunderwritingresultsoranequities marketdownturnresultinasignificantdeclineinriskadjustedcapital,negativeratingpressurewouldbeexerted. TheratingsapplytoGovernmentEmployeesInsuranceCompany(GEICO)anditssixaffiliatedcompaniesandarebasedontheconsolidationof thesecompanies. FIVEYEARRATINGHISTORY BEST'S Date FSR ICR 06/18/12 A++ aaa 05/26/11 A++ aaa 05/06/10 A++ aaa 11/06/09 A++u aaau 05/22/09 A++ aaa 03/17/08 A++ aaa Powered by A.M. Best's Global Insurance Database Page2of17 KEYFINANCIALINDICATORS (*)Datareflectedwithinalltablesofthisreporthasbeencompiledfromthecompanyfiledstatutorystatement.Withinseveralfinancialtablesof thisreport,thiscompanyiscomparedagainstthePrivatePassengerStandardAutomobileComposite. __________StatutoryData($000)__________ Direct Net Pretax Period Premiums Premiums Operating Ending Written Written Income 2007 3,577,424 8,383,789 1,303,740 2008 3,734,600 8,763,255 1,178,128 2009 3,986,291 9,391,943 1,196,960 2010 4,208,733 9,958,568 1,360,050 2011 4,405,893 10,628,305 949,875 03/2011 1,126,163 2,700,100 361,680 03/2012 1,171,791 2,858,441 373,428 __________StatutoryData($000)__________ Total PolicyPeriod Net Admitted holders' Ending Income Assets Surplus 2007 1,174,623 12,908,294 5,104,381 2008 287,942 12,495,523 4,131,148 2009 552,540 15,302,886 6,118,198 2010 1,282,073 16,462,921 6,464,466 2011 901,660 16,974,938 6,132,293 03/2011 246,213 16,865,858 6,786,632 03/2012 218,398 18,047,513 7,194,217 ______Profitability______ _______Leverage_______ ____Liquidity____ Inv. Pretax Overall Oper. Period Comb. Yield ROR NAInv NPW Net Liq CashEnding Ratio (%) (%) Lev toPHS Lev (%) Flow(%) 2007 90.2 4.0 15.7 117.2 1.6 3.2 165.4 114.9 2008 91.8 3.9 13.6 121.8 2.1 4.1 149.4 115.0 2009 93.7 4.8 13.0 110.6 1.5 3.0 166.6 119.0 2010 92.6 4.3 13.9 76.3 1.5 3.1 164.7 116.1 2011 96.4 3.7 9.1 134.6 1.7 3.5 156.6 111.9 5YrAvg 93.1 4.1 12.9 … … … … … 03/2011 91.1 XX 14.4 XX 1.5 3.0 167.3 110.7 03/2012 90.2 XX 13.9 XX 1.5 3.0 166.3 104.7 Powered by A.M. Best's Global Insurance Database Page3of17 BUSINESSPROFILE ThefollowingtextisderivedfromthereportofGovernmentEmployeesGroup. TheGovernmentEmployeesGroupisaleadingproviderofpersonalautomobileinsurancewrittenonbehalfofgovernmentemployeesandmilitary personnel.Inaddition,thegroupisanationalpersonalautomobileinsurancecarrier,withmodestgeographicconcentrationalongtheEastern SeaboardoftheUnitedStates.Itsbusinessismarketedanddistributedprimarilybydirectresponsemethodsinwhichcustomersapplyfor coveragedirectlytothecompanyoverthephone,throughthemailorviatheinternet.Mostbusinessisprocesseddirectlyfromitsregionaloffices inMacon,Georgia;Fredericksburg,Virginia;VirginiaBeach,Virginia;Woodbury,NewYork;Dallas,Texas;SanDiego,California;and Lakeland,Florida.BranchofficesaremaintainedinHonolulu,Hawaii;Coralville,Iowa;Tucson,Arizona;andBuffalo,NewYork.Thegroupalso utilizessomegeneralfieldrepresentatives(commissionedagents). Theproperty/casualtyinsurancegroupwritesbusinessinsevencompanies.GovernmentEmployeesInsuranceCompany(GEICO),thelead company,writespreferredpersonallinescoveragesforgovernmentemployeesandmilitarypersonnel.Itsfullyreinsuredsubsidiary,GEICO GeneralInsuranceCompany,writespreferredautomobileinsuranceforinsuredswhoarenotgovernmentemployeesormilitarypersonnel.Its companioncarrier,GEICOIndemnityCompany,writesstandardautomobileandmotorcycleinsurance.GEICOIndemnity'ssubsidiary,GEICO CasualtyCompany,primarilywritesnonstandardautomobileinsurancecoverages.Thegrouphasthreenewlyestablishedcompanieswhichare writingnewbusinessbytierincertainstatesaslicensesaregranted:GEICOAdvantageInsuranceCompany(preferred),GEICOChoice InsuranceCompany(standard)andGEICOSecureInsuranceCompany(nonstandard). GovernmentEmployeesGroup'spolicyholders'areofferedhomeownerinsurancebynumerousotherinsurersthroughagenciesownedbyGEICO. Theindependentagentalsohasthecapabilitytoofferhomeownerproductsfromanumberofcarriers.ThisallowsGovernmentEmployeesGroup tofocusongrowingitscorepersonalautomobileinsurancebusinesswhileatthesametimeofferingitscustomersahomeownerproduct. ThegroupreenteredthestateofNewJerseyinAugust2004andbeganwritingprivatepassengerautobusiness.ChangesbytheNewJersey LegislatureandtheDepartmentofInsurancehelpedtoimprovethecompetitiveenvironmentandmakethisreturnpossible.NewJerseycurrently ranksasthegroup'sfourthlargeststateintermsofdirectpremiumswritten. 