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Shelter Insurance Companies2012 Annual Report

2012 AnnuAl RepoRt

To Our Policyholders .........................................................................................1

Corporate Oversight Discussion .........................................................................2

Corporate Oversight Chart ................................................................................3

2012 in Review ...........................................................................................4-11

Companywide Information .............................................................................12

Family of Companies ......................................................................................13

Financial Results ....................................................................................... 14-25

Directors and Officers .....................................................................................26

Community Involvement ............................................................................ 27-32

Shelter Privacy Protection Policy ......................................................................33

2012 Overview

On the Cover

The image featured on this year’s annual report cover, created as part of a media campaign by members of Shelter’s Document Services and Advertising Departments, was honored with a 2012 graphic design Award of Excellence from Graphic Design USA. See page 8 for more details. Much like the figure perched atop the bike facing the sunrise, Shelter Insurance® continues to look to the horizon for better ways and means to meet the needs of its insureds. Thank you for being a part of our journey for the past 66 years.

Table of Contents

We’Re youR Shield. We’Re youR ShelteR.

We wish to begin this annual report by extending our congratulations to former President and CEO, Dave Moore. Mr. Moore, who retired in August of 2012, was a valuable contributor to the growth of our Companies for several years and will continue to serve as a member of the Board of Directors. We also wish to thank retiring board members Ray Jones, Phil Marblestone and Ann Covington for their years of service to Shelter Insurance®. Best wishes to their successors: Rick Means, Deborah Douglas and Andrés Jiménez. We are humbled to work with such an outstanding and diverse group.

Concerning our operations, 2012 was quite rewarding compared to 2011. Property and casualty net premiums written increased 4.3% to $1.4 billion, ending policy count grew to 1.9 million policies and the underwriting performance for these operations improved $201 million over the previous year. Adding Shelter Life Insurance, policy count ended at 2,219,000. Combined income for all of the Shelter operations before tax was a positive $114 million. These conditions plus another strong year in the stock market caused a 9.1% or $116 million increase to policyholders’ surplus, ending with a total of $1.398 billion.

Shelter General began converting some of its private passenger auto policies to Mutual during the year in order to develop a new pricing methodology for expansion efforts. It is anticipated that premium for this company will decrease in the near term. General paid $8.9 million of dividends to Shelter Mutual. Haulers gross written premiums were $31 million, an increase of 4.5% for the year. Haulers paid a $3.6 million dividend to Shelter Mutual.

Shelter Reinsurance gross written premiums were up 2.2% from 2011. The incurred estimate for Superstorm Sandy was $14 million, which was the only significant loss during 2012. Re contributed a 15% return, or $22 million to Shelter Mutual. During 2013, Mutual will provide $50 million of additional capital to tap into potential growth opportunities.

Shelter Life continued to increase its insurance in force, which at year end was $21.8 billion. The return on average investment in this operation was 11.7%, resulting in a $15 million dividend to the parent company.

The imposition of new federal oversight and regulations caused the discontinuance of Shelter Financial Bank. As a result, operational return was impacted by certain closure expenditures and write-offs. During 2013, the Bank will merge with its parent Shelter Financial Corporation, which will service the remaining loan portfolio. Our sincere appreciation goes out to Mr. Ron Wheeling and the Bank’s staff for their support during this unanticipated transition.

Daniel Boone Agency continued to report stellar return on average equity. Shelter Enterprises reported positive income as occupancy rates on its rental property approached 100%. Lastly, Shelter Benefits Management Inc. continued to effectively manage Shelter’s human resource activities.

Going forward, the Shelter organization will continue the journey by focusing on policy count growth and retention of existing policies. To this regard, we will investigate and recommend expansion to new territories as well as increase our presence in existing states, always being mindful of risk concentrations. Alternate distribution channels for opportunities will be reviewed. Existing agent quote activity will be spotlighted as well. Subsidiary operations will be challenged for prospects to growth and profit. This attention to all areas is necessary to ensure the continued success of Shelter Insurance® as an industry leader in products and service, to burnish our reputation for integrity and customer service and to solidify our financial security. These efforts ultimately benefit our customers, employees, agents and communities.

To Our Policyholders

J. Donald DuelloChairman of the Board

Rick MeansPresident & CEO

2012 AnnuAl RepoRt

Corporate Oversight Discussion

Shelter Insurance Companies are governed by a nine-member Board of Directors that is empowered to provide policy decisions and general oversight of the Companies’ operations. Key responsibilities include reviewing corporate strategy and business plans and appointing officers. Three directors are elected annually by policyholders at the annual policyholders’ meeting. Each director is elected for a three-year term. In addition, the Board appoints three subcommittees to directly assist the Board in fulfilling its responsibilities: the Investment Committee, the Executive and Compensation Committee and the Audit Committee.

While all three subcommittees are important, the Audit Committee in particular is charged with performing three functions: serving as an objective party to monitor Shelter’s financial reporting process and internal control system; appointing, reviewing, and assessing the independent audit firm; and providing an avenue of open communication among the independent auditors, internal auditors, senior management and the Board.

Other senior management committees are established according to critical management issues. These committees are overseen by executive management. The goal of the Board and other committees is to ensure a management structure that provides effective oversight and is responsive to key issues on behalf of the employees, agents and customers of the Shelter Insurance Companies.


Corporate Oversight Chart

Home Office Operations and Branch Offices

Departments

Board of Directors - 9 Directors

Board Committees

Annual Meeting of Policyholders

Audit Executive and Compensation Investment

Executive Management

Accounting Investments

Audits

Reports

Oversight & Delegation

Appoints

Oversight

Elects

External Audit Firm

Internal Audit

Appoints

Oversight

2012 AnnuAl RepoRt

2012 in Review

Shelter Insurance Leadership Change Announced

On August 1, 2012, Shelter welcomed its 11th President and CEO - Rick Means - following the retirement of Dave Moore. Means joined Shelter Insurance in May of 1977 in the Claims Department after receiving his Bachelor of Science degree from the University of Missouri. He has served as Vice President of Claims, Vice President of Underwriting, and has been an Executive Vice President since 2007. Other areas of responsibility have included Marketing, Information Technology and Shelter Benefits Management. Rick is a native of Fulton, Missouri.

