A.M. Best Affirms Ratings of State Farm Group, Its Members and Affiliates

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength ratings (FSR) of A++ (Superior) and issuer credit ratings (ICR) of “aa+” of State Farm Group (State Farm), its property/casualty members and core life affiliates. Additionally, A.M. Best has affirmed the FSRs and ICRs of the remaining property/casualty and life affiliates of State Farm. The outlook for all ratings is stable. Nearly all State Farm companies are headquartered in Bloomington, IL. (See below for a detailed list of the companies and ratings.)

The ratings reflect State Farm’s superior capitalization, solid operating performance and dominant business profile with strength of brand and market presence as the largest property/casualty writer in the United States. State Farm maintains a significant capital base with a correspondingly modest underwriting leverage position relative to industry norms. State Farm has produced profitable underwriting results over the previous five-year period, which in conjunction with increasing investment income, have enabled it to generate solid surplus growth through retained earnings, while steadily reducing its underwriting leverage. The profitable underwriting results were attributable to numerous strategic initiatives implemented by management, including a renewed focus on underwriting profitability, managed growth objectives and improved rate adequacy. As a result of these initiatives and favorable market conditions, State Farm has produced favorable operating performance over the previous five-year period. State Farm also benefits from its mutual ownership structure, which affords significantly less pressure in terms of operating returns compared to its publicly traded peers.

State Farm’s market presence is the result of its tremendous brand name recognition, cost efficient exclusive agents, strong customer loyalty and diversified financial service capabilities. With State Farm’s ability to provide quality claims handling, bundling of products and services, as well as cost reducing incentives to long-term valued customers, it has created a considerable competitive advantage. State Farm has dedicated property/casualty companies in California, Florida and Texas, three of its highest catastrophe-prone states, which has increased its flexibility to mitigate and manage its exposure to frequent and severe weather-related losses.

Partially offsetting these positive rating factors is State Farm’s exposure to frequent and severe catastrophe events. This was evident in 2005, when significant catastrophe losses from hurricanes Katrina, Rita and Wilma produced an underwriting loss for the year. In addition, State Farm maintains high non-affiliated common stock leverage at approximately 70% of surplus. However, State Farm’s non-affiliated common stock portfolio is well diversified and represents less than 40% of its overall invested assets. Furthermore, State Farm’s underwriting results have recently shown modest deterioration due to rate decreases implemented for its private passenger automobile and homeowner lines of business in response to competitive market conditions. An increase in private passenger automobile loss costs due primarily to higher loss severities also has recently adversely impacted underwriting results.

State Farm Life Insurance Company (State Farm Life) represents the core life insurance affiliate of the State Farm Group. The ratings reflect A.M. Best’s opinion that State Farm Life is an integral member of the group, providing a wide array of ordinary life insurance and annuity products distributed through State Farm’s exclusive multi-line career agency system.

Partially offsetting these strengths is the life affiliates’ challenges to further penetrate State Farm’s vast property/casualty customer base. Additionally, State Farm Life recently announced that it will cease writing new proprietary variable life and annuity products later this year. A.M. Best believes the profitability of this business will be challenged given its lack of scale and its dependence on the performance of the equity markets.

The FSRs of A++ (Superior) and ICRs of “aa+” have been affirmed for State Farm Group and its following property/casualty members and life affiliates:

• State Farm Mutual Automobile Insurance Company
• State Farm County Mutual Insurance Company of Texas
• State Farm Life and Accident Assurance Company
• State Farm Life Insurance Company

The FSR of A- (Excellent) and ICR of “a-” have been affirmed for State Farm General Insurance Company, a property/casualty member of the State Farm Group.

The FSR of B++ (Good) and ICR of “bbb” has been affirmed for State Farm Lloyds, a property/casualty member of the State Farm Group.

The FSR of A+ (Superior) and ICR of “aa-” have been affirmed for State Farm Fire and Casualty Company, a property/casualty member of the State Farm Group.

The FSR of A- (Excellent) and ICR of “a-” have been affirmed for State Farm Indemnity Company, a property/casualty member of the State Farm Group.

The FSR of B+ (Good) and ICR of “bbb-” have been affirmed for State Farm Florida Insurance Company, a property/casualty member of the State Farm Group.

The FSR of A+ (Superior) and ICR of “aa” have been affirmed for State Farm International Life Insurance Company Ltd., a life member of the State Farm Group.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.