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CONTENTS

Financial Highlights

Letters to Shareholders

Insurance Issues

Selected Financial Data

Business Segments

Managements Discussion andAnalysis

Financial Statements

Directors and Officers

GEICO Corporation

One GEICO Plaza

Washington,D.C. 20076-0001Telephone (301) 986-3000

GEICO Corporation (the Corporation

Iy an insurance organization whos(sidiary, Government Employee

Company (GEICO), is a mdtiple-linecasualty insurer currently engaged i]

ferred-risk private passenger automol

for government employees and militz

and homeowners and other lines ofall qualified applicants. GEICO Gene

Company (GGIC), a subsidiary of Cprivate passenger automobile insul

ferred-risk applicants other than go~

ployees and military personnel. GEI(Company (GI), also a subsidiary of Cstandard-risk private passenger aumotorcycle insurance with emphasis

to military personnel. CriteritCompany (Criterion Casualty), a subwrites nonstandard-risk private pa!mobile insurance. Southern Herita

Company (SHIC), acquired by the C1991, writes preferred-risk auto and c

lines insurance through indepenMerastar Insurance Company (MIC),

by the Corporation in 1991, writes Fferred-risk auto insurance and other:

for individuals who are employeesemployer. Resolute Reinsurance Cor

sidiary of Resolute Group, Inc., in turof the Corporation, wrote property

reinsurance in the domestic and interkets until late 1987 when the Compa

writing new and renewal reinsureState Life Insurance Company (Gal

subsidiary of GEICO, offers consumeinsurance products. Criterion Li:

Company, a subsidiary formed by Gwrites structured settlement annuitie

erty and casualty affiliates.Employees Financial Corporation (G

sidiary of GEICO, engages in securand business lending, loan servicing i

banking. The Corporation and its susometimes referred to as the Compaport.

IFINANCIAL HIGHLIGHTSPn thousands, except per share data)

1remiums ......................................................................et investment income (pretax) ................................et investment income (aftertax) ..............................Realized gains (pretm) ................................................Realized gains (afterta.x) .............................................Net income ....................................................................Weighted average shares (fully diluted) ..................

Net income per share ..................................................

Dividends paid per common share ...........................

Asets .............................................................................

Shareholders' equi~ ............................... ...... ... ..... .... ...

Common shares outstanding .....................................

Book value per share .................. .................................

Return on equity (three-year rolling),,,,., ..................

$ 1,888,368

$ 191,226

$ 161,510

$ 29,331

$ 19,389

$ 196,380

14,571

$ 13.48

$ 2.28

$ 4,085,839

$ 1,184,261

14,209

$ 83.34

24.6%

jHARE RESULTS PROPERTY AND CASUALTY

n Net Income

~ Aftefim Realized Gains

87 88 89 90 91

1991 1990 1989 1988 1987

POLICYHOLDERS SURPLUSAND GEICO CORPORATIONSHAREHOLDERS EQUITY(MILLIoNs OF DOLLARS)

q Shareholders Equity

q PolicyholdersSurplus

900

~

87 88 89 90 91

$ 1,692,518

$ 177,087

$ 152,456

$ 19,587

$ 13,002

$ 208,441

15,279

$ 13.64

$ 2.00

$ 3,575,940

$ 970,008

14,851

$ 65.32

27.8%

$ 1,621,361

$ 152,422

$ 134,862

$ 109,133

$ 73,754

$ 213,053

15,504

$ 13.74

$ 1.80

$ 3,434,372

$ 898,135

15,176

$ 59.18

29,7%

VALUE PER SHAREAND RETURN ON EQUITY

q Book Value Per Share

q Return on Equity(three-yearrolling)

$90

75A

87 88 89 90 91

$ 1,548,989

$ 143,502

$ 125,441

$ 82,351

$ 54,595

$ 189,038

15,861

$ 11.92

$ 1.64

$ 3,060,551

$ 707,390

15,440

$ 45.82

34.1%

$ 1,429,208

$ 130,691

$ 116,200

$ 42,019

$ 27,731

$ 177,914

16,673

$ 10.67

$ 1.36

$ 3,012,541

$ 634,678

16,199

$ 39.18

37.7%

COMBINED Loss ANDEXPENSE RATIOS(AFTER POLICYHOLDER DIVIDENDS)

q Industry(Source A.M.Best,1991estimated)

