State Farm has 2017 operating loss of $1.7B; net worth up

March 01--BLOOMINGTON -- State Farm property-casualty companies reported a pretax operating loss of $1.7 billion for 2017, but the company's net worth still increased.

The company's pretax operating loss was $1.2 billion in 2016. That compared to pretax profits of $1.9 billion in 2015 and $3.4 billion in 2014.

The net worth for the State Farm group ended the year at $97 billion, up from $87.6 billion at the end of 2016, according to figures the Bloomington-based insurer released Thursday.

A combined $6.5 billion underwriting loss on earned premiums of $63.9 billion in 2017 was the major contributor to the 2017 operating loss. In comparison, the underwriting loss in 2016 was $5.5 billion on earned premiums of $61.7 billion.

"The underwriting loss in 2017 was driven by significant catastrophe losses," said the company in announcing its 2017 financial results. "Even with these operating losses, each of the State Farm companies remains financially strong."

Investment and other income of $4.8 billion -- an increase of $400 million over the previous year -- helped offset the underwriting loss to reduce the overall operating loss.

"In 2017, State Farm helped our customers recover from unexpected losses, including several catastrophic events. While we had operating losses for the year, we are built to handle these events and we continue to be 'good neighbors' and have the financial resources to be there in our customers' time of need," said Jon Farney, senior vice president, treasurer and chief financial officer.

"Our employees, agents and agent team members are making significant changes and process improvements across our company to better serve our customers. We will continue becoming a leaner and stronger company in our pursuit of helping customers recover from the unexpected and being there to help life go right."

The company reported the increased net worth for the company was primarily due to an increase in the value of its stock holdings and the impact of the federal tax overhaul.

State Farm's figures are in line with what other insurers are experiencing, especially those like State Farm that have heavy concentration on personal lines of insurance, such as auto and homeowner coverage, said Steve Weisbart of the Insurance Information Institute.

"Certainly the major hurricanes, winter storms earlier in the year and the wildfires did extensive damage -- more than any other year," he said. "So you would expect substantial losses and claims and that is what State Farm seems to be reporting.

"But they are well capitalized, as are many insurance companies, so there is no real threat to the solvency of the company," he added. "They have quite a bit of reserves able to handle all of the claims that they are facing."

Eleven property casualty insurers and two life insurers make up State Farm insurance operations.

Underwriting for State Farm's auto business improved compared to 2016, and State Farm Fire and Casualty Co., life insurance affiliates, State Farm Bank and mutual funds each reported pretax operating profits, said State Farm spokeswoman Missy Dundov.

The auto insurance business represented 65 percent of the combined net written premiums of the property-casualty companies, but the category showed a $2.8 billion underwriting loss last year compared to a $7 billion underwriting loss in 2016.

Homeowners, commercial multiple peril and other coverage in that category showed an operating loss of $2.8 billion in 2017 compared to a $2 billion underwriting gain in 2016.

"Our catastrophe claims costs for our homeowner's affiliates were above expected levels in 2017, including two events (California wildfires) that were among the top 10 most costly in our history," said Dundov.

The same was true for its auto affiliates because of three events (Hurricane Harvey, Hurricane Irma and a spring hailstorm in Colorado and New Mexico) that also were among the 25 most costly in the company's history, she added.

Companywide, State Farm auto rates went up 8.6 percent and its homeowners rates increased 1.1 percent in 2017, according to Dundov.

The year-end report comes as State Farm pursues a companywide restructuring that includes consolidating its information technology departments and trimming management. The company has not provided details on the number of IT and other jobs being eliminated.

State Farm also is adjusting its "real estate footprint" across the country, including pulling out of the downtown Bloomington building that once served as the company's headquarters. The company has not said whether that building will be sold.

Since the company announced last year it was closing 11 facilities across the U.S. over the next four years, two call centers in Tacoma, Wash., have been added to its closure list.

State Farm has nearly 70,000 employees across the U.S., including 23,000 who are employed at the hubs in Atlanta, Dallas and Phoenix. State Farm says it will maintain its current Bloomington-Normal workforce of about 15,000.

Follow Maria Nagle on Twitter: @Pg_Nagle

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