2011BUSINESSPRODUCTIONANDPROFITABILITY($000) Geographicalbreakdownofdirectpremiumwritings($000):Texas,$660,778(15.0%);NewJersey,$564,015(12.8%);NewYork, $552,512(12.5%);Florida,$421,405(9.6%);Maryland,$281,908(6.4%);NorthCarolina,$263,832(6.0%);otherjurisdictions,$1,661,442 (37.7%). RISKMANAGEMENT ThefollowingtextisderivedfromthereportofGovernmentEmployeesGroup. Managementisactiveandhandson,andhasshowntheabilitytoreactswiftlytochangingmarketconditions,whetherpositiveornegative.GEICO alsopartnerswithhomeownerswriterstoaffordcustomerswithcompaniondiscounts,whichhelpstomaintaintheirmarketshare,whilenottaking ontheadditionalriskofproperty.AsapartoftheBerkshireHathawayorganizationwhichispubliclytraded,theGEICOcompaniesaresubjectto followSarbanesOxleyregulations. %of Pure Loss Product _____PremiumsWritten_____ Total Loss &LAE Line Direct Net NPW Ratio Reserves PrivPassAutoLiab 2,633,535 6,518,132 61.3 71.7 6,747,922 AutoPhysical 1,673,550 4,011,428 37.7 68.0 364,848 AllOther 98,807 98,744 0.9 39.2 293,302 Totals 4,405,893 10,628,305 100.0 70.0 7,406,073 Powered by A.M. Best's Global Insurance Database Page4of17 OPERATINGPERFORMANCE ThefollowingtextisderivedfromthereportofGovernmentEmployeesGroup. OperatingResults:Thegrouphasproducedstrongoperatingearningsasevidencedbyitsfiveyearpretaxreturnonrevenue(ROR),which comparesfavorablytotheprivatepassengerautomobileindustrycomposite.ThefiveyearpretaxRORhasbeendrivenbysolidunderwriting earningsandgenerallyincreasinginvestmentincomeovertheperiod.Thegroup'ssolidunderwritingearningshavebeenattributabletorate adequacyandfavorablelossfrequencytrendsformostcoverages.Thegroup'snetinvestmentincomeremainsakeycontributortoearningsdueto steadyinvestmentyieldsandinvestedassetgrowth.Thegroup'sfiveyeartotalreturnonequityisfavorabletoindustrycompositenorms,despite $1.2billioninunrealizedcapitallossesand$647millioninrealizedcapitallossesin2008duetounfavorableequitymarketconditions.Asmarket conditionsimprovedsincethattime,recoveryinmarketvalueandsurplusgrowthhasoccurred. PROFITABILITYANALYSIS UnderwritingResults:Thegrouphasproducedfavorableunderwritingresultsasevidencedbyitsfiveyearaveragecombinedratio,whichis measurablylowerthantheprivatepassengerautomobileindustrycomposite.Underwritingresultsaredrivenbyabelowaverageexpensestructure, partiallyoffsetbyapurelossratioequaltotheindustrycomposite.Thegroup'sfavorableunderwritingexpenseratioisderivedfromitscost efficientdirectmarketingapproach,advanceduseoftechnologyandeconomiesofscale,whicharetemperedsomewhatbyitsextensive advertisingbudget.Inrecentyears,thegroup'scombinedratiohastrendedmodestlyupwardsdueprimarilytoaslightlyhigherlossadjustment expensesandtheimpactoffrequentandsevereweathereventsnationally. Thegroup'simprovedpurelossexperienceinprioryearswasdrivenbyrateadequacyanddecreasingclaimfrequenciesinmostcoverages.In morerecentyears,claimfrequencyandseverityhavecontinuedtoincreasemoderatelyforcoveragesforbodilyinjuryandmedicalcost,whileauto physicaldamagecoveragessawslightdeclinesinseverity.Risksarereviewedmorethoroughlywithfewerexceptionsgrantedfromitscurrent guidelines.Inaddition,stafftraininghasbeenincreasedtoinsureoverallcompliancewiththeguidelinesandimprovedallocationtotheappropriate ratingtierbasedonthecharacteristicsoftherisk.ThemostrecentincreaseinlossandLAEratiowasimpactedbyprivatepassengerautomobile ratedecreasesinanumberofstatesduetoincreasedpricecompetitioninthesemarkets.Theincreaseintheunderwritingexpenseratiowas reflectiveofincreasedadvertisingandgreaterexpensesrelatedtobenefits. ___________Company___________ _______IndustryComposite________ Pretax Return Pretax Return Period ROR on Comb. Oper. ROR on Comb. Oper. Ending (%) PHS(%) Ratio Ratio (%) PHS(%) Ratio Ratio 2007 15.7 14.6 90.2 84.8 10.7 11.8 