Means is deeply involved in the local community, currently or previously serving on the Board of Directors for Easter Seals of Missouri, Columbia Chamber of Commerce, Big Brothers/Big Sisters of Columbia, Country Club of Missouri and the Boy Scouts of America, Great Rivers Council. He also served as a Daniel Boone Little League coach for six years and is active in the leadership of the First Presbyterian Church.

Soon after he assumed his new position, Means was featured in the October issue of Business Review North America, an on-line digital publication aimed at bringing business executives up to date with the latest news, information and trends within the United States and Canada. In addressing the topic of customer service, he cited enhanced training and technology as key factors in improving our existing level of support. “We’ve always prided ourselves on Shelter being a very customer-focused organization, and we will continue to be,” said Means.

In other changes to the executive management team, Matt Moore and Teresa Magruder were named Executive Vice Presidents effective July 1, due to retirements within the Company. Moore assumes responsibility for Claims, Marketing, Underwriting, Public Affairs and General Services. Magruder will oversee Shelter Benefits Management, Shelter Life, Information Services and Alternate Channels. Moore and Magruder each have over twenty years of experience with Shelter, with the last several years being in various leadership roles. They join Dan Clapp, Executive Vice President and Treasurer and Randa Rawlins, General Counsel and Secretary to complete Means’ executive leadership team.

Matt Moore Teresa Magruder Dan Clapp Randa Rawlins

Rick Means


2012 in Review (continued)

Customer Satisfaction Remained StrongShelter Mutual Insurance Company ranked fifth highest in customer satisfaction for homeowner insurance companies, according to J.D. Power and Associates’ 2012 U.S. National Homeowner Insurance Study. Satisfaction improved among customers who bundled other policies with their homeowners policy, contributing to higher overall customer satisfaction with homeowner insurance companies, according to the study.

The study, released on September 27, measured customer satisfaction with homeowners insurance companies by examining five factors: billing and payment; claims; interaction; policy offerings; and price. It is based on responses from more than 12,600 homeowners insurance customers.

Alternate Channels Department Established

Sensing a need to provide growth and retention by positively enhancing customer experiences through broadening and improving the channels, products and services provided to Shelter’s customers, the Company formed a new Alternate Channels Department in 2012. Under the leadership of Lloyd Montgomery, this department is charged with increasing revenue through profitable growth and retention in several business units apart from the traditional captive agent channel. This department oversees call center operations, Nevada expansion, Daniel Boone Agency, sales and service through Shelter’s public website and our subsidiary, Hauler’s Insurance, located in Columbia, TN.

In order to meet growth in call volume, to diversify locations for recruiting and to mitigate the impact of inclement weather, Shelter opened its third call center location in Henderson, NV in July 2012. Other call center locations are in the home office in Columbia, MO and in the branch office in Kansas City, MO. The 25-seat location in Henderson provides a broad source for recruiting and selecting employees and enhances our ability to serve our policyholders in the event bad weather or other events reduce call center capacity in Missouri. In addition, the Henderson call center is located in the Pacific Time Zone, which provides advantages for late shift staffing.

2012 AnnuAl RepoRt


New Tennessee State Office Planned for May 2013 Opening

On September 5, 2012, Shelter representatives broke ground for a new state office located in Thompson’s Station, Tennessee – a suburb of Nashville. The Thompson’s Station location was selected for a number of reasons. The new site is close to the major traffic arteries of I-65 and I-24, assuring easy access for customers and vendors alike. Being in the Nashville area also gives the Company a presence in the state capitol and close proximity to the Insurance Department, both of which are major decision-making centers that can impact our industry. Additionally, this location is convenient for field employees who attend meetings or training sessions. Thompson’s Station is also in the fastest growing part of Nashville in terms of Class A office space and corporate headquarters/offices.

Shelter will occupy the second floor of the two-story structure. The first floor of the facility will be available for lease outside Company operations. This professional and highly functional facility will provide many years of service for the Company as it continues to meet the needs of its policyholders in the Volunteer state.

Web and Mobile Portals Updated

Shelter’s public website welcomed a new look during the summer of 2012. The team shifted to a responsive design approach, allowing consumers a better on-line experience whether they come to Shelter on a mobile device, a tablet or a desktop computer. Responsive design adjusts the design of the page to fit the screen size of the device being used. The new design style will allow for additional flexibility and design innovation in the future.

Page 72012 in Review (continued)

Someone using a desktop computer would see everything available on the homepage like this:

An individual using a tablet might see this version:

2012 AnnuAl RepoRt


Finally, a person using a mobile phone might see an image like this:

The number of people visiting and interacting with Shelter’s site on a mobile device climbed significantly in 2012, and it appears this trend will continue. In addition to the mobile updates, Shelter’s agent pages also received an update.

Motorcycle Ad Campaign Recognized with Award of Excellence

The image featured on this year’s annual report cover was honored with a 2012 graphic design Award of Excellence from Graphic Design USA. Graphic Design USA has sponsored design competitions that spotlight areas of excellence and opportunity in the field of graphic design for more than 50 years. “These types of projects are a collaborative effort of our outstanding design team, as well as our business partners,” said Linda Winn, Manager of Document Services. The winning campaign was published in the 2012 Graphic Design USA 250-page in-house design annual report and distributed to over 100,000 industry professionals worldwide.

Page 92012 in Review (continued)

To qualify for the in-house category, all materials must be created by employees of the originating organization, not outsourced or edited by a freelance or graphic design agency. The “It’s your Journey” campaign was created by members of the Document Services and Advertising departments to promote Shelter’s motorcycle insurance. “This campaign is very popular with the agents,” said Director of Advertising Anna Hargis. “We’ve used the theme in a variety of ways from print ads to mailers to animated web ads and have seen great results.”

More than 4,000 entries were submitted from across the country; less than 15% were recognized with a Certificate of Excellence.

Corporate Awards Earned by Agency, Field, Branch and Home Office Personnel

Each year Shelter confers awards on its Agent of the Year and Regional Branch Offices of the Year as well as recognizing a home office and field office employee with a Standing Ovation award.

Ray Schrock of Alexandria, Louisiana was honored as the 2012 Agent of the Year. Branch of Excellence awards were presented to the employees of the Little Rock, Arkansas branch (southern region), the Kansas City, Missouri branch (western region) and the Columbia, Missouri branch (central region). Steve Keeney, a property adjuster from Lexington, Kentucky was recognized as the Standing Ovation award winner for field employees. Finally, the Home Office Standing Ovation award was earned by Karen Cooper of Claims Litigation. Standing Ovation recipients are selected

2012 AnnuAl RepoRt


from monthly Cause for Applause winners selected each month throughout the year. Shelter Insurance® congratulates these individuals and branches for their outstanding contributions to the success of its operations.

