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Posted: 11/4/2009

Governor's Business Summit August 31, 2009

Dennis L. Johnson, President & CEO United Heritage Financial Group United Heritage Life Insurance Company Remarks (Excerpts)

United Heritage Financial Group is a holding company headquartered in Meridian, Idaho consisting of three insurance companies: United Heritage Life Insurance Company founded in 1935 in Nampa; United Heritage Property & Casualty Company founded in 1908 in Caldwell; and Sublimity Insurance Company headquartered in Sublimity, Oregon founded in 1896. United Heritage concentrates its business on life and annuity products focused on middle income Americans and personal lines property and casualty homeowners and auto insurance.

The life insurance industry and property and casualty insurance industry can, to some extent, be viewed separately. Life companies are asset heavy with less cash flow as a percentage of assets. Property and casualty companies are cash flow driven with fewer assets. Life insurance companies are typically leveraged 10 to 1 in their assets to capital ratios. Property and casualty insurance companies are leveraged 2 or 3 to 1.

On September 18, 2008, the A.M. Best Company, the premier rater of insurance companies, issued a “negative outlook” on the entire U.S. life insurance industry. However, it did not issue such an outlook on the U.S. property and casualty industry. The negative outlook was in response to the general U.S. and worldwide economic situation and the assets held by life companies taking into account the bankruptcy of Lehman Brothers and the government takeover of AIG that week.

Life insurance companies are recovering from the economic recession of 2008 and 2009 but are doing so more slowly than property and casualty companies. This is because life insurance companies are continuing to deal with asset issues, including bond impairments, of which they hold far more than their property and casualty company counterparts. Most property and casualty companies have recovered much more quickly from the economic crisis. All United Heritage companies have maintained their ratings throughout this economic crisis.

Sales for life insurance have been strong where products are perceived safe and secure. Products with equity market exposures experienced lower sales earlier in 2009 due to the perceived risk of principle loss but have increased with stock market gains. Property and casualty personal lines sales continue to be stable. Commercial insurance sales are down and reflect the general downturn in business activity associated with the recession. Automobiles must be insured to be driven. Houses, even foreclosed houses, must be insured by someone whether that is an individual or a bank. Downsized and closed businesses decrease the commercial premium volume.

The challenge for all insurance companies today is to have enough time to deal with investment loss issues. Compared to banks, however, the time horizon for recovery is much shorter for both life and P&C companies. While insurance companies are deemed to be financial institutions, they are not banks and their portfolios are distinguishable with far less mortgage loan exposure. Other than the notable exception of the AIG bailout, a holding company of some 400 subsidiaries including insurance companies, there have been relatively fewer insurance company insolvencies nationwide associated with the current economic crisis as opposed to banks. We note that the AIG insurance companies remain solvent while it was their holding company that was the issue.

Finally, I want to report that all United Heritage Financial Group operating companies, that is all three of our insurance companies, were profitable in the second quarter of 2009 and added to their surplus (equity) in the second quarter. While we believe there are still challenges ahead, it is our opinion that the worst of the 2008/2009 recession is behind us and we are optimistic that our best days lie before us.