97.4 89.9 2008 13.6 19.3 91.8 86.8 5.8 13.2 102.0 94.9 2009 13.0 39.8 93.7 87.4 7.4 13.1 101.3 93.5 2010 13.9 15.6 92.6 86.5 6.0 7.9 101.1 94.3 2011 9.1 6.0 96.4 91.4 4.8 2.1 102.3 95.7 5YrAvg 12.9 11.8 93.1 87.5 6.9 4.4 100.8 93.7 03/2011 14.4 XX 91.1 85.2 XX XX XX XX 03/2012 13.9 XX 90.2 86.1 XX XX XX XX Powered by A.M. Best's Global Insurance Database Page5of17 UNDERWRITINGEXPERIENCE InvestmentResults:Thegroupmaintainsahighqualityandwelldiversifiedinvestmentportfoliothatconsistsprimarilyofcommonandpreferred stocks,longtermbonds,shortterminvestmentsandcash.Theoverallbondportfolioisprimarilyallocatedtocorporate,taxexemptmunicipaland U.S.Treasurysecurities.Thegroupsignificantlyincreaseditsallocationtolongtermbondsandpreferredstocksin2008,whiledecreasingits holdingsincashandshortterminvestments. Thegroup'snetinvestmentincomehadbeenonanincreasingtrendformostofthepreviousfiveyearperiod,drivenbyhigherinvestmentyields andinvestedassetgrowth.Theincreaseininvestmentyieldwasreflectiveofhighermarketinterestrates,whilethegrowthininvestedassetswas attributabletothegroup'sstrongoperatingcashflowsfromprofitableoperations.However,netinvestmentincomedeclinedmoderatelyin2008 duetoadecreaseininvestedassetsandslightlylowerinvestmentyield.Thegroupreportedapproximately$1.2billioninunrealizedcapitallosses andapproximately$647millioninrealizedcapitallossesin2008,drivenbyunfavorablemarketconditions,whichresultedinasignificantlynegative totalreturnoninvestedassetsfortheyear.However,duetomorefavorableconditionsintheequitymarkets,unrealizedcapitalgainsof$1.8billion werereportedin2009,morethanrecoveringtheunrealizedlossesfrom2008.Swingsincapitalgainssincethattimehavebeenmoremodest. NetUndrw _____LossRatios_____ ____ExpenseRatios____ Income Pure Loss& Net Other Total Div. Comb. Year ($000) Loss LAE LAE Comm Exp. Exp. Pol. Ratio 2007 800,520 62.0 10.9 72.9 0.2 17.1 17.4 … 90.2 2008 687,769 64.4 11.1 75.5 0.3 16.0 16.3 … 91.8 2009 559,647 65.8 11.5 77.2 0.3 16.1 16.4 … 93.7 2010 699,201 65.2 11.3 76.6 0.3 15.7 16.1 … 92.6 2011 348,818 70.0 11.3 81.3 0.4 14.8 15.1 … 96.4 5YrAvg … 65.7 11.2 76.9 0.3 15.9 16.2 … 93.1 03/2011 193,761 64.1 10.9 75.1 XX XX 16.0 … 91.1 03/2012 242,758 65.7 10.8 76.5 XX XX 13.7 … 90.2 Powered by A.M. Best's Global Insurance Database Page6of17 INVESTMENTINCOMEANALYSIS($000) INVESTMENTPORTFOLIOANALYSIS 2011BONDPORTFOLIOANALYSIS _______________Company_______________ Net Realized Unrealized Inv Capital Capital Year Income Gains Gains 2007 449,274 352,305 457,642 2008 434,347 480,229 1,180,940 2009 576,964 237,997 1,485,495 2010 597,986 378,909 302,890 2011 528,200 255,130 522,150 03/2011 149,554 706 40,358 03/2012 110,143 48,067 723,241 __________Company__________ _IndustryComposite_ InvInc Inv Total InvInc Inv Growth Yield Return Growth Yield Year (%) (%) (%) (%) (%) 2007 16.7 4.0 3.0 4.0 3.5 2008 3.3 3.9 10.3 5.1 3.4 2009 32.8 4.8 16.1 9.9 3.8 2010 3.6 4.3 4.9 10.9 3.1 2011 11.7 3.7 1.8 0.3 3.0 5YrAvg 5.9 4.1 3.0 0.6 3.4 03/2011 XX XX 1.3 XX XX 03/2012 XX XX 5.3 XX XX 2011Inv Asset Assets %ofInvestedAssets Annual Class ($000) 2011 2010 %Chg LongTermBonds 3,745,225 25.5 27.6 6.8 Stocks 7,645,129 52.0 37.2 40.8 AffiliatedInvestments 226,477 1.5 1.6 0.9 OtherInvAssets 3,084,307 21.0 33.6 37.1 Total 14,701,139 100.0 100.0 0.8 %of MktVal Avg. Class Class Mortgage Mortgage Asset Total toStmt Maturity 12 36 Secur. Secur. Class Bonds Val(%) (Yrs) (%) (%) (%) (%ofPHS) Governments 44.7 2.7 0.5 100.0 … … … States,Terr.