Ray Schrock2012 Agent of the Year

Karen CooperHome Office Standing Ovation Award Winner

Steve KeeneyField Standing Ovation Award Winner

Branch of Excellance AwardKansas City, MO (Western Region)



Shelter Financial Bank Designated for Closure

In recent years the regulatory landscape for insurance company owned banks has changed. In September of 2012, after careful consideration of the regulatory intricacies and extensive costs associated with Shelter Insurance continuing to own a bank, the Company reluctantly decided to discontinue its banking operations. The decision was difficult, given the solid and profitable operations of the bank; nevertheless, Shelter will now avoid substantial expenses associated with new banking regulations, which will ultimately prevent unnecessary erosion of policyholder surplus. On a positive note, the majority of the loans Shelter Bank had accumulated will be retained and serviced by Shelter Financial Corporation, producing profits for a number of years to come, and continuing important relationships with thousands of policyholders.

Branch of Excellance AwardLittle Rock, AR (Southern Region)

Branch of Excellance AwardColumbia, MO (Central Region)

2012 AnnuAl RepoRt

The Shelter Insurance® group is made up of the following operating companies:

Shelter Mutual Insurance Company Shelter General Insurance Company

Shelter Life Insurance Company Shelter Reinsurance Company

Haulers Insurance Company, Inc.Shelter Financial Corporation

Shelter Financial BankShelter Financial Services, Inc.

Shelter Benefits Management Inc.Shelter Enterprises, LLC

Daniel Boone Agency, LLC

Shelter Insurance CompaniesFinancial Highlights($ in Thousands)

2012 2011 2010 2009 2008Consolidated Assets $3,909,298 $3,705,787 $3,638,301 $3,457,048 $3,298,968Equity $1,397,888 $1,281,420 $1,347,907 $1,250,901 $1,239,720P&C Net Earned Premium $1,346,540 $1,297,360 $1,227,346 $1,142,909 $1,076,719P&C Policy Count 1,939,305 1,926,645 1,925,816 1,892,535 1,829,117Life Earned Premium $129,227 $146,959 $135,578 $126,025 $125,427Life Insurance in Force $21.8 billion $20.9 billion $20.1 billion $19.3 billion $18.3 billionEmployees and Agents 3,752 3,747 3,655 3,583 3,559

Companywide Information


Family of Companies

Shelter Insurance® first opened its doors in 1946, providing affordable auto insurance to Missourians. With a policy of integrity and customer service for the benefit of our customers, employees, agents and communities, Shelter has grown to be an industry leader in insurance, financial products, and services. In fact, we are now one of the nation’s most successful and financially sound regional insurance groups, with an international reinsurance operation.

Our financial strength ratings as determined by A. M. Best: Shelter Mutual Insurance Company A (Excellent) Shelter General Insurance Company A (Excellent) Haulers Insurance Company, Inc. A (Excellent) Shelter Life Insurance Company A (Excellent) Shelter Reinsurance Company A (Excellent)

Office Locations:

Jonesboro, AR Lexington, KY Oklahoma City, OK Little Rock, AR Baton Rouge, LA Tulsa, OK Springdale, AR Jackson, MS Lincoln, NE Denver, CO Columbia, MO Las Vegas, NV Springfield, IL Kansas City, MO Columbia, TN Indianapolis, IN Springfield, MO Nashville, TN Topeka, KS St. Louis, MO

Operating territory for Shelter Mutual, Shelter General and Shelter Life:

2012 AnnuAl RepoRt

Financial Results

Mutual and General Operations

The net written premiums for Shelter Mutual (Mutual) and its subsidiary, Shelter General (General) rose 4.7% compared to 2011 and were reported at $1.243 billion. Auto premiums continue to generate most of the increase. Premiums in general have continued to rise as the result of rate changes implemented during the past few years, particularly on the homeowner’s line. The overall economy and rate competition are impacting Shelter’s production as the ending policy count was up only 10,000 policies. Customer retention remains high.

Direct operations incurred $255 million of weather related events before reinsurance, a sizable decrease from the $396 million reported for 2011. Even though these losses were less, a warmer winter contributed to more opportunities for storm activity from March through August. The pre-event weather reserve was reestablished during the year for a total contribution of $17 million and the earthquake reserve increased $6 million for a total of $91 million. The total underwriting loss for the year was $71 million and without pre-event additions would have been $47 million. Adequate loss reserves overall continued to be maintained, adjustment expenses remained stable and underwriting expenses as a percentage of premiums written were consistent year over year.

On the whole, interest income on bond holdings remained steady with the previous year, even with decreasing rates of returns, and fortunately the equity markets ended on a high note, thus generating sufficient realized income to fully offset the underwriting losses. In total, investment returns provided $127 million for these organizations and reflected gains from limited partnerships and common stock holdings as well as intercompany dividends of $15 million from Shelter Life. General also provided an $8.9 million dividend to Mutual for the year. The year ended with total net income after tax of $71 million.

Net investment income, higher premiums and less frequent and severe claims resulted in sizable cash provided from operations and as a result Shelter Mutual’s admitted assets increased $184 million to almost $2.5 billion. The expected liability for both companies’ claims and adjustment expenses was $456 million, a decrease of 1.2% and unearned premiums climbed $30 million due to elevated premiums. Mutual’s surplus grew $116 million, or 9.1% for the year, and ended at $1.398 billion - an all time record.

Mutual and General were rated A (Excellent) by A. M. Best Company during 2012. Another indicator of financial strength was the percent of net premiums written to policyholders’ surplus, which was 100% in 2012. Furthermore, the Companies had no long-term debt obligations. These positive factors provide policyholders the assurance that Shelter Insurance® is a well-capitalized and stable organization, able to fulfill its future commitments.

