SOLID. STEADY. STRONG. BUILDING WITH VISION. 2008 ANNUAL REPORT RENEWING OUR VISION A SOLID LABOR WORK ETHIC For more than 80 years, one organization has been there for the working men and women who have been the foundation of our economy through good times and bad. Over that time, the Labor movement has given unionized workers a way to collectively achieve a better future for their families. ULLICO shares that passion for collective achievement and strives to develop financial and risk solutions that fit the needs of Labor leaders, unions, members, and their employers. Like the unions we serve, ULLICO applies a solid work ethic to the insurance and financial services business in order to provide the best possible coverage, consistently solid returns and extraordinary service. Our experienced leadership team combines extensive product expertise with deep knowledge and understanding of Labor and its challenges. No other company shares such a long-standing relationship with Labor or an unwavering commitment to this marketplace. TABLE OF CONTENTS Message to Our Shareholders, Clients and Friends 2 Financial Highlights: Continuing to Grow Responsibly 5 Summary of Operations: Solid Performance to Build On 11 Property & Casualty 13 Life & Health 17 Retirement Services 21 Real Estate Investment Group 25 ULLICO Inc. Board of Directors 28 Corporate Officers of ULLICO Inc. and Its Major Subsidiaries 29 Note regarding terminology: In the text that follows, references to “board of directors” and “board” refer to the Board of Directors of ULLICO Inc. The words “business unit” and “unit” are used interchangeably, and refer to the strategic business units, or major business divisions of ULLICO Inc. These include: Property and Casualty, Retirement Services, Real Estate Investment Group, Life and Health, and Market Development. LABOR’S OWN FINANCIAL AND RISK SOLUTIONS PROVIDER | 1 MESSAGE TO OUR SHAREHOLDERS, CLIENTS, AND FRIENDS 2008 was an extraordinary year! The world experi- product portfolio tailored to the specific needs of Labor enced stock market declines of a magnitude not seen while also steadily improving operating returns and since The Great Depression. Governments established embedded shareholder value. unprecedented stimulus packages, rescued failing fi- nancial institutions, and in some cases, even national- The diversification of our products, our financial dis- ized banking. One after another, legendary companies cipline, and our unwavering focus on Labor’s financial across the investment, insurance and banking sectors needs provides ULLICO a balance and resiliency that were bought out, bailed out or simply ceased to exist. allowed us to avoid most of the recent challenges of the Virtually every major financial institution in the country financial services market. It also positions us to take suffered major operating losses and significant de- advantage of opportunities that will inevitably emerge clines in their capital. during this difficult economic environment. ULLICO understands innovation is the foundation of economic In sharp contrast to the many fallen industry giants dur- growth and always endeavors to develop new products ing these volatile times, we are extremely proud to report and programs to meet the needs of Labor, its funds, its ULLICO remains financially sound, secure, and profit- members, and its employers. able. We weathered the storms of the past year in good stead and ended 2008 with a strong capital base, no CONSISTENT OPERATING RESULTS debt and a clean investment portfolio. More importantly, In 2008, ULLICO again experienced strong revenue we enter 2009 with accelerating momentum as all core growth in all core business lines. This growth contin- businesses again produced profitable growth. These ues to be achieved through expanding existing markets positive results are a testament to the vision, planning, for core products, an increased emphasis on Labor-fo- and discipline of the Board of Directors and manage- cused risk solutions (including producer or participant ment team and our commitment to delivering the most captives), and new product introductions. This has off- effective financial and risk solutions to the Labor market. set most of the decline in total revenue resulting from the run-off of the fully insured health business which STRENGTH AND BALANCE has not been actively marketed since 2006. Operating ULLICO’s solid performance is attributable to its dis- profit remains strong driven by consistent underwriting tinctive strengths. At the core of these strengths is the and pricing discipline, and lower operating expenses unique access and trust ULLICO has with our market as while our adjusted operating profit margin continues to the only multi-line financial services company owned