AM Best Revises Outlooks to Negative for State Farm Mutual Automobile Insurance Company and Certain Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A++ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa+” (Superior) of State Farm Mutual Automobile Insurance Company (State Farm Mutual) and its affiliates, State Farm Fire and Casualty Company and State Farm County Mutual Insurance Company of Texas (Richardson, TX), collectively referred to as State Farm Group. In addition, AM Best has revised the outlooks to negative from stable and affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of State Farm Florida Insurance Company (State Farm Florida) (Winter Haven, FL) and of MGA Insurance Company, Inc. (MGA) (Dallas, TX). AM Best also has revised the outlooks to negative from stable and affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of State Farm General Insurance Company (State Farm General). Concurrently, AM Best has revised the outlooks to negative from stable and affirmed the FSR of A++ (Superior) and the Long-Term ICRs of “aa+” (Superior) of State Farm Life Insurance Company and State Farm Life and Accident Assurance Company, collectively referred to as the State Farm Life Group (State Farm Life).

Lastly, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of State Farm Lloyds (Richardson, TX), HiRoad Assurance Company (HiRoad) and State Farm Indemnity Company (State Farm Indemnity). The outlook of these Credit Ratings (ratings) is stable. All companies are headquartered in Bloomington, IL, except where specified.

The negative outlooks on the property/casualty rating units primarily reflect recent adverse underwriting experience in the private passenger auto insurance line of business and the challenging regulatory environment that have constrained the ability of State Farm (as well as its industry peers) to increase premium rates in a timely fashion, along with continued elevated catastrophe-related loss experience in many parts of the country. The weather-related losses particularly from hurricane, winter and convective storms, as well as wildfires, have put further pressure on the group’s operating performance assessment. The negative outlooks on State Farm Life reflect the negative outlook on State Farm Group, given the consideration of ratings lift for State Farm Life on the basis of implicit support from State Farm Group.

State Farm, including 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. State Farm remains the leading provider of private passenger automobile and homeowners’ insurance in the United States. The organization’s personal lines products are complemented by other lines of business, such as commercial multiperil, commercial auto liability, workers’ compensation and several other lines sold primarily to small businesses.

The ratings of State Farm Group reflect its balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, very favorable business profile and appropriate enterprise risk management (ERM). Additionally, the ratings reflect State Farm Group’s long-term record of profitable, if occasionally somewhat volatile, underwriting and operating performance and internal capital generation. This is due in large part to growth in the value of its equity investment portfolio, despite challenging market conditions. Despite recent deterioration in operating performance, State Farm Group’s balance sheet strength remains at the strongest assessment level supported by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Furthermore, the group’s capitalization increased in the first half of 2023 due to significant increase in stock market valuations. State Farm experienced underwriting losses in 2022 and through the first six months of 2023 in its personal automobile line, as did nearly all major automobile insurance writers, primarily reflecting a higher severity driven by record high inflation and repair costs. Notwithstanding these interim challenges, AM Best believes that State Farm Group’s operations will return to profitability and that capital market volatility will not impact either its risk-adjusted capitalization or business operations meaningfully.

The ratings of the subsidiaries and affiliates of State Farm Mutual benefit from shared services, common management, cross selling of products and services, ERM, common distribution and brand name recognition. These positive rating aspects are offset in part by the State Farm Group’s underwriting variability, above-average exposure to equity market volatility and susceptibility to weather-related and other natural catastrophes.

The ratings of State Farm Florida reflect its balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, neutral business profile and appropriate ERM. The ratings also reflect lift, as defined in Best’s Credit Rating Methodology (BCRM), from its parent, State Farm Mutual.

The ratings of MGA reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also reflect lift, as defined within BCRM, from its parent, State Farm Mutual.

The ratings of State Farm General reflect its balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate ERM. The ratings also reflect lift, as defined within BCRM, from its parent, State Farm Mutual.

The ratings of State Farm Life reflect its balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, favorable business profile and appropriate ERM. The ratings also reflect lift, as defined within BCRM, from its parent, State Farm Mutual, as State Farm Life’s ratings benefit from the ultimate parent’s strong brand-name recognition and sustained competitive advantages derived from an exclusive contractor agency field force. Additionally, the ratings consider State Farm Life’s diverse product portfolio of individual ordinary life and fixed annuity products, which underpins the favorable business profile. Furthermore, State Farm Life finances its statutorily required excess reserves (Regulation XXX) related to term life insurance through capital rather than externally through either domestic captives or offshore reinsurers. The amount of these excess reserves is sizeable and viewed favorably by AM Best, as it qualitatively enhances the group’s strongest level of risk-adjusted capitalization, as measured by BCAR.

The ratings of State Farm Lloyds reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM.

The ratings of HiRoad reflect its balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate ERM. The ratings also reflect lift, as defined within BCRM, from its parent, State Farm Mutual.

The ratings of State Farm Indemnity reflect its balance sheet strength, which AM Best assesses as strongest, as well as its marginal operating performance, neutral business profile and appropriate ERM. The ratings also reflect lift, as defined within BCRM, from its parent, State Farm Mutual.

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Scott Foley
Senior Financial Analyst

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Al Slavin
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Source: AM Best