$65.7

$86.1

$107.5

$84.8

$108.2

2008 2009 2010 2011 2012

Pre-Event Catastrophe Reserves (in Millions)

$1,240 $1,251

$1,348 $1,281

$1,398

2008 2009 2010 2011 2012

Shelter Mutual Surplus as Regards Policyholders

(in Millions)

$(48.3)

$67.3

$86.2

$(24.9)

$70.8

2008 2009 2010 2011 2012

Shelter Mutual Insurance Company Shelter General Insurance Company

Net Income After Taxes (in Millions)

Page 15Financial Results (continued)

2012 2011

Admitted Assets:Bonds 1,122,140$ 1,026,294$ Investments in affiliates 548,191 528,438Common stocks, unaffiliated 327,445 299,264Other invested assets 211,479 166,060Cash and short-term investments 68,366 31,324Real estate 36,502 33,894Total Cash and Invested Assets 2,314,123 2,085,274

Accrued investment income 14,846 15,549Premiums receivable 83,728 77,311Deferred income tax asset 56,093 66,525Income tax recoverable 1,111 41,006Other assets 20,412 20,866

Total Admitted Assets 2,490,313$ 2,306,531$

Liabilities and Surplus:Unpaid losses and loss expenses 404,031$ 410,183$ Unearned and advance premiums 456,777 423,549Catastrophe reserves 107,297 84,404Accrued expenses 59,078 43,539Drafts payable 39,359 42,200Other liabilities 25,883 21,236Total Liabilities 1,092,425 1,025,111

Total Policyholders' Surplus 1,397,888 1,281,420

Total Liabilities and Surplus 2,490,313$ 2,306,531$

(In Thousands)

December 31

SHELTER MUTUAL INSURANCE COMPANY

Statements of Admitted Assets, Liabilities, and Surplus(Statutory Basis)

2012 AnnuAl RepoRt

Financial Results (continued)

Shelter Mutual and Shelter General Property and Casualty Products

Shelter’s exclusive agents offer the following property and casualty products:

AutoPrivate Passenger AutoCommercial AutoMotorcycleRecreational Vehicle

PropertyHomeownersMobile HomeownersFarmownersDwelling FireFarm FireApartment OwnersPersonal Inland MarineBoatowners

LiabilityPersonal UmbrellaGeneral LiabilityComprehensive Farm Liability

BusinessBusiness OwnersCommercial FireCommercial Inland MarineCargo

Property and Casualty Net Earned Premium and Policy CountMutual & General

($ Thousands) 2012 2011 2010 2009 2008Net Earned Premium $1,216,150 $1,169,923 $1,110,194 $1,038,065 $995,739Percent Change 3.95% 6.95% 4.25% 2.54% 1.76%

(Thousands)Policy Count 1,905.9 1,896.0 1,894.5 1,861.5 1,799.6Percent Change 0.52% 1.77% 3.44% 2.76% 2.02%

Auto 56%

Homeowners 27%

Other Property 10%

Farmowners 3%

Commercial Multi Peril 2%

Other 2%

Property and Casualty Net Written Premium

($1.2 Billion for 2012)

$3.8

$4.2 $4.4 $4.5

$4.7

2008 2009 2010 2011 2012

Assets Under Management (in Bill ions)


2012 2011

Admitted Assets:Bonds 140,301$ 145,085$ Investments in affiliates 9,997 9,211Other invested assets 3,095 2,782Cash and short-term investments 4,103 3,486Total Cash and Invested Assets 157,496 160,564

Premiums receivable 9,916 10,026Other assets 3,616 3,681

Total Admitted Assets 171,028$ 174,271$

Liabilities and Net Worth:Unpaid losses and loss expenses 52,681$ 50,696$ Unearned premium 29,599 28,878Accrued expenses 2,322 2,197Other liabilities 4,274 3,462Total Liabilities 88,876 85,233

Net Worth 82,152 89,038

Total Liabilities and Net Worth 171,028$ 174,271$

(In Thousands)

December 31

SHELTER GENERAL INSURANCE COMPANY

Statements of Admitted Assets, Liabilities, and Net Worth(Statutory Basis)

2012 AnnuAl RepoRt


Haulers Insurance Company, Inc.

$25.5 $26.0 $27.2 $27.8 $29.2

$3.1 $2.6 $3.6 $0.4

$6.6

2008 2009 2010 2011 2012

Haulers Insurance Company (in Millions)

Earned Premium Net Income Before Taxes

Tennessee 44%

Virginia 13%

Missouri 21%

Alabama 2%

Georgia 10%

Indiana 10%

Haulers Written Premium by State ($30.9 Million for 2012)

$32.9

$36.0

$39.5 $36.8

$35.3

2008 2009 2010 2011 2012

Haulers Insurance Company Net Worth

(in Millions)

$50 $55

$59 $57 $58

2008 2009 2010 2011 2012

Haulers Insurance Company Total Assets

(in Millions)

Haulers recorded $30.9 million of direct written premium, an increase of $1.3 million or 4.5% from the previous year. Increased production in two new states, Georgia and Alabama contributed in part to this growth. Georgia expanded 63% to $3.1 million and Alabama developed 81% to $546,000 over 2011. In addition, a greater focus on the sale of commercial policies led to further growth in premium, constituting 31% of the overall written premium dollar, but only 17.9% of ending policy count. Continued geographic and product expansion led to net earned premiums rising by 5.4% to a record $29.2 million. Policies in force grew 4.3% to 33,410. Weather-related claims were down considerably over the previous year as there were only 261 catastrophe claims compared to 894. In total, claim counts were down 11%, resulting in a loss ratio of 63.4% for the year.

Higher premiums and lower claims provided a small underwriting loss for the year. Offsetting this loss was the sale and dividend of Haulers common stock holding to its parent, Shelter Mutual. The overall realized gain on the transaction was $5.1 million, with $3.6 million representing the 2012 dividend payment. There was no impact to surplus from this event.

Total assets were up $1.3 million, or 2.4% due to the cash proceeds from operations used to purchase long term bonds. Net worth for the Company increased $2.1 million and provided 6% return to the parent when excluding dividends.


HICI State License Map

••Writing CurrentlyAlso Licensed

2012 2011

Admitted Assets:Bonds 46,280$ 43,270$ Common stocks, unaffiliated – 4,017Real estate 961 985Cash and short-term investments 4,167 2,180Total Cash and Invested Assets 51,408 50,452

Accrued investment income 511 519Premiums receivable 6,275 6,014Other assets 257 87


Liabilities and Net Worth:Unpaid losses and loss expenses 12,068$ 10,417$ Unearned premium 9,814 9,379Other liabilities 1,270 513Total Liabilities 23,152 20,309

Net Worth 35,299 36,763


(In Thousands)

December 31

HAULERS INSURANCE COMPANY, INC.