improve reflecting the change in our mix of business. by Labor. With that strategic advantage in mind, the Key outcomes to date include: Board has worked diligently to assemble a manage- ment team with an unmatched combination of finan- › Revenue in core lines of business grew 13% over 2007 cial services and Labor expertise. This team has in turn – a second consecutive year of double digit growth. worked hard in recent years to create a foundation of › Total operating profit grew to $13.4 million while financial strength; implement conservative underwrit- adjusted operating margin improved to 4.7% from ing and risk management philosophies; and establish 3.3% in 2007. a culture of best-practice corporate governance, com- pliance and transparency. The combination of these › Property & Casualty gross written premium grew to traits has enabled us to build a broad and competitive $79 million, up more than 77% from 2007. 2 | 2008 ANNUAL REPORT › Life & Health premium in force topped $140 mil- lion in 2008. › Separate Account J (J for Jobs) delivered a strong 5.31% return for the full year – one of the few positive returns for pension investments in the market – while also funding $1.2 billion and nearly 32 million hours of union labor on new construction projects. HIGH QUALITY BALANCE SHEET Equally important to the positive operational results are the sustained strength and quality of ULLICO’s balance sheet. The financial and economic melt- and creative portfolio of products and services – real down during 2008 resulted in most financial institu- financial solutions – supported by the most effective tions incurring significant mark-to-market losses on organizational structure, systems, and workflow. their investment portfolios – in a number of cases as high as a 30% to 40% reduction in capital. However, Most importantly, for ULLICO, to build with vision ULLICO’s investment perspective in recent years was means the Labor customer is at the heart of all that that there was not enough additional return poten- we do. Customer relationships – a union, a fund or tial for the increased risk in many asset classes trustee, a member, or a union employer - will always and our strategy was to move most of the portfolio be our most highly prized asset and we are committed into government-backed and high quality corporate to focusing on the needs of our customers and serving fixed income instruments while consciously avoid- them to the highest degree possible. To that end, we ing subprime mortgage exposure, other derivatives, continue to invest in improvements to service, prod- and equity investments. As a result, ULLICO enjoyed uct features, performance, and delivery of our existing a mark-to-market gain on its investment portfolio of portfolio. In addition, we also fund significant research $7.4 million. on new business opportunities and evolving economic trends that will impact Labor and its employers. Our In addition, we maintained a consistent and conser- goal is to stay ahead of these trends and provide Labor vative approach to reserving for claims in our insur- with proactive financial solutions for today’s rapidly ance lines and continue to report low levels of intan- changing world. gible assets resulting in very low leverage ratios for our consolidated equity. Statutory capital levels in our Among the more notable investments made during insurance company subsidiaries remain very high with 2008 were: risk-adjusted capital ratios far exceeding required regulatory levels. In summary, the balance sheets of › The implementation of the “One Market, One Cus- the corporation and its primary subsidiaries have never tomer, One ULLICO” initiative, an integrated mar- been stronger. Our insurance subsidiaries are well-po- keting and customer relationship program to bet- sitioned for future financial-strength rating upgrades. ter align and coordinate sales and service across all business units. BUILD WITH VISION › The successful launch of ULLICO’s Captive and Al- In 2008, we accelerated the second phase of our strate- ternative Risk Business including the formation of gic plan; “build with vision.” To build with vision means ULLICO Captive Insurance Company, a segregated to develop an organization unequivocally positioned to cell facility domiciled in Washington DC. serve Labor better than any other financial services company. This requires building relationships based on › Significant enhancements to our group life and trust, responsiveness, and a willingness to understand medical stop-loss products and marketing sup- the unique needs of our market. It demands a flexible port to jump start new growth. LABOR’S OWN FINANCIAL AND RISK SOLUTIONS PROVIDER | 3 › The successful pilot program and re-entry of › Edward Titus – Vice President,