~ GEICO Corporation(1987and1988adjustedfor theeffectof convertingtosix-monthpremiums)

110%

87 88 89 90 91

To OUR SHAREHOLDERS

I usually commence this letter by describing in

some detail the financial results summarized on

page 1, This year I will start with something more

important,

Over the past several years, we have made

steady progress in improving customer service, as

noted in the adjoining charts. But we believe much

more improvement is possible if we make a total

commitment to achieve significant and measurable

gains in the quality of our service as perceived by

our customers. To accomplish this, we have

launched a Quality Improvement Process intended

to develop throughout our organization a total

commitment to be the best at what we do and

then find ways to do it better. We believe this total

commitment to quality is imperative if we are to

remain competitive.

Last year I wrote you about the five business

disciplines which we have followed for many

years. We will continue to adhere to all of those

disciplines which include: maintain a disciplined

balance sheet, manage to an underwriting profit,

be the low cost provider, and invest for total re-

turn. But increased emphasis will be on the first,

which is: be fanatics for good service.

Some might say that we cant afford to empha-

size service and quality and also be the low cost

provider of insurance services. We dont think we

can afford not to be the best. A total quality ap-

proach to our business will lead to better satisfied

policyholders and associates, reduced costs, and an

improved bottom line. That resdt surely leads to

greater value for our shareholders. We believe all

three of these constituent groups will see increas-

ingly positive restik from our efforts as we make

progress in our total quality improvement process.

It is not obvious but 1991 was one of our best

years ever as we built shareholder value. Net in-

come per share was $13.48 compared to $13.64 in

1990 and net income was $196.4 million, down

from $208.4 million in the prior year. Realized in-

vestment gaim after tax of $19.4 million were mod-

estly ahead of 1990 but unrealized appreciation of

$183.1 million at the end of 1991 was far ahead!Unrealized appreciation, of course, is reflected on-

ly in shareholders equity, not in the income state-

ment.

The comparison of financial results between the

past two years is further confused by the fact that

our 1990 results benefited from a one-time fresh

start tax adjustment. This adjustment cosmet

ly increased 1990 income by $22.2 million or $

per share. Also 1991 results include charges fo

centive compensation that may be paid out ir

ture years and which fluctuate with the Compa

Common Stock price or investment performs :

Those charges, which reflect our conservative

counting practices, were $1.22 per share in 1

and $.26 per share in 1990.

The operating and financial results of ou r

property and casuaIty companies were outsta

ing. They include results for the part of the ]

that we owned Southern Heritage and Mera:

Insurance Companies, as described on page 11.

believe both of these companies will become m

vahrable in the future, Our property and casut

insurance operations achieved a consolida

statutory underwriting ratio of 96.4%, after poli

holder dividends, as they also did in 1990. We

not routinely pay dividends to policyholders as

strive for the lowest possible premium rate e

year, but we chose to decline a policyholder d

dend for certain states in 1991 because underw

ing results were more favorable than we had an

ipated. This shotid result in improved policy ~

sistency and new sales in these states.

The Companys auto insurance results benefi

from the publics improved driving performs

resulting in little or no growth in auto claims

quency. Paradoxically, weather-related incur

losses for property insurance were high beta

1991 was our second worst year for catastro]

losses.

Property and casualty earned premiums w

up 11.6% over 1990, a result of strong pol

growth with only modest rate increases. Po]

growth for all voluntary product lines combil

(but excluding the policies of the two purcha

subsidiaries) was 9.0% for the 12 months end

December, 1991. This was the strongest pol

growth that we have experienced in recent yea

Aftertax net investment income was $161.5 I

lion, up 5.9% from $152,5 million in 1990, Fall

interest rates and declining yields contribute

I

the modest growth in investment income. We m

sure investment management performce on a

tal return basis that includes realized and unre

ized gain or loss over a rolling three-year peri

Vice Chairman Lou Simpson discusses our o

standing investment results in his letter.

SATISFACTION WITHGEICO POLICYSERVICE

90

80

70

60

50

87 88 89 90 91

SATISFACTION WITHGEICO CLAIM SERVICE

87 88 89 90 91

Return on equity (ROE) was 24.6%, also mea-

sured over a three-year period. Shareholders equi-

ty increased 22.1% over 1990, to $1,184.3 million,

largely because of the significant increase in unre-

alized appreciation in the portfolio.