&Poss. 0.1 13.2 8.4 100.0 … … … SpecialRevenue 27.8 6.3 17.2 94.0 6.0 9.4 3.0 Corporates 27.5 16.9 6.4 9.0 91.0 … … TotalAllBonds 100.0 11.4 6.8 73.3 26.7 2.6 3.0 Powered by A.M. Best's Global Insurance Database Page7of17 BALANCESHEETSTRENGTH ThefollowingtextisderivedfromthereportofGovernmentEmployeesGroup. Capitalization:GovernmentEmployeesGroupmaintainssuperiorcapitalizationasmeasuredbyBest'sCapitalAdequacyRatio(BCAR),which supportsitsrating.Thegroup'scapitalpositionreflectsitsmoderateunderwritingleverage,consistentlyfavorablelossreservedevelopment, nominaldependenceonreinsuranceandmodestcatastropheexposure,whichispartiallyoffsetbyhighcommonstockleverage.Thegroup'sriskadjustedcapitalizationhasbeenvariableinrecentyearsduetosignificantstockholderdividendpaymentstoitsparentandmorerecentlyfrom unrealizedcapitallossesduetounfavorableequitymarketconditions,althoughriskadjustedcapitalizationcontinuestosupporttherating.The group'scapitalizationisconsiderablystrengthenedbyitsultimateparent,BerkshireHathawayInc.,withshareholderequityofapproximately$165 billionandminimaldebtatyearend2011. CAPITALGENERATIONANALYSIS($000) ________SourceofSurplusGrowth________ Pretax Total Net Operating Inv. Contrib. Year Income Gains Capital 2007 1,303,740 105,337 384,000 2008 1,178,128 1,661,169 … 2009 1,196,960 1,247,498 413,000 2010 1,360,050 76,019 610,000 2011 949,875 267,020 646,400 5YrTotal 5,988,752 710,009 2,053,400 03/2011 361,680 41,064 … 03/2012 373,428 675,174 … ______SourceofSurplusGrowth_______ Other, Change PHS Netof in Growth Year Tax PHS (%) 2007 416,713 397,690 8.4 2008 490,191 973,233 19.1 2009 44,409 1,987,049 48.1 2010 479,800 346,269 5.7 2011 368,628 332,174 5.1 5YrTotal 1,799,742 1,425,601 … 03/2011 80,579 322,165 5.0 03/2012 13,323 1,061,925 17.3 Powered by A.M. Best's Global Insurance Database Page8of17 QUALITYOFSURPLUS($000) UnderwritingLeverage:Thegroupmaintainsunderwritingleveragethatishigherthantheprivatepassengerautomobileindustrycomposite.Net underwritingleverageisderivedfromaboveaveragenetpremiumswrittenleverageandnetliabilitiesleverage.Grossunderwritingleverageisonly slightlyhigherthannetunderwritingleverageduetonominalcededreinsuranceleverage,asthegroupconsistentlyretainsnearly100%ofitsdirect premiumwritings. Thegroup'sunderwritingleveragehastrendedupwardinrecentyearsduetothedeclineinsurplusin2008fromrealizedandunrealizedrealized capitallossesonitsequityportfolio,alongwithcontinuedgrowthinnetpremiumswrittenandassociatedliabilities.However,leveragemeasures improvedmeasurablyin2009andwererelativelystablein2010and2011assolidearningsandsignificantunrealizedcapitalgainsfromimproved investmentmarketsresultedina40%increaseinsurplus.Nonetheless,thegroup'sunderwritingleverageiselevatedrelativetoitsindustry composite.Thegrowthinnetpremiumswrittenoverthepreviousfiveyearperiodwasdrivenbypolicygrowthderivedfromthegroup'sintensive advertisingcampaignanddirectsalesapproachthroughtheuseofcallcenters,aswellastheinternet.Aportionofthegroup'spremiumgrowth earlierintheperiodcanbeattributedtoitsexpansioninNewJersey,whichhasbecomeitsfourthlargeststate.However,thegrowthinnet premiumswrittenhasgraduallyslowedduringtheperiodduetoincreasinglycompetitivepricingintheprivatepassengerautomobilemarket. LEVERAGEANALYSIS ________%ofPHS________ __DividendRequirements__ Year CapStk/ Un Stock Divto Divto End Contrib. assigned holder POI NetInc. Year PHS Cap. Other Surplus Divs (%) (%) 2007 5,104,381 24.2 … 75.8 384,000 29.5 32.7 2008 4,131,148 29.9 … 70.1 … … … 2009 6,118,198 20.2 … 79.8 413,000 34.5 74.7 2010 6,464,466 19.1 … 80.9 610,000 44.9 47.6 2011 6,132,293 20.1 … 79.9 646,400 68.1 71.7 03/2011 6,786,632 18.2 … 81.8 … … … 03/2012 7,194,217 17.2 … 82.8 … … … _____________Company_____________ ________IndustryComposite________ NPWto Reserves Net Gross NPWto Reserves Net Gross Year PHS toPHS Lev Lev PHS toPHS Lev Lev 2007 1.6 1.0 3.2 3.2 0.8 0.5 1.7 1.8 2008 2.1 1.3 4.1 4.2 0.9 0.6 2.0 2.1 2009 1.5 1.0 3.0 3.1 0.8 0.5 1.8 1.9 2010 1.5 1.1 3.1 3.1 0.8 0.5 1.8 1.9 2011 1.7 1.2 3.5 3.5 0.8 0.6 1.9 2.0 03/2011 1.5 1.0 3.0 XX XX XX XX XX 03/2012 1.5 1.0 3.0 XX XX XX XX XX CurrentBCAR:202.8 Powered by A.M. Best's Global Insurance Database Page9of17 PREMIUMCOMPOSITION&GROWTHANALYSIS LossReserves:Thegroupmaintainsaconservativelossreservepositionwithconsistentlyfavorabledevelopmentreportedforallcalendarand accidentyears.Reservedevelopmentpatternshavebeenfavorableforallmajorlinesofbusiness.Reservesareprimarilycomprisedoftheprivate passengerautomobileliabilitylineofbusiness,whichaccountforapproximately90%oftotalreserves.ThegroupmaintainsmodestA&Eexposure