State Farm blames the $9.2 billion decline in the value of the property/casualty companies’ unaffiliated stock portfolio (net of deferred tax) for its $10.4-billion net worth decrease in 2008. The insurer ends 2008 at $53.3 billion. Although this decline was driven by general market conditions, State Farm’s P&C portfolio had a smaller percentage decline than the broader equity market, the insurer says.

The $10.4 billion decrease in net worth comes after five consecutive years of net worth increases. State Farm keeps an optimistic view, saying in spite of the 2008 decline, the State Farm group’s net worth is 68% higher than it was at the end of 2002, after two years of significant decline.

“It is imperative in our business to achieve financial results that enable us to grow and maintain the necessary level of financial strength that ensures long-term sustainability,” said Michael Tipsord, vice chairman, treasurer and CFO. “As a result, one should not attribute too much significance to short-term operating results without first considering the level of financial strength. This concept is as relevant to 2007 when State Farm achieved record levels of profit as it is to 2008 when we experienced significant losses. The more important message is that the positive results from 2003 through 2007 enabled State Farm to endure a record level decline in net worth during 2008, and still end the year with over $53 billion in net worth.”

Individual reports from the insurer are as follows:

Auto — State Farm’s auto insurance business represents 63% of the P&C companies’ combined net written premium. Earned premium was $30.3 billion, an increase of 0.3% from 2007. The incurred claims and loss expenses were $25.6 billion. The underwriting loss was $2.7 billion.

Homeowners, CMP and other — The net written premium for State Farm Fire and Casualty Co., State Farm Lloyds, State Farm General Insurance Co. and State Farm Florida Insurance Co. represents 33% of the P&C companies’ combined net written premium. Earned premium was $16.0 billion, an increase of 0.5% from 2007. The incurred claims and loss expenses were $15.1 billion. The result was an underwriting loss of $3.9 billion.

Health — The individual health insurance operations for State Farm Mutual reported an underwriting loss of $14 million. Net written premium was $744 million.

Property/Casualty — The combined underwriting loss was $6.3 billion on earned premium of $48.1 billion. This includes results from auto, homeowners, health and other lines, as well as the reinsurance line provided by State Farm Mutual. These results, combined with investment and other income of $4.2 billion, resulted in a pretax operating loss of $2.1 billion. The after-tax net loss for the P-C companies was $673 million.

Life — State Farm’s life affiliates—State Farm Life Insurance Co., State Farm International Life Insurance Co. Ltd. and State Farm Life and Accident Assurance Co.—added $28 billion of total life insurance in force during the year, bringing the companies’ total insurance in force to $713 billion on Dec. 31, 2008.

The life affiliates reported premium income of $4.9 billion in 2008, compared with $4.0 billion in 2007. In 2008, after-tax net income was $185 million ($315 million when excluding $129 million in write-downs for impairment of invested assets). Net income was $410 million in 2007. Results for 2008 included $626 million in dividends to policyholders, compared with dividends of $608 million in 2007.

Bank — State Farm Bank, F.S.B. increased total assets to $16.7 billion as of year-end 2008, compared with $15.9 billion at the end of 2007. The bank reported an after-tax net loss of $159 million in 2008, compared with a 2007 loss of $18 million. The 2008 results were significantly impacted by a high provision for loan l sses.

Mutual Funds — Total assets under management for the retail mutual fund operations at the end of 2008 were $3.5 billion, compared with $4.6 billion at the beginning of the year. State Farm VP Management Corp. and State Farm Investment Management Corp. reported a combined after-tax net loss of $21 million in 2008 compared with a loss of $7 million in 2007.

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