2012 AnnuAl RepoRt


Shelter Life Insurance Company

Shelter Life recorded profitable results in 2012 with net income before taxes of $22.2 million, up from $16.7 million in 2011. Net worth for 2012 increased $3.1 million to $165.4 million after a dividend payment to Shelter Mutual in the amount of $15 million. Assets held continued to grow, reaching $1.045 billion. These positive outcomes were the result of increased bond and short-term investment holdings purchased with positive cash inflows.

During 2012 the electronic application submission system became fully functional for all life insurance products. Captive agents used this streamlined submission process for 58% of new applications, bringing efficiency and improved customer service to agents and policyholders. New life and single life premium was up $3 million, 16.9%, when compared to 2011, driven by an increase in policy count of 2.7%. This growth plus excellent persistency added $931 million to life insurance in force during 2012 to a total of $21.8 billion. In total, first-year premium was down in 2012 because of the decision to halt the sale of new annuities in September of 2011 due to the low interest rate environment. Shelter Life received a strength rating of A (Excellent) by A.M. Best and A- (Excellent Financial Strength) by The Street.com ratings. These ratings provide further evidence of the strength and stability of Shelter Life Insurance Company.

$920 $940 $961 $1,013 $1,045

2008 2009 2010 2011 2012

Shelter Life Insurance Company Total Assets

(in Millions)

$18 $19

$20 $21

$22

2008 2009 2010 2011 2012

Life Insurance in Force (in Billions)

$2.9

$50.9

$27.5

$16.7 $22.2

2008 2009 2010 2011 2012

Net Income Before Taxes (in Millions)

$35.5 $33.5 $40.6 $47.3

$24.2

$89.9 $92.5 $94.9 $99.7 $104.2

2008 2009 2010 2011 2012

Premium and Annuity Considerations (in Millions)

First Year Renewal


Products OfferedLifePlatinum Shield® III Universal LifeWhole Life20 Pay Whole LifeSecure Whole Life

Level Term to Age 100 (10, 20, 30 Years)Yearly Renewable TermEZ TermJunior Special

2012 2011

Admitted Assets:Bonds 892,516$ 858,794$ Investments in affiliates 9,088 8,373Mortgage loans on real estate, affiliated 5,425 5,670Other invested assets 33,487 37,589Policy loans 25,095 25,511Cash and short-term investments 20,753 22,800Total Cash and Invested Assets 986,364 958,737

Deferred and uncollected premiums 30,092 27,906Accrued investment income 10,179 9,732Deferred tax assets 12,764 11,007Other assets 5,402 5,411

Total Admitted Assets 1,044,801$ 1,012,793$

Liabilities and Net WorthAggregate reserves 788,853$ 761,776$ Liability for deposit type contracts 57,858 58,347Policy and contract claims 9,691 7,882Due to affiliated companies 3,876 2,957Asset valuation reserve 3,592 3,044Other liabilities 15,543 16,482Total Liabilities 879,413 850,488

Net Worth 165,388 162,305

Total Liabilities and Net Worth 1,044,801$ 1,012,793$

(In Thousands)

December 31

SHELTER LIFE INSURANCE COMPANY


2012 AnnuAl RepoRt

Shelter Reinsurance Company

Shelter Reinsurance achieved excellent financial results in 2012 and finished the year strong. These results were a welcome relief from the previous year’s challenges to the insurance sector and to the global economy. Improved underwriting results for 2012 were primarily attributable to sound underwriting practices and a drop in catastrophic events compared to 2011. A combined ratio of 77.9% was much improved from the previous year.

Profitable growth is the goal for both the domestic and international sectors of Shelter Re. Total gross written premium grew 2% to $111 million while net written premium stayed consistent at $102 million due to the increased cost of reinsurance protection. Surplus grew to $165 million, an impressive 15% increase. Favorable lower-than-average claim activity resulted in a total net income for the year of $31 million. A.M. Best continued to rate Shelter Reinsurance as A (Excellent) with a stable outlook.

There was not a lack of storm activity in 2012 as Shelter Reinsurance Company was impacted by two events in the United States: the Mid-Atlantic/Northeast Derecho and the Northeast Superstorm Sandy. The June Derecho storm affected a large section of the Midwestern United States and continued across the central Appalachians and Mid-Atlantic States. Shelter Re’s incurred loss for this storm was approximately $4 million. Superstorm Sandy, a powerful tropical cyclone, affected mostly Jamaica, Bahamas and the Mid-Atlantic and Northeastern United States during late October. Total incurred losses in these areas for Sandy is expected to be less than $15 million. These types of events are expected due to the type of business written by Shelter Reinsurance, just not to the extent as incurred during 2011.

Shelter Reinsurance continues to remain financially strong by nurturing and maintaining business relationships with client companies world-wide. These companies vary in size and writings, but a target underwriting focus is placed on small to mid-size mutual type companies. These client companies are also ones that operate outside Shelter’s 14-state territory. Aggregate levels of geographic exposure are continually evaluated along with continued awareness of any potential catastrophic risks. Worldwide, the two regions that have grown the most in written premium in 2012 were Oceania and Canada. The two largest regions in the portfolio continue to be the United States and Europe (including the United Kingdom).

Looking to the future, Shelter Reinsurance is committed to maintaining a strong, long-term presence in the marketplace. Potential new territories and client companies are closely analyzed for acceptability and diversification. Re’s continued reputation for prompt claims payment, exceptional customer service and solid financial strength enables it to continue to diversify and support the Shelter Insurance group of companies.