stemmingfromalimitednumberofexcesscommercialumbrellapolicies,generallyasaparticipantinhighlayersofliabilityduringashortperiod (1981throughearly1984). LOSS&ALAERESERVEDEVELOPMENT:CALENDARYEAR($000) Period _____DPW_____ _____GPW_____ Ending ($000) (%Chg) ($000) (%Chg) 2007 3,577,424 4.8 8,390,996 5.0 2008 3,734,600 4.4 8,783,049 4.7 2009 3,986,291 6.7 9,448,209 7.6 2010 4,208,733 5.6 10,036,818 6.2 2011 4,405,893 4.7 10,721,869 6.8 5YrCAGR … 5.2 … 6.1 5YrChange … 29.1 … 34.2 03/2011 1,126,163 4.6 2,724,969 6.6 03/2012 1,171,791 4.1 2,887,143 6.0 Period _____NPW_____ _____NPE_____ Ending ($000) (%Chg) ($000) (%Chg) 2007 8,383,789 5.3 8,317,865 6.6 2008 8,763,255 4.5 8,643,252 3.9 2009 9,391,943 7.2 9,240,426 6.9 2010 9,958,568 6.0 9,814,335 6.2 2011 10,628,305 6.7 10,463,408 6.6 5YrCAGR … 5.9 … 6.1 5YrChange … 33.5 … 34.1 03/2011 2,700,100 6.5 2,516,372 5.9 03/2012 2,858,441 5.9 2,695,550 7.1 Original Developed Develop. Develop. Develop. Unpaid Unpaid Calendar Loss Reserves to to to Reserves Resrv.to Year Reserves Thru2011 Orig.(%) PHS(%) NPE(%) @12/2011 Dev.(%) 2006 4,228,181 3,469,551 17.9 16.1 44.5 369,248 10.6 2007 4,534,280 3,905,236 13.9 12.3 46.9 531,747 13.6 2008 4,939,841 4,261,040 13.7 16.4 49.3 925,965 21.7 2009 5,605,053 4,892,564 12.7 11.6 52.9 1,757,693 35.9 2010 6,080,508 5,621,082 7.6 7.1 57.3 3,271,907 58.2 2011 6,629,888 6,629,888 … … 63.4 6,629,888 100.0 Powered by A.M. Best's Global Insurance Database Page10of17 LOSS&ALAERESERVEDEVELOPMENT:ACCIDENTYEAR($000) ASBESTOS&ENVIRONMENTAL(A&E)RESERVESANALYSIS CEDEDREINSURANCEANALYSIS($000) Original Developed Develop. Unpaid AccYr. AccYr. Accident Loss Reserves to Reserves Loss Comb. Year Reserves Thru2011 Orig.(%) @12/2011 Ratio Ratio 2006 2,263,875 1,821,147 19.6 68,743 71.3 88.0 2007 2,365,999 2,029,532 14.2 162,499 74.0 91.4 2008 2,571,263 2,174,535 15.4 394,218 74.7 91.0 2009 2,926,070 2,507,704 14.3 831,728 76.7 93.1 2010 3,060,975 2,815,535 8.0 1,514,214 79.5 95.6 2011 3,357,981 3,357,981 … 3,357,981 87.0 102.1 ____________Company_____________ NetA&E Reserve Net Reserves Retention IBNR Year ($000) (%) Mix(%) 2007 90,098 56.7 70.6 2008 90,063 56.7 70.7 2009 93,282 56.9 67.8 2010 116,422 57.9 47.0 2011 111,236 56.6 46.7 ________Company________ _____IndustryComposite_____ Comb. Comb. Comb. Comb. Survival Ratio Ratio Survival Ratio Ratio Ratio Impact Impact Ratio Impact Impact Year (3yr) (1yr) (3yr) (3yr) (1yr) (3yr) 2007 … 0.0 … … 0.7 … 2008 … 0.0 … … 0.0 … 2009 473.5 0.0 0.0 7.5 0.6 0.4 2010 390.7 0.2 0.1 7.8 0.7 0.4 2011 157.7 0.0 0.1 9.0 0.5 0.6 _______________Company_________________ ____IndustryComposite____ Ceded Business ReinRec Ceded Business ReinRec Ceded Reins Retention toPHS Reinsto Retention toPHS Reinsto Year Total (%) (%) PHS(%) (%) (%) PHS(%) 2007 102,966 99.9 1.9 2.0 91.8 7.3 10.0 2008 107,897 99.9 2.4 2.6 89.0 8.6 11.8 2009 103,073 99.9 1.6 1.7 85.9 9.6 13.4 2010 165,678 99.9 2.5 2.6 86.9 10.6 13.0 2011 158,798 99.9 2.5 2.6 86.2 12.8 15.3 Powered by A.M. Best's Global Insurance Database Page11of17 2011REINSURANCERECOVERABLES($000) *IncludesCommissionslessFundsWithheld INVESTMENTLEVERAGEANALYSIS(%OFPHS) ThefollowingtextisderivedfromthereportofGovernmentEmployeesGroup. Liquidity:Thegroupmaintainssoundbalancesheetliquidityasnonaffiliatedinvestedassetscomfortablyexceedoverallliabilities.Thegroup's liquidityratioshavebeentemperedinrecentyears,asinvestedassetgrowthdecreasedin2006duetoextraordinarystockholderdividend paymentstoitsparentandinvestedassetsdeclinedin2008duetosignificantunrealizedcapitallossesonitsequityportfolio,thoughtheportfolio gainedinvalueasmarketconditionsimprovedin2009.Thegroup'sliquiditypositionhasbeenaugmentedbystrongoperatingcashflowsoverthe previousfiveyearperiod,whichweredrivenbypremiumgrowthandprofitableunderwritingresults.Thegroup'sliquiditypositionisalsoenhanced bythesignificantfinancialflexibilityofitsimmediateparent,GEICOCorporation,aswellasitsultimateparent,BerkshireHathawayInc. LIQUIDITYANALYSIS Paid& Total Unpaid Unearned Other Reins Losses IBNR Premiums Recov* Recov USAffiliates 28,987 