State Farm's 2010 Net Income Surged Despite Cat Losses

By Diana Rosenberg
A.M. Best Company
March 02, 2011

State Farm's net income for last year more than doubled, as underwriting losses in its homeowners and commercial segments narrowed, even as catastrophe-related costs climbed.

The Bloomington, Ill.-based mutual company reported net income of $1.8 billion, compared with $777 million in 2009. The insurer's net worth increased by $3.1 billion to $61.2 billion last year.

State Farm's insurance operations consist of eight property/casualty insurers and three life insurers. The property/casualty companies reported a $3.1 billion underwriting loss last year, an improvement of $591 million over 2009. State Farm suffered underwriting losses in seven of the past 10 years, spokesman Dick Luedke said. The company had underwriting gains in 2004, 2006 and 2007.

Even without a hurricane making landfall in the United States, State Farm's catastrophe losses totaled $4 billion last year, the third-largest catastrophe loss in its P/C segment since the start of the new century in 2000, Luedke said. Cat losses were higher only in 2005, when Hurricane Katrina hit, and 2008, he said. Many events, not "huge" events, contributed to the cat losses, including a wide-ranging storm that hit six Midwest states in early April, as well as a hailstorm that primarily hit Oklahoma in May, Luedke said.

The company's combined ratio for its P/C segment improved to 106.2 last year, compared with 107.6 in 2009, Luedke said.

Revenue, including premiums, investment income, and realized capital gains and losses, totaled $63.2 billion, up from $61.5 billion in 2009.

"While it is productive to examine our financial results each year, our priority is to achieve long-term operating results that allow us to maintain a level of financial strength that ensures long-term sustainability," State Farm Senior Vice President, Treasurer and Chief Financial Officer Paul Smith said in a written statement.

In his annual letter to shareholders earlier this week, Berkshire Hathaway Inc. Chairman Warren Buffett called State Farm "a well-managed company."

State Farm reported earned premium in its automobile insurance business rose 1.6% to $31.4 billion. Underwriting losses at State Farm's auto business widened to $2.8 billion from $2.7 billion a year earlier.

Earned premium in the mutual company's homeowners and commercial multiperil lines of business increased 5.9% to $17.3 billion, while its underwriting loss in that segment was $900 million, improved from $1.5 billion a year earlier.

The underwriting loss in the company's health segment widened to $52 million from $29 million in the year-earlier period.

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