$73

$81

$90

$102 $102

2008 2009 2010 2011 2012

Net Written Premium (in Millions)

$7

$30

$6

$(66)

$20 $15

$40

$18

$(56)

$31

2008 2009 2010 2011 2012

Shelter Reinsurance Company (in M ill ions)

Net Underwriting Gain (Loss) Net Income Before Taxes

$138.6

$166.4

$178.8

$143.2

$165.2

2008 2009 2010 2011 2012

Shelter Reinsurance Company Net Worth

(in Millions)

$223

$252

$286 $294

$322

2008 2009 2010 2011 2012

Shelter Reinsurance Company Total Assets

(in Millions)

5.1%

As of December 31, 2012

25.4%

3.6%

5.5%

1.3% 8.8%

0.1%0.3%

0.6%

11.2%6.2%

3.1%

28.6%

0.2%

Page 23



swww.shelterre.com

Shelter Re

2012 2011

Admitted Assets:Bonds 267,293$ 244,004$ Cash and short-term investments 30,237 29,901Other equity investments, affilitated 548 478Total Cash and Invested Assets 298,078 274,383

Accrued investment income 3,097 2,955Deferred tax asset 3,534 3,247Premiums Receivable 6,372 2,274Other assets 10,768 11,219


Liabilities and Net WorthUnpaid losses and loss adjustment expense 125,188$ 125,578$ Unearned premium 21,973 20,980Other Liabilities 9,524 4,355Total Liabilities 156,685 150,913

Net Worth 165,164 143,165


(In Thousands)

December 31

SHELTER REINSURANCE COMPANY


2012 AnnuAl RepoRt


Shelter Financial Bank

In September of 2012, Shelter Insurance® announced the eventual closing of Shelter Financial Bank. New banking regulations, have imposed unusual restrictions and regulatory burdens on insurance companies that own banks. After several months of research it was determined the best course of action for Shelter Insurance was to dissolve Shelter Bank and terminate Shelter Mutual’s bank holding company status with the Federal Reserve Bank. The dissolution of Shelter Financial Bank has been in process since September. Incidentally, many other insurance companies have also announced bank dissolutions during 2012.

As part of the dissolution process, no new loans or deposits have been accepted since October 1, 2012. Any deposits held by Shelter Financial Bank on March 22, 2013, and a small subset of loans, was sold to another financial institution. The remaining outstanding loans of $120 million will be retained and serviced by the Bank’s parent, Shelter Financial Corporation, a subsidiary of Shelter Mutual Insurance Company. Due to the dissolution of Shelter Financial Bank, deposit balances have decreased sharply from prior years and loan balances have declined steadily. Expenses related to the closing of the bank were incurred in 2012 and caused a reduction in income, resulting in net loss of $652,000. Shelter anticipates on-going profitability from this entity due to reduced expenses, which will be more than offset by the receipt of loan interest income.

0.94%

1.11%

1.27% 1.38%

1.15%

2008 2009 2010 2011 2012

Loan Loss Reserve Ratio (Loan Loss Reserves / Gross Loans)

$746 $692 $868

$1,008

$(652)

2008 2009 2010 2011 2012

Shelter Bank Net Income (in thousands)

$155

$197 $180 $172

$145

2008 2009 2010 2011 2012

Shelter Bank Total Assets (in Millions)



2012 2011

Assets:Loans, net 137,598$ 158,817$ Certificates of Deposit 247 4,456Federal home loan bank and MIB stock, at cost 3,073 2,054Cash and due from banks 1,576 3,735Accrued interest receivable 440 562Other assets 1,683 2,423

Total Assets 144,617$ 172,047$

Liabilities and Net Worth:Deposits 61,069$ 113,924$ Other borrowed funds 34,023 39,206Federal funds purchased 29,424 – Other liabilites 2,576 739Total Liabilities 127,092 153,869

Net Worth 17,525 18,178


(In Thousands)

SHELTER FINANCIAL CORPORATION

Consolidated Statements of Financial Condition

December 31

2012 AnnuAl RepoRt

Rick L. Means, President and Chief Executive Officer

S. Daniel Clapp, Executive Vice President and Treasurer

Teresa K. Magruder, Executive Vice President

Madison M. (Matt) Moore, Executive Vice President

J. Donald Duello, Chair and DirectorBarry L. McKuin, Vice Chair and Director

Gerald T. Brouder, DirectorDeborah L. Douglas, Director

Randall C. Ferguson, Jr., Director

Andrés Jiménez, DirectorDon A. McCubbin, Director

Rick L. Means, DirectorJ. David Moore, Director

BOARD OF DIRECTORS

OFFICERS

David N. Abbott Joe L. MoseleyVice President of Investments Vice President of Public Affairs Rockne P. Corbin Randa RawlinsVice President and General Manager Secretary and General Counsel SHELTER REINSURANCE COMPANY Terry L. Dykes John T. Rooney Vice President of Claims Vice President of Information Services Paul J. LaRose Francis (Frank) L. Thompson IVVice President Vice President of MarketingSHELTER BENEFITS MANAGEMENT INC H. Lloyd Montgomery, Jr. Todd J. Weyler Vice President of Alternate Channels Vice President of Underwriting Christina M. Workman Vice President of Accounting and Assistant Treasurer

Directors and Officers


Community Involvement

Shelter Insurance® Names Roger Kemp as Heinkel Award Winner

The 31st Fred V. Heinkel Award for Excellence was conferred on Roger Kemp, recognizing his efforts in establishing a foundation designed to help women protect themselves from predators and to apprehend those who commit violence against women. For Roger, this crusade has been deeply personal; he knows firsthand the heartbreak of losing a daughter to an act of violence.

Determined to bring his daughter’s killer to justice, Roger, with the assistance of Lamar Advertising Company, put up four “wanted” billboards, posting a composite sketch of the killer’s face for all to see. More than 7,000 leads were called in to the hotline. About a year later, the killer was apprehended and convicted of capital murder. Since that time, Roger’s billboard tactic has been adopted by police departments across the country. In one state alone, more than 30 fugitives have been captured as a result of these billboards.

To honor the life of their daughter and to educate and train women to defend themselves against aggressors, Roger and his wife, Kathy, established The Ali Kemp Educational Foundation (TAKE) and the TAKE defense program. What started as a small effort to raise awareness and empower women has blossomed into a nationwide effort that has trained nearly 50,000 participants. It’s all about education, safety and peace of mind - things that every girl or woman should have and hold dearly.

Roger is also the recipient of the 2011 Presidential Citizens Medal – the second highest civilian honor in the United States - given to Americans who have performed exemplary deeds of service for their country or their fellow citizens. “Through immeasurable pain and grief, Roger devoted his energy to building a safer world for future generations,” said President Obama before presenting Roger with the Medal last October. “His foundation has provided women of all ages with valuable self-defense training, and his billboard campaign posting the faces of wanted criminals has led to multiple arrests, including the conviction of Ali’s killer.”

For his extra-ordinary response to an unspeakable personal tragedy, Shelter Insurance® is honored to recognize Roger Kemp as the recipient of the 2012 Heinkel Award for Excellence.

