A.M. Best Affirms Group Ratings of State Farm with a Negative Outlook and Lowers Rating of State Farm Fire and Casualty.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Feb. 28, 2003 A.M. Best Co. has affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. the financial strength ratings of the property/casualty and life affiliates of the State Farm Group (Bloomington, IL), as detailed below, and lowered the financial strength rating to A+ (Superior) from A++ (Superior) of State Farm Fire and Casualty Company (Bloomington, IL). In addition, negative rating outlooks have been assigned as indicated. The lowering of State Farm Fire and Casualty Company, a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company (State Farm Mutual) and dedicated property writer, reflects continued deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. in its stand-alone capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. , lackluster lack·lus·ter adj. Lacking brightness, luster, or vitality; dull. See Synonyms at dull. Adj. 1. lackluster - lacking brilliance or vitality; "a dull lackluster life"; "a lusterless performance" operating performance trends and substantial common stock investment leverage, representing more than 100% of policyholders' surplus. For the two year period ending December of 2002, State Farm Fire and Casualty Company's surplus declined by approximately 40% due to the combination of poor underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. experience and losses in the equity portfolio. When combined with the recent premium growth associated with the company's renewed focus on underwriting profitability and rate adequacy, premium leverage increased considerably. With growth in written premium exceeding surplus gains, it is anticipated that premium leverage will remain high over the near-term. While the company is a wholly-owned subsidiary of State Farm Mutual and benefits from the implicit support of its parent, formal capital support on an operating basis has been limited. Prior to this rating change, the company was afforded the rating of the State Farm Group, reflecting its core status and favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. stand-alone capitalization. While still core to the overall strategy of State Farm, A.M. Best no longer views Longer Views is a 1996 collection of extended essays by author, professor, and critic Samuel R. Delany. the capitalization of State Farm Fire and Casualty Company as supportive of a group rating. The negative outlook for State Farm Fire and Casualty Company reflects the uncertainties associated with the sustainability of performance improvement initiatives, anticipation of continued elevated premium leverage and on-going exposure to equity market volatility. The affirmation A solemn and formal declaration of the truth of a statement, such as an Affidavit or the actual or prospective testimony of a witness or a party that takes the place of an oath. An affirmation is also used when a person cannot take an oath because of religious convictions. of the A++ rating of the State Farm Group, led by State Farm Mutual, reflects its strong capitalization, well-recognized franchise and dominant market presence. Despite considerable declines in surplus over the last three years, State Farm continues to maintain a significant capital base and relatively modest underwriting leverage position. While operating results over the last several years have been poor, State Farm has taken corrective actions A corrective action is a change implemented to address a weakness identified in a management system. Normally corrective actions are instigated in response to a customer complaint, abnormal levels if internal nonconformity, nonconformities identified during an internal audit or , particularly in 2002, including a renewed focus on underwriting profitability and improved rate adequacy. As a result, year-end 2002 results reflect a nearly ten point improvement in the combined ratio. The State Farm life affiliates remain very well capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. with excellent liquidity and continue to report consistent operating gains. Although improvement was noted in 2002, the group's combined ratio remains above those of its similarly rated peers. Unfavorable underwriting experience, combined with unrealized capital losses on the stock portfolio, has driven sizeable surplus declines over the last several years. Although the common stock portfolio is well diversified diversified (di·verˑ·s and represents less than half of the overall invested asset base, common stock leverage as a percentage of surplus is high at more than 80%. Further, continued improvement in results will be contingent upon Adj. 1. contingent upon - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress" contingent on, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent normalized catastrophe activity over the intermediate term, along with stabilization Stabilization The action undertakes a country when it buys and sells its own currency to protect its exchange value. Actions registered competitive traders undertake by on