As we reported earlier, GEICO Corporation is-

sued $100 million of 9.15% Debentures due 2021

for the purpose of paying off higher-rate long-term

debt and to pay maturing short-term debt,

Standard & Poors and Moodys both assigned fa-

vorable ratings. At the end of 1991, your

Companys long-term corporate debt to capital ra-

tio was an acceptable 14.5%, down slightly from

the 1990 level.

We negotiated with a prospective buyer for our

life company, Garden State Life Insurance

Company, but the letter of intent expired in late

1991. Negotiations were resumed in February 1992.

We chartered Criterion Life Insurance Company at

year-end 1991 to assume the structured settlement

annuity business of Garden State.

No prospective buyer has been located for

GEFCO, our finance company; consequently, we

continue to shrink that business. GEFCO had a net

10SSof $748thousand in 1991.

Each year since 1988 I have found it necessary to

discuss in this letter the situation in California. We

have discussed the causes of Proposition 103 and

the confusing deve~opments since the Proposition

was passed. An elected insurance commissioner

took office January 1, 1991. His most recent arbi-

trary act was to issue orders to individual

California auto insurers to make policyholder re-

funds based on 1989 premiums. GEICO received

an order to refund $56.2 million of premium, or

39.4% of the total premium earned by GEICO in

California for 1989. That proposed refund amount

exceeds the total underwriting profit from

GEICOS entire U.S. operations in 1989. GEICO

will pursue all available legal remedies to resist

this unreasonable order. You may remember that

the Corporation in 1989 and 1990 took charges

against earnings totalling $27.7 million for the po-

tentiaf refund of premium in California. These 1991

results do not include any additional charge

against earnings for that purpose.

On February 26,1992 your Board of Directors in-

creased the quarterly cash dividend on Common

Stock to $.75 per share, up 31% over the dividend

paid in each of the previous four quarters. The

Board of Directors also proposed an increase in the

number of authorized shares of Common Stock

from 60 million to 150 million and a five-for-one

stock split. The proposed increase in authorized

shares is subject to shareholder approval at the

Corporations annual meeting.

We were deeply saddened by the death on July

30,1991 of William K. Jacobs, Jr., a member of our

Board of Directors from 1948 until his retirement in

1978, and ~ honorary director since then. Bill will

be greatly missed,

We discuss on pages 6 and 7 several auto/traffic

safety and loss reduction issues, We do this to help

inform as many people as possible about these im-

portant issues and to let you know about critical

activities in which we invest both time and money.

OUTLOOK FOR 1992 AND BEYOND. While the

outlook for the national economy is less than rosy,

we believe we can continue to achieve restits gen-

erally satisfactory to you. We are always subject to

a long list of uncertainties, such as the economy

and its impact on driving, accident frequency and

severity, new car sales and other events such as

weather-related catastrophes that can affect our re-

sults. And to the list of uncertainties you can add

actions or inactions by regulators and legislators

and demands by consumers. Despite these chal-

lenges we have set goals to achieve an underwrit-

ing gain in 1992, modest policy and premium

growth and a total commitment to improving ser-

vice to our customers... who support us all.

William B. Snyder

Chairman

February 26,1992

e

INVESTMENTS

Your Investment portfolio had a good 1991.

Aftertax total return on the total portfolio was

14.7%. GEICOS common stocks had an aftertax to-

tal return of 36.5% compared with the S&Ps 20,3%.

The fixed income portion also performed well even

though the bond portfolio has a relatively short

maturity. Over the last three years GEICOS com-

mon stocks returned 17.1 % annually after tax, com-

pared to 12.9% for the S&P 500, while the entire

portfolio appreciated 10.3% annually after tax. We

realized $19.4 million after tax in capital gains in

1991 while the unrealized gain (net of deferred tax-

es) for the equity portfolio increased $155.7 million.

Aftertax investment income grew 5.9% to $161.5

million, although we used $116.3 million to repur-

chase GEICO Corporation shares. The largest net

changes in the portfolio during the year were the

net purchases of $347 million of U.S. Treasuries

and Agencies and the net sales of $62 million of

common stocks.

In the 1986 GEICO annual report, I outlined our

investment approach toward investing in equities.