Shelter/West Junior Partnership Continues to Thrive

When Shelter’s retired Board of Directors Chairman, Gus Lehr, and West Junior High School’s former principal, the late Dr. Muriel Battle, joined together to form a partnership in education, they may not have imagined that 28 years later the relationship would remain intact and continue to thrive. While the faces have changed, the association between Shelter and West Junior High School (WJHS) continues unabated. Many of the activities established during the early days continue to add value to today’s students.

Each May, all of the Columbia schools and businesses that participate in the Partners in Education program gather in downtown Columbia at Courthouse Square to kick off Partner in Education Week, celebrating the program and the impact it has made on Columbia youth. The next day, representatives from Shelter and WJHS meet in front of the Newcomer Schoolhouse located in Shelter Gardens to raise the Partners in Education flag, celebrating their unique relationship and marking the beginning of a new year of activity between Shelter and WJHS.

2012 AnnuAl RepoRt

Community Involvement (continued)

Shelter continues to award scholarships to one male student and one female student. Additionally, the Lehr/Battle Outstanding Achievement Award is presented to one male student and one female student at the end-of-the-year Awards Assembly. The Lehr/Battle Award, a non-monetary award, recognizes outstanding performance during the school year. The Company also honors a worthy educator with an Outstanding Contributor Award, which includes a framed certificate and a $2,000 honorarium from the Shelter Insurance Foundation. This recipient is nominated by students and parents with the winner being selected by WJHS staff.

Other activities that mark this association include musical performances by various school groups during Shelter’s annual policyholder meeting and the Spring/Winter celebrations around Shelter’s landmark fountain. Additionally, the Jazz Band usually makes a couple of appearances a year in the Shelter cafeteria, entertaining the employees during their lunch period.

Art students continue to participate in the Christmas greeting card contest, producing original works of art for the competition. The contest provides a real-world teaching tool for the faculty by enabling students to put into practice specific techniques learned in the classroom. Three entries are selected to be printed and packaged for purchase by Shelter agents, employees and retirees as well as WJHS staff and families of students.

Shelter is also instrumental in helping WJHS with fund-raising projects and providing mentors to students. These and other activities continue to serve this partnership well as it embarks on its 29th year.

Shelter Insurance Foundation Provides Vital Funding

The Shelter Insurance Foundation continues to support many causes throughout Shelter Nation, enriching the lives of others and enabling many to live their dreams. A major supporter of higher education, the Foundation awarded more than $768,000 in financial aid to students through its scholarship programs: Agents’ Scholarship Program, Scholarship Program for Children of Employees and Agents, West Junior High School Scholarship Program, the B.M. Seamon Scholarship Program and its program for matching contributions..

Other causes that have benefited from significant Foundation donations include the National Churchill Museum in Fulton, MO, the Dolly Parton Imagination Library (United Way agency), Missouri Colleges Fund, Inc., Big Brothers – Big Sisters of Central Missouri, Ronald McDonald House Charities of Mid-Missouri, Susan G. Komen Foundation, the National Multiple Sclerosis Society, University of Missouri’s School of Nursing, The Intersection (youth program in Columbia, MO), the Community Partnership’s Fostering Education Futures, the American Cancer Society Relay for Life of Boone County and the Leukemia and Lymphoma Society. The Shelter Insurance Foundation is pleased to be able to participate in these worthy projects, not only in its role as a non-profit foundation but also in partnership with the Company’s employees.


Page 29Community Involvement (continued)

Central Missouri Food Bank’s Fashion Show Remains Popular

Perhaps the most compelling reason to volunteer at the Central Missouri Food Bank in Columbia, MO is the opportunity to model the latest in fashionable head- and hand-wear. Every month, teams of volunteers make the trek across town to don the paper hats and plastic gloves and pose for the obligatory picture. Seriously, feeding the hungry is a favorite charity for Shelter Insurance® and its employees. While styling for the camera, volunteers are also busily packaging food to be distributed across mid-Missouri to those who are struggling to make ends meet. Incidentally,

volunteers include Company officers and directors as well. One month following a board meeting, the group and their families traded in business attire for the aforementioned paper and plastic accessories and spent some time packaging Jello treats. Unfortunately, only one was actually photographed in the fashionable head gear.

Shelter Cares, the volunteer organization of Shelter employees, coordinates the monthly visits by recruiting teams to work at the facility. Additionally, numerous departments hold food drives throughout the year to help stock the pantry. Of particular interest is the Buddy Pack program that provides food for school-age children. Not all of life’s problems can be solved by a full stomach; however, it is much easier, especially for children, to face life’s challenges when not dealing with hunger as well. Shelter and its employees are honored to be able to step up and provide a helping hand. In addition to encouraging a volunteer work force, the Company also made a significant cash donation to the Food Bank in 2012. In appreciation, the Food Bank now has a Shelter Insurance® room in its Columbia facility.

Gold Rush 2012 Adds to United Way Coffers

Capitalizing on the Olympic theme, Shelter’s Home Office United Way campaign – Gold Rush 2012 - brought fun and excitement to the office during the month of October. While overall contributions were down, the amount generated by special events participation increased by 42% over the previous year event totals. Given that many of the outdoor events took place in rainy conditions, the competitors and their supporters are to be congratulated for “playing through” the adverse conditions. Gold Rush 2012 resulted in more than $200,000 being given to United Way and its agencies.

Volunteers from the Home Office also participated in United Way’s LIVE UNITED event, donating a day of labor on behalf of the community. You can tell where this team spent its day just by looking at the picture! The

2012 AnnuAl RepoRt


Home Office staff was not alone in supporting United Way agencies. For the first three weeks in October, staff members of Kansas City Claims and Kansas City Customer Service played Penny Wars, sponsored 50/50 raffles and dressed down in blue jeans to support local agencies.

Down south in Springfield, Missouri, the local Branch Office raised over $3,000 for United Way of the Ozarks by sponsoring cake walks, raffles, games and pictures with Santa Claus featuring a Shelter retiree as Jolly Ol’ St. Nick.

Employees Continue to Support National Charities

Three national charities that are consistently supported by Shelter employees are the Komen Race for the Cure, the National MS Society and the American Heart Association. The 64-member Shelter team ran or walked the 5K Komen Race for the Cure in Columbia, raising $2,100 in donations to aid in finding a cure for breast cancer.

