State Farm Reports 56% Drop in Net Income Driven by Cat Losses

By Michael Buck
A.M. Best
March 2, 2012

State Farm, the nation's largest property/casualty writer, posted a 56% drop in net 2011 income from the previous year, citing a disastrous catastrophe year, the company said in a written statement.

The mutual company, which is owned by its policyholders and reports financial performance annually, saw its 2011 net income drop to $800 million from $1.8 billion in 2010.

"In our business that number is pretty volatile," said State Farm spokesman Dick Luedke. "[Net income] is influenced rather heavily by the catastrophes that we experience each year."

Luedke said the company typically looks at net worth as its main metric for its financial health. The company in 2011 saw its net worth drop by $400 million to $60.8 billion.

"We need to remain financially strong so that we can keep the promises that we make to our customers and that's the cushion that we have that allows us to make those promises," Luedke said.

The company's combined property/casualty operations in 2011 sustained a $4.5 billion underwriting loss on earned premiums of $51.4 billion. Both those figures are up slightly from 2010. After investment and other income is factored in, the company's property/casualty operations posted a $200 million loss.

State Farm in May said it had to pay out record settlement amounts after a spate of catastrophic storms swept much of the South and Midwest. Alabama, which was hit especially hard by a series of tornadoes, saw damage estimates entering the billions in 2011. The company's losses in Alabama, Arkansas, Georgia and Virginia that occurred in the last week of April came to roughly $916 million (Best's News Service, May 27, 2011).

Last year's catastrophe activity was unusual in that it was a series of disastrous events as opposed to one gigantic one, Luedke said.

"The thing about 2011 is that there wasn't a Hurricane Katrina or a Hurricane Andrew type of event, or a major earthquake in California," he said.

State Farm in 2010 was by far the largest property/casualty writer in the country, with net premiums written of $50.8 billion, according to Best's Review. The second-largest company, Allstate Insurance Group had $24.7 billion in net premiums.

State Farm Group currently has a Best's Financial Strength Rating of A++ (Superior).

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