Since 1986, financial markets have been turbulent,

with stocks particularly volatile as characterimd by

major one day declines in 1987 and 1989.

Leveraged buy-out transactions have all but disap-

peared, the junk bond market has had severe prob-

lems, corporate bankruptcies have multiplied, and

real estate values (particularly commercial) have

declined sharply. Despite these dramatic and pro-

found changes, this investment team believes those

1986 principles remain relevant. We have reprint-

ed them on the opposite page.

While these guidelines are easy to write about in

theory, we find it challenging to apply them in

practice today. Most high return businesses sell at

a very high price relative to earnings and long term

growth prospects, and as a resdt there is a shrink-

ing number of investments which meet our criteria.

Our response to the current environment has

been to further emphasize our most basic princi-

ples of concentration, independent thinking, and

long-term ownership. GEICOS portfolio now con-

sists of eight stocks compared to thirty-six stocks

five years ago. Ordy two of the stocks are part of

the Dow Jones industries and our largest holding

was not part of the S&P 500 until year-end 1991.

Finally, of the eight stocks in the portfolio at year-

end, weve owned six for at least two years, Since

we dont see many good investment ideas, we

:OMMON STOCK ANNUALIZEDOTAL RATE OF RETURNiI=TER TAXrHIRTY -SIX MONTHS ENDING)

I

9 GEICO Comons

R sar 500

87 88 89 90 91

INVESTED ASSETS(MILLIONS OF DOLLARS)

H Short-term Investments

q Equity Securities

n Fixed Maturities

87 88 89 90 91

GEICOS EQUITYINVESTMENT APPROACH

Since the performance of GEICOS common stock

portfolio has contributed significantly to the in-

crease in value of your investment in GEICO, I

thought you might be interested in learning more

about our investment approach. In an abbreviated

form, here are some of our guidelines:

1. ~irzk independerztly, We try to be skeptical of con-

ventional wisdom and to avoid the waves of irra-

tional behavior and emotion that periodically en-

gulf Wall Street. Such behavior often leads to ex-

cessive prices and, eventually, permanent loss of

capital. We dont ignore unpopular companies. On

the contrary, such situations often present the

greatest opporttities.

2. Invest in high-return businesses run for the share-

holders. Over the long run appreciation in share

prices is most directly related to the return the

company earns on its shareholders investment.

Cash flow, which is more difficult to manipulate

than reported earnings, is a useful additional yard-

stick. Companies that cannot earn positive free

cash flow (cash flow after capital expenditures,

working capital needs and dividends) chew up

owners equity and are continually forced to raise

new capital. We try to identify companies that ap-

pear able to sustain above-average profitability.

Most companies cannot because competition pre-

vents it.

Many executives have priorities other than max-

imizing the value of their enterprises for owners,

such as expanding corporate empires. At GEICO

we ask the following questions in evaluating man-

agement 1. Does management have a substantial

stake in the stock of the company? 2. Is manage-

ment straightforward in dealings with the owners?

(We look for managers who treat us as partners in

the business and inform us frankly of problems as

well m good news.) 3. Is management wi~ing to di-

vest unprofitable operations? 4. Does management

use excess cash to repurchase shares?

The last may be the most important. Managers

who run a profitable business often use excess cash

to expand into less profitable endeavors.

Repurchase of shares is in many cases a much

more advantageous use of surplus resources. At

GEICO, we practice what we preach we concen-

trate on our core business, and over the past eight

years have reduced shares outstanding from over

34 million to under 17 million,

3. Pay only a reasonable price, even for an excellent

business. We try to be disciplined in the price we

pay for ownership even in a demonstrably superi-

or business. Even the worlds greatest business is

not a good investment if the price is too high. The

ratio of price to earnings and its inverse, the earn-

ings yield, are useful gauges in valuing a company,

as is the ratio of price to free cash flow. A helpful

comparison is the earnings yield of a company ver-

sus the return on a risk-free long-term United

States Government obligation,

4. Invest for the long-term. Attempting to guess

short-term swings in individual stocks, the stock

market or the economy is not likely to produce

consistently good results. Short-term develop-

ments are too unpredictable. On the other hand,

shares of quality companies run for the sharehold-

ers stand an excellent chance of providing above-

average returns to investors over the long-term.