The MS Bike 150 event offered three options for the riders. Participants could either select the 40-, 75- or 100-mile biking route for the two-day event. The 12-member team and its nine volunteers raised over $7,700 for the Gateway Area Chapter of the National MS Society. The National MS Society is dedicated to finding a cure of Multiple Sclerosis.

The Columbia Heart Walk collected $800 in support of the American Heart Association in its quest to improve the heart health of Americans by 20% while reducing deaths from cardiovascular disease and stroke by 20% as well. Besides the “walking team,” other Shelter volunteers staffed a health screening tent sponsored by Shelter Insurance®.

Field Offices and Home Office Departments Sponsor Charitable Activities

In addition to corporate sponsored or national charity activities, many field offices and departments within the Home Office took time to enrich the lives of others by giving of their time and talent to various local charitable endeavors. The Accounting and Internal Auditing Departments had a Fun Committee that organized activities throughout the year to provide some light-hearted moments during the work day. Part of the fun involved reaching out to help others. In May, a competition was held to benefit the Central Missouri Food Bank. Six teams were assembled to compete in collecting food and money for the Food Bank. A total of 402 pounds of food and donations amounting to over $1,200 were collected. To honor military veterans in the community, the department raised almost $500 for the Central Missouri Honor Flight Program, which transports veterans from Missouri to Washington, DC to visit their memorials at no cost to the veteran. Finally, during December a raffle and bake sale were conducted to benefit Meals on Wheels, a program that has suffered as a result of being removed from the list of United Way agency programs. The raffle and bake sale garnered just over $1,000. The Shelter Insurance Foundation matched the contribution, dollar-for-dollar, resulting in a $2,000 contribution to this agency.

Page 31

The Branch Offices in Arkansas are famous for their food drives. Enlisting the assistance of local Shelter agents as well as vendors, the Arkansas branches competed among themselves to see who could collect the most food. As a result, over three tons of canned food and nonperishable items were donated to the Arkansas Food Bank. The branches in Little Rock, Springdale and Jonesboro all exceeded prior year donations with the Little Rock branch winning the competition by collecting 4,472 pounds of food!

In addition to participating in the food drive, the adjusters and management of the Little Rock branch also hosted a cook-out for an estimated 100 people at Our House, A Shelter for the Working Homeless. The Our House organization is a non-profit group that relies 100% on donations from the community. In addition to serving meals, Our House also provides the working homeless with shelter, food, job training, education, free child care and summer youth programs designed to equip young people with the necessary skills to be successful adults. When help is needed within the community, whether it is employees, customers or people in need of assistance getting back on their feet, Little Rock Claims steps up and finds a way to lend a hand!

While food banks are a favorite cause for many, there are other charities worthy of support as well. The Columbia Claims Branch organized a school supply drive to help prepare the residents of Coyote Hills Christian Children’s Home for the upcoming school year. They were able to donate 13 backpacks and three full boxes of notebooks, scissors, pencils, markers and other needed items so the kids could go to school in style! Incidentally, Coyote Hills also benefited from the efforts of a LIVE UNITED team.


2012 AnnuAl RepoRt

Document Services and Printing Services staged several events during the Christmas season to benefit the Children’s Cancer Wing at the MU Women and Children’s Hospital, the Ronald McDonald House, the Central Missouri Food Bank and Columbia Second Chance. Events included a bake sale, a silent auction, a 50/50 raffle, “Letters to Santa” and “Nice Lists.” Among the gifts for the cancer wing were homemade blankets made by Document Services/Printing employees. Because of the efforts of these departments, many experienced a memorable holiday season.

Shelter Insurance® commends the efforts of its agents and employees and encourages them to continue their commitment to serving their communities. After all, sharing the journey with others is what makes the journey worthwhile.


SHELTER INSURANCE COMPANIESPRIVACY PROTECTION POLICY NOTICE

Protecting your privacy is important to Shelter Insurance Companies.

We want you to understand what information we collect and how we use it.

Here at the Shelter Insurance Companies, we value your patronage and want to maintain your confidence in our insurance relationship. With this in mind, we have formulated the following principles and guidelines regarding the collection, use and security of personal information you provide to us.

Information CollectionDuring our relationship, we may collect and use nonpublic personal information about you from public records; market research; consumer reporting agencies; medical service providers; transactions with us, our affiliates or others; information provided from you on applications, claim forms or other forms; and information obtained from our agents.

Maintenance of Accurate InformationWe strive to keep this information accurate and up-to-date. If you discover this information is incomplete, inaccurate or not current, please notify us immediately at the address or telephone number listed below.

Limiting Employee Access to Your InformationOur employees’ limited access to customer information is based on job function. We educate our employees so they understand the importance of customer confidentiality and privacy. Employees who disregard their privacy responsibilities are subject to discipline.

Sharing Your Information Among Our Family of CompaniesTo better serve your needs, your nonpublic personal information may be shared among our family of companies. All of these companies work together to provide the services you may want. By sharing information about your accounts and relationships among our family of companies, we can serve you more efficiently and make it easier for you to do business with us. We do not share medical or health information among our family of companies except to process transactions or to provide services you have requested or initiated.

Restrictions on the Disclosure of Your InformationWe do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We may disclose information to third parties when we believe it is necessary to conduct our business or where disclosure is permitted by law. Information may be disclosed to others who assist us in providing business services such as helping us evaluate requests for insurance or benefits, performing general insurance activities for us, or assisting us in processing transactions which you have requested or initiated. Information may also be disclosed for audit purposes, to help us prevent fraud, to law enforcement and regulatory agencies, to consumer reporting agencies or as otherwise permitted by law.

Maintaining Customer Privacy in Business Relationships with Third PartiesWhenever we provide customer information to a third party, we insist that the third party adhere to similar privacy principles for keeping such information confidential.

QuestionsIf you have questions or would like to contact us regarding your information, you may do so by:

Writing to us at: Shelter Insurance Companies Attn: Privacy 1817 West Broadway Columbia, MO 65218-0001

Or telephoning us at: 1-800-743-5837

Contact Shelter Insurance® at:

1-800-SHELTER (743-5837) • ShelterInsurance.com

www.facebook.com/ShelterInsurance

twitter.com/Shelter_ins

www.youtube.com/user/ShelterInsurance1

www.linkedin.com/company/shelter-insurance-companies

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