Observer
02-27-2009, 01:12 PM
State Farm sees record drop in net worth
By: Steve Daniels Feb. 27, 2009
(Crain’s) — A $9.2-billion reduction in the value of its stock holdings was primarily responsible for the record 16% decline in the book value of State Farm Insurance Cos. last year.
Net worth for the Bloomington-based insurance giant was $53.3 billion at yearend, down $10.4 billion from 2007, the company reported Friday.
State Farm recorded an after-tax net loss of $542 million last year, compared with $5.46 billion in net income in 2007. Higher catastrophe losses contributed to the result in addition to realized investment losses.
State Farm, the nation’s largest insurer of cars and homes, emphasized that its book value is higher than it was at the end of 2002 even after the investment hits. Early in the decade, State Farm suffered billions in net losses, the result of a price war in the late 1990s that made its core insurance operations unprofitable.
More worrisome for State Farm is that its insurance operations are solidly in the red. Auto insurance, 63% of State Farm’s premium revenue, suffered an underwriting loss of $2.7 billion. The loss for property and casualty insurance as a whole, which includes homeowners insurance, was $6.3 billion. That meant that State Farm’s costs and claims payouts combined were $113 for every $100 in premiums it earned.
Many competing insurers, like archrival Allstate Corp., managed to keep underlying insurance operations profitable while suffering investment losses that were as bad as or worse than State Farm.
State Farm has begun imposing rate increases more frequently in response to the profitability trends. In Illinois, State Farm imposed two rate hikes in the second half of 2008 totaling 6.2%.
By: Steve Daniels Feb. 27, 2009
(Crain’s) — A $9.2-billion reduction in the value of its stock holdings was primarily responsible for the record 16% decline in the book value of State Farm Insurance Cos. last year.
Net worth for the Bloomington-based insurance giant was $53.3 billion at yearend, down $10.4 billion from 2007, the company reported Friday.
State Farm recorded an after-tax net loss of $542 million last year, compared with $5.46 billion in net income in 2007. Higher catastrophe losses contributed to the result in addition to realized investment losses.
State Farm, the nation’s largest insurer of cars and homes, emphasized that its book value is higher than it was at the end of 2002 even after the investment hits. Early in the decade, State Farm suffered billions in net losses, the result of a price war in the late 1990s that made its core insurance operations unprofitable.
More worrisome for State Farm is that its insurance operations are solidly in the red. Auto insurance, 63% of State Farm’s premium revenue, suffered an underwriting loss of $2.7 billion. The loss for property and casualty insurance as a whole, which includes homeowners insurance, was $6.3 billion. That meant that State Farm’s costs and claims payouts combined were $113 for every $100 in premiums it earned.
Many competing insurers, like archrival Allstate Corp., managed to keep underlying insurance operations profitable while suffering investment losses that were as bad as or worse than State Farm.
State Farm has begun imposing rate increases more frequently in response to the profitability trends. In Illinois, State Farm imposed two rate hikes in the second half of 2008 totaling 6.2%.