State Farm Loses $542 Million on Storms, Car Claims (Update1)
By Erik Holm
February 27, 2009
Feb. 27 (Bloomberg) -- State Farm Mutual Automobile Insurance Co., the largest U.S. home and auto insurer, reported its first loss in six years on hurricane claims and costs from covering cars.
The net loss was $542 million, compared with profit of $5.46 billion in 2007, the Bloomington, Illinois-based company said in a statement today. The insurer is owned by its policyholders and reports results once a year.
Hurricanes Ike and Gustav, coupled with a record number of tornadoes, contributed to $6.3 billion in catastrophe claims, State Farm said. Industrywide, insurers spent $25.2 billion on natural disasters in 2008, the most since the record storms of 2005, an industry group said last month.
Ike, which slammed into Texas in September, may generate industry losses of $10.6 billion and pass 2005's Hurricane Wilma as the third-costliest in U.S. history, according to Insurance Services Office Inc. State Farm's costs from Ike totaled $6.3 billion last year, spokesman Dick Luedke said.
The most expensive storm in history, Hurricane Katrina, cost insurers $41.1 billion when it struck Louisiana and Mississippi in 2005.
Claims costs in the insurer's auto unit rose 4.9 percent to $25.6 billion, contributing to an underwriting loss of $2.7 billion. The insurer raised rates by an average of 1 percent nationwide last year, Luedke said.
State Farm reports results based on state accounting rules for insurers. Publicly traded insurers must use U.S. generally accepted accounting principles, making comparisons inexact. Allstate Corp., the No. 2 home and auto insurer, reported a $1.68 billion loss last year, the largest since its initial public offering in 1993.
State Farm's net worth, a measure of its assets minus liabilities, fell 16 percent to $53.3 billion on losses in the insurer's stock portfolio.
State Farm, led by Chief Executive Officer Ed Rust, sidestepped investments in mortgage-backed securities, credit default swaps and collateralized debt obligations that hobbled smaller competitors. North American insurers have posted more than $150 billion in writedowns and unrealized losses tied to the collapse of the U.S. housing market.
Rust's 2009 pay, tied to results over the previous three years, will fall 32 percent to $9.35 million including incentives, Luedke said.
State Farm is the largest home and auto insurer in the U.S. by premiums, according to 2007 data compiled by the National Association of Insurance Commissioners. The company has no publicly traded debt.
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