15,201 23,224 … 67,412 USInsurers 28,713 30,552 27 … 59,292 Pools/Associations 15,321 77,960 2 … 93,282 Total(exUSAffils) 44,034 108,512 29 … 152,574 GrandTotal 73,020 123,712 23,253 … 219,985 ___________________Company___________________ IndustryComposite Class Real Other NonAffl Class 36 Estate/ Invested Common Inv. Affil 36 Common Year Bonds Mtg. Assets Stocks Lev. Inv. Bonds Stocks 2007 8.1 … 0.1 109.0 117.2 4.4 1.1 55.3 2008 35.2 … 0.1 86.5 121.8 13.3 3.0 41.3 2009 26.1 … 0.0 84.4 110.6 4.0 3.1 45.6 2010 29.8 … 0.4 46.1 76.3 3.5 3.3 44.5 2011 30.4 … 0.8 103.3 134.6 3.7 3.5 48.5 ____________Company_____________ _________IndustryComposite_________ Gross Gross Quick Current Overall AgentsBal Quick Current Overall AgentsBal Year Liq(%) Liq(%) Liq(%) toPHS(%) Liq(%) Liq(%) Liq(%) toPHS(%) 2007 114.7 149.4 165.4 4.3 71.1 158.9 206.6 2.3 2008 49.4 122.1 149.4 5.3 53.9 144.6 193.3 3.0 2009 63.5 146.8 166.6 4.4 62.6 153.7 199.2 2.4 2010 72.2 143.8 164.7 4.8 64.5 153.9 199.2 2.2 2011 74.6 133.7 156.6 5.9 63.8 149.9 194.1 2.6 03/2011 XX 145.1 167.3 4.9 XX XX XX XX 03/2012 XX 143.6 166.3 5.3 XX XX XX XX Powered by A.M. Best's Global Insurance Database Page12of17 CASHFLOWANALYSIS($000) ThefollowingtextisderivedfromthereportofGovernmentEmployeesGroup. Investments:Thegroupmaintainshighinvestmentleveragerelativetotheprivatepassengerautomobileindustrycomposite,astotalpreferredand commonstockrepresentsapproximately48%ofinvestedassets,asofyearend2011.Nevertheless,thehighinvestmentleverageispartially mitigatedbythegroup'shistoricallystrongportfoliomanagement.Inaddition,theportfolioiswelldiversifiedwithallocationsspreadacrossa numberofsecuritiesandindustries.Thegroupalsomaintainssignificantnoninvestmentgradebondholdings.ThesebondsarenearlyallNAIC Class4,mostofwhichwerepurchasedinthefourthquarterof2008toattainahigherinvestmentyield. HISTORY GovernmentEmployeesInsuranceCompany(GEICO)wasreincorporatedandredomesticatedonJanuary3,1986underthelawsofMarylandto effectachangeincorporatedomicilefromtheDistrictofColumbiatoMaryland.TheoriginalGovernmentEmployeesInsuranceCompanywas formedAugust1936inTexas,andwasreincorporatedintheDistrictofColumbiain1937and1979.Atcommencementofbusiness,December 1,1937,theDistrictofColumbiadomiciledGEICOabsorbedalloftheassetsandliabilitiesoftheTexasdomiciledGovernmentEmployees InsuranceCompany,FortWorth,Texas.TheTexasstockcompanyhadbeenorganizedassuccessortotheGovernmentEmployeesInsurance Association,areciprocalexchange,whichwasformedonMarch20,1934underthetitleGovernmentEmployeesUnderwriters. OriginalsponsorsweremenprominentinFortWorthbanking,insuranceandfinancingbusiness,headedbymembersoftheRheafamilyandby LeoGoodwin,Sr.FinancialcontrolpassedtotheGrahamNewmanCorporation,NewYork,inMarch1948.InJulyofthesameyear,that corporationdistributeditsGovernmentEmployeesInsuranceCompanystocktoitsownshareholders. MANAGEMENT FinancialcontrolofGovernmentEmployeesInsuranceCompanyresideswithGEICOCorporationsinceJanuary31,1979which,asofJanuary2, 1996,becameawhollyownedindirectsubsidiaryofBerkshireHathawayInc.,aninsuranceholdingcompanywhichcontrolsdirectlyorindirectly thefiftyproperty/casualtycompaniesandthefivelife/healthcompanies.Theholdingcompany,inturn,isowned(33%)byWarrenE.Buffettand family.PriortoJanuary2,1996,GEICOCorporationwasapubliclyownedholdingcompanytradedontheNYSEunderthesymbolGEC.It acquiredownershipofGovernmentEmployeesInsuranceCompanythroughtheexchangeofcommonandpreferredstock(excludingthe nonconvertibleseniorpreferred),onashareforsharebasis,withtheshareholdersofthecompany. GovernmentEmployeesInsuranceCompanyistheprincipalsubsidiaryofGEICOCorporation,andthelargestmemberofagroupofaffiliated property/casualtyinsurancecompanies. Administrationofthecompany'saffairsisunderthedirectionofexperiencedinsuranceexecutivesheadedbyOlzaM.Nicely,chairmanofthe board,presidentandchiefexecutiveofficer.Mr.Nicelybecamepresidentin1989,chiefexecutiveofficerin1992andchairmanoftheboardin May1993.HehasbeenwithGEICOsince1961andhasservedforfourdecadeswithGEICOcompanies. _____________________Company_____________________ _IndustryComposite_ Underw Oper Net Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow(%) Flow(%) Flow(%) Flow(%) 2007 1,281,658 1,151,879 644,354 118.0 114.9 103.4 110.1 2008 1,216,128 1,191,641 3,613,604 116.3 115.0 101.6 108.6 2009 1,344,507 1,578,445 477,081 117.0 119.0 102.5 110.4 2010 1,373,253 1,457,663 3,160,272 116.2 116.1 104.4 111.5 2011 984,347 1,176,797 1,841,283 110.4 111.9 100.3 107.1 03/2011 79,725 268,523 230,797 103.2 110.7 XX XX 03/2012 8,327 130,932 634,764 100.3 104.7 XX XX Powered by A.M. Best's Global Insurance Database Page13of17 OFFICERS DIRECTORS REGULATORY AnexaminationofthefinancialconditionwasmadeasofDecember31,2009,bytheinsurancedepartmentofMaryland.The2011annual independentauditofthecompanywasconductedbyDeloitte&Touche,LLP.TheannualstatementofactuarialopinionisprovidedbyKaren Brinster,AssistantVicePresidentandAssociateActuary. TERRITORY ThecompanyislicensedintheDistrictofColumbiaandallstates. REINSURANCE ThefollowingtextisderivedfromthereportofGovernmentEmployeesGroup. Giventhegroup'slinesofbusiness,sizeandmarketpresence,managementhasconcludedthatthepurchaseofexternalreinsuranceisgenerally impractical.Instead,thegroupmanagesitsrisksthroughitsunderwritingguidelinesandappropriateriskplacementinitsvariouscompaniesand pricingtiers. ChairmanoftheBoard,PresidentandCEO:OlzaM.Nicely VicePresident:ScottE.Markel EVP:WilliamE.Roberts VicePresident:JohnW.McCutcheon SVPandCFO:MichaelH.Campbell VicePresident:JamesF.Nayden,Jr.(LegislativeCounsel) SVPandChiefInformationOfficer:StephenG.Kalinsky VicePresident:NancyL.Pierce SVP:DonaldR.Lyons VicePresident:DanaK.Proulx SVP:RobertM.Miller VicePresident:GeorgeW.Rogers VicePresidentandChiefActuary:WarrenA.Klawitter VicePresident:RynthiaM.Rost VicePresident:JamesG.Brown VicePresident:DanielS.Schechter VicePresident:RobinW.Burdick VicePresident:JanC.Stewart VicePresident:ShawnA.Burklin VicePresident:JosephR.Thomas VicePresident:StevenW.Cunningham VicePresident:EdwardW.WardIII VicePresident:MarthaT.Furnas VicePresident:MaryF.Zarcone VicePresident:RichardT.Guertin VicePresident:JohnJ.Zinno VicePresident:LilyS.Hopkins Secretary:WilliamC.E.Robinson VicePresident:SethM.Ingall Treasurer:CharlesG.Schara VicePresident:JohnJ.Izzo Controller:WilliamJ.McDonald MichaelH.Campbell OlzaM.Nicely SethM.Ingall NancyL.Pierce StephenG.Kalinsky WilliamE.Roberts DonaldR.Lyons GeorgeW.Rogers RobertM.Miller Powered by A.M. Best's Global Insurance Database Page14of17 BALANCESHEET($000) SUMMARYOF2011OPERATIONS($000) ADMITTEDASSETS 12/31/2011 12/31/2010 2011% 2010% Bonds 3,745,225 4,016,532 22.1 24.4 Preferredstock 1,312,000 2,451,000 7.7 14.9 Commonstock 6,333,129 2,977,520 37.3 18.1 Cash&shortterminvest 2,955,641 4,796,924 17.4 29.1 Othernonaffilinvasset 51,240 30,909 0.3 0.2 Investmentsinaffiliates 105,727 103,155 0.6 0.6 Realestate,offices 120,750 125,271 0.7 0.8 Totalinvestedassets 14,623,713 14,501,310 86.1 88.1 Premiumbalances 1,343,716 1,199,255 7.9 7.3 Accruedinterest 77,427 76,169 0.5 0.5 Allotherassets 930,083 686,188 5.5 4.2 Totalassets 16,974,938 16,462,921 100.0 100.0 LIABILITIES&SURPLUS 12/31/2011 12/31/2010 2011% 2010% Loss&LAEreserves 7,406,073 6,808,095 43.6 41.4 Unearnedpremiums 2,672,655 2,507,758 15.7 15.2 Allotherliabilities 763,918 682,602 4.5 4.1 Totalliabilities 10,842,646 9,998,455 63.9 60.7 Capital&assignedsurplus 1,234,643 1,234,643 7.3 7.5 Unassignedsurplus 4,897,649 5,229,823 28.9 31.8 Totalpolicyholders'surplus 6,132,293 6,464,466 36.1 39.3 Totalliabilities&surplus 16,974,938 16,462,921 100.0 100.0 FUNDSPROVIDED STATEMENTOFINCOME 12/31/2011 FROMOPERATIONS 12/31/2011 Premiumsearned 10,463,408 Premiumscollected 10,482,305 Lossesincurred 7,322,616 Benefit&lossrelatedpmts 6,844,172 LAEincurred 1,184,820 Undrwexpensesincurred 1,607,118 LAE&undrwexpensespaid 2,653,786 Otherexpenseincurred 35 Otherincome/expense … Netunderwritingincome 348,818 Undrwcashflow 984,347 Netinvestmentincome 528,200 Investmentincome 546,318 Otherincome/expense 72,858 Otherincome/expense 72,078 Pretaxoperincome 949,875 