Realizing that generating new insurance volume doesn't necessarily ensure profitability-and may even suppress it-State Farm Mutual Automobile Insurance Co. began implementing a strategy to suspend writing new homeowners policies in 17 states.The Bloomington, Ill.-based insurer is also setting the wheels in motion to fully exit the New Jersey auto insurance market over the next five years. State Farm's geographic retrenchment comes on the heels of a reported $5 billion net loss incurred since 2001. The losses were marked by rapidly increasing claims costs due to an inordinately high series of natural disasters-from hailstorms to flooding.
These losses prompted Standard & Poor's in March to place its triple-A financial strength ratings on all State Farm's interactively rated operating companies on "credit watch" with negative implications. In May, State Farm's rating was downgraded to double-A plus, but Standard & Poor removed the carrier from credit watch status, says Kevin Maher, an analyst at New York-based Standard & Poor's.
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