Furthermore, moving in and out of stocks fre-

quently has two major disadvantages that will sub-

stantially diminish results: transaction costs and

taxes. Capital will grow more rapidly if earnings

compound with as few interruptions for commis-

sions and tax bites as possible,

5. Do not diversify excessively. An investor is not like-

ly to obtain superior results by buying a broad

cross-section of the market the more diversifica-

tion, the more performance is likely to be average,

at best. We concentrate our holdings in a few com-

panies that meet our investment criteria in the be-

lief that we have a chance at superior results only

if we take risks intelligently, when the risk-reward

ratio is favorable to us. Good investment ideas,

that is, companies that meet our criteria, are diffi-

ctit to find. When we think we have found one, we

make a large commitment. The five largest hold-

ings at GEICO account for over 50% of your equity

portfolio.

(Reprintedflom the 1986 GEICO Corporation Annual

Report to Shareholders)

Insurance IssuEs

NO-FAULT AUTO INSURANCE. A recent

study by Rand Corporations Institute for Civil

Justice confirmed what the insurance industry has

said for years: a carefully designed no-fault auto

insurance system can cut auto insurance costs sig-

nificantly.

Under no-fault, an insured driver is compensat-

ed for accident-related injuries by his or her own

insurance company, regardless of fault in a crash.

In return for this guaranteed benefit, the insured

person gives up the right to sue unless there are se-

rious injuries.

By keeping accident injury cases out of the

courts, auto ins urance costs are reduced, premi-

ums are contained, claims are settled more quickly

and accident victims are not forced to share 30 per-

cent or more of their settlements with attorneys

and pay other significant costs.

GEICO supports no-fault insurance as the best

solution to rising auto insurance premiums.

INSURANCE FRAUD. If you think of insurance

fraud as a victimless crime, think again. Phoney

insurance claims cost an estimated $16 billion dol-

lars annually. Who foots the bill? You and every

.

other consumer who must pay higher auto in

ante premiums to cover the cost.

GEICO and other insurers have established

cial investigation units to detect and prevent

ment of fraudulent claims. But their power tc

ter criminal activity stops there. Thats 1

GEICO encourages legislatures to establish f]

bureaus within their state insurance departm[

Fraud bureaus have prosecutorial powers, the,

giving anti-fraud efforts the force of law.

AIR BAGS. After more than two decade

prodding by insurers and safety organizations,

frontal air bags in all vehicles will become a re

by 1998. The transportation bill passed

Congress in 1991 mandates driver- and passen

side air bags in all passenger cars by Septemb

1997, and in all light trucks and vans by Septen

1,1998.

Despite some isolated problems with air ba[

duced skin abrasions and minor hot gas burrobags combined with seat belts continue to pro

the best crash protection available, Recent stu

by the Insurance Institute for Highway Sa

found that driver deaths in air bag-equipped

..~-~~.992 MODELS WITH AIR BAGS

o~tie~ollowing 1992 model cars have driver-side air bags as standard equipment.~ose w~ti optional driver-side W bags are marked with a cross (~).

k--

.c_ma_Legend*-->Acura NSX

CmLVigortiomeo, all models

~~udi.aUmodels*E~, all models

==B_~t _~y,all modelsB_uick LeSabre, Park Ave.

til~ Riviera@ck Roadmaster

Cadillac, all modelsexcept Brougham

Chevrolet BerettaChevrolet Camaro~evrolet CapriceChevrolet CorsicaChevrolet CorvetteChrysler 5th AvenueChrysler ImperialChrysler LeBaron

Chrysler New YorkerChrysler Town & CountryDodge CaravanDodge DaytonaDodge DynastyDodge Grand CaravanDodge ShadowDodge SpiritDodge StealthFord Aerostar

Ford Crown Vie{Ford MustangFord Taurus*Ford TempoeGeo Metro ConvGeo StormHonda AccordHonda CivicHonda Prelude*Infiniti M30

~28percent lower than in cars equipped only ~[manual lap-harness safety belts.

31C0 encourages anyone purchasing anew car

mist on an air bag-equipped model. The chart

~w shows which models have air bags for 1992.

?UNK DRIVING. Despite years of anti-drunk

ving campaigns, nearly half of all traffic fatali-

;: some 22,000 each year are alcohol-relat-

But results are better than before.

One proven way to help get drunks off the road

d keep them off is administrative license revoca-