Pretaxcashoperations 1,602,743 Realizedcapitalgains 255,130 Incometaxesincurred 303,345 Incometaxespd(recov) 425,946 Netincome 901,660 Netopercashflow 1,176,797 Powered by A.M. Best's Global Insurance Database Page15of17 INTERIMBALANCESHEET($000) INTERIMINCOMESTATEMENT($000) ADMITTEDASSETS 03/31/2012 Bonds 3,682,011 Preferredstock 1,405,044 Commonstock 8,201,948 Cash&shortterminvest 2,320,876 Otherinvestments 169,438 Totalinvestments 15,779,318 Premiumbalances 1,446,115 Reinsurancefunds 9,553 Accruedinterest 43,677 Allotherassets 768,851 Totalassets 18,047,513 LIABILITIES&SURPLUS 03/31/2012 Loss&LAEreserves 7,254,382 Unearnedpremiums 2,835,547 Allotherliabilities 763,367 Totalliabilities 10,853,296 Capital&assignedsurp 1,234,643 Unassignedsurplus 5,959,574 Policyholders'surplus 7,194,217 Totalliabilities&surplus 18,047,513 PeriodEnded PeriodEnded Increase/ 3/31/2012 3/31/2011 Decrease Premiumsearned 2,695,550 2,516,372 179,177 Lossesincurred 1,772,014 1,613,758 158,256 LAEincurred 290,215 275,538 14,677 Underwritersexpensesincurred 390,483 433,302 42,820 Otherexpensesincurred 80 13 67 Netunderwritingincome 242,758 193,761 48,997 Netinvestmentincome 110,143 149,554 39,410 Otherincome/expenses 20,526 18,365 2,161 Pretaxoperatingincome 373,428 361,680 11,748 Realizedcapitalgains 48,067 706 48,773 Incometaxesincurred 106,963 116,173 9,210 Netincome 218,398 246,213 27,815 Powered by A.M. Best's Global Insurance Database Page16of17 INTERIMCASHFLOW($000) ABest'sFinancialStrengthRatingopinionaddressestherelativeabilityofaninsurertomeetitsongoinginsuranceobligations.Theratingsarenot assignedtospecificinsurancepoliciesorcontractsanddonotaddressanyotherrisk,including,butnotlimitedto,aninsurer'sclaimspaymentpolicies orprocedures;theabilityoftheinsurertodisputeordenyclaimspaymentongroundsofmisrepresentationorfraud;oranyspecificliabilitycontractually bornebythepolicyorcontractholder.ABest'sFinancialStrengthRatingisnotarecommendationtopurchase,holdorterminateanyinsurancepolicy, contractoranyotherfinancialobligationissuedbyaninsurer,nordoesitaddressthesuitabilityofanyparticularpolicyorcontractforaspecificpurpose orpurchaser. ABest'sDebt/IssuerCreditRatingisanopinionregardingtherelativefuturecreditriskofanentity,acreditcommitmentoradebtordebtlikesecurity. Creditriskistheriskthatanentitymaynotmeetitscontractual,financialobligationsastheycomedue.Thesecreditratingsdonotaddressanyother risk,includingbutnotlimitedtoliquidityrisk,marketvalueriskorpricevolatilityofratedsecurities.Theratingisnotarecommendationtobuy,sellor holdanysecurities,insurancepolicies,contractsoranyotherfinancialobligations,nordoesitaddressthesuitabilityofanyparticularfinancialobligation foraspecificpurposeorpurchaser. Inarrivingataratingdecision,A.M.Bestreliesonthirdpartyauditedfinancialdataand/orotherinformationprovidedtoit.Whilethisinformationis believedtobereliable,A.M.Bestdoesnotindependentlyverifytheaccuracyorreliabilityoftheinformation.Anyandallratings,opinionsandinformation containedhereinareprovided"asis,"withoutanyexpressorimpliedwarranty. Visithttp://www.ambest.com/ratings/noticeforadditionalinformationorhttp://www.ambest.com/terms.htmlfordetailsontheTermsofUse. Copyright©2012A.M.BestCompany,Inc. Allrightsreserved. Nopartofthisreportmaybereproduced,distributed,orstoredinadatabaseorretrievalsystem,ortransmittedinanyformorbyanymeanswithoutthe priorwrittenpermissionoftheA.M.BestCompany.Whilethedatainthisreportwasobtainedfromsourcesbelievedtobereliable,itsaccuracyisnot guaranteed. AMBCreditReport InsuranceProfessional PeriodEnded PeriodEnded Increase/ 3/31/2012 3/31/2011 Decrease Premiumscollected 2,765,830 2,599,483 166,347 Benefit&lossrelatedpmts 1,815,635 1,608,384 207,251 Undrwexpensespaid 941,867 911,374 30,493 Underwritingcashflow 8,327 79,725 71,398 Investmentincome 144,759 165,744 20,985 Otherincome/expense 20,526 20,860 333 Pretaxcashoperations 173,612 266,329 92,716 Incometaxespd(recov) 42,681 2,195 44,875 Netopercashflow 130,932 268,523 137,591 Powered by A.M. Best's Global Insurance Database Page17of17