AM Best Information Services

JUNE 16, 2016 12:45 PM (EDT)

A.M. Best Upgrades Ratings of State Farm Fire & Casualty Co.; Affirms Ratings of State Farm Mutual and Other P/C Subsidiaries

 Michael T. Venezia
Senior Financial Analyst
+1 908 439 2200, ext. 5034

Greg Williams
Assistant Vice President
+1 908 439 2200, ext. 5815

Christopher Sharkey
Manager, Public Relations
+1 908 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
+1 908 439-2200, ext. 5644


OLDWICK - JUNE 16, 2016 12:45 PM (EDT)
A.M. Best has upgraded the financial strength rating (FSR) to A++ (Superior) from A+ (Superior) and the issuer credit rating (ICR) to “aa+” from “aa-” of State Farm Fire and Casualty Company (State Farm F&C). The outlook for the ICR has been revised to stable from positive while the outlook for the FSR remains stable. In addition, A.M. Best has affirmed the FSRs of A++ (Superior) and the ICRs of “aa+” of State Farm Mutual Automobile Insurance Company (State Farm Mutual) and its affiliate, State Farm County Mutual Insurance Company of Texas (domiciled Dallas, TX); the FSR of A (Excellent) and the ICR of “a+” have been affirmed for State Farm General Insurance Company; the FSR of A- (Excellent) and the ICR of “a-” have been affirmed for State Farm Indemnity Company; the FSR of B++ (Good) and the ICR of “bbb+” have been affirmed for State Farm Lloyds (Dallas, TX) and the FSR of A (Excellent) and the ICR of “a” have been affirmed for Dover Bay Specialty Insurance Company. All companies are headquartered in Bloomington, IL, except where specified. The outlook for each of these ratings is stable.

State Farm F&C’s ratings upgrade is based on the company’s strategic role and overall importance within the group. State Farm F&C is responsible for a material amount of the group’s earnings and net income. It also is fully integrated with the parent (State Farm Mutual), and is supported by internal catastrophe reinsurance. State Farm F&C’s rating is further supported by strong risk-adjusted capitalization and improved operating earnings trend.

The ratings of State Farm Mutual reflect its strong risk-adjusted capitalization, generally favorable earnings and superior business profile. Risk-adjusted capitalization continues to be supportive of the company’s ratings, and earnings have been positive despite rising automobile personal injury claims costs and the prolonged low interest rate environment. In addition, State Farm Mutual, its subsidiary and affiliated property/casualty and life insurance companies comprise the largest personal lines insurance organization in the United States based on direct premiums written and the second-largest in terms of policyholders’ surplus. The State Farm group is the leading provider of homeowners’ and private passenger automobile insurance in the United States. The organization’s personal lines products are complemented by other lines of business such as commercial multi-peril, commercial auto liability, workers’ compensation and several other lines.

Banking and other financial services are offered through affiliates to further enhance the sale of personal lines products. The State Farm group’s main distribution channel is its exclusive independent agency force, which along with mass advertising, has contributed to high customer retention rates and below average expense ratios. The ratings for the subsidiaries and affiliate of State Farm Mutual also benefit from shared services, common management, cross selling of products and services, common distribution, brand name recognition and a comprehensive enterprise risk management program.

These positive rating aspects are offset in part by the State Farm group’s below average earnings, above average exposure to equity market volatility and continued low interest rates. Recent profitability has primarily been adversely impacted by increased auto liability claims costs. However, these concerns are partially mitigated by actions that management continues to implement to consolidate underwriting and claims handling, reduce property exposure in high risk areas, increase rates where appropriate, upgrade and modernize systems and enhance its exclusive independent agency force and expand production by providing additional customer access points.

The outlook for the ratings of State Farm Mutual, its property/casualty subsidiaries and affiliate may be subject to negative rating pressures should the company’s operating performance and capitalization levels significantly deteriorate. However, continuing favorable operating trends that lead to sustained capital appreciation without excessive growth would further stabilize the organization’s ratings.

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

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