State Farm's whopping $5 billion after-tax net loss in 2001 has earned the Bloomington, Ill.-based insurer a dubious distinction: it's 'AAA" credit rating has been place on Standard & Poor's Corp. CreditWatch list with "negative implications."State Farm's auto business, representing about 70% of the property/casualty business written by the group, reported an underwriting loss of $5.6 billion last year. Earned premiums totaled $25.6 billion, while incurred claims and loss expenses were $25.3 billion. A year earlier, the auto segment reported an underwriting loss of $3.7 billion before paying its policyholders $1 billion in dividends.
Meanwhile, the carriers's homeowners and commercial multiple peril lines reported an underwriting loss of $3.7 billion on earned premiums of $10 billion. The incurred claims and loss expenses totaled $10.3 billion for the lines.
State Farm's combined underwriting loss for its property/casualty lines was $9.3 billion, compared with $5.6 billion in 2000.
Although State Farm as implemented or is contemplating rate increases within its personal lines sector. "there is the possibility that these rate increases are significantly inadequate to cover underwriting losses for the coming year," states Charles Titterton, an S&P director. "This is partially because the rate increases are expected to be implemented gradually due to the group's mutual ownership structure and customer relationship philosophy."
Nationally, these losses were caused by a number of factors, including increased severity in medical payments, automobile physical damage, and both the property and liability components of homeowners' insurance, S&P states. Despite the losses, State Farm still has major strengths, including its extremely strong capital adequacy, large market share, and wide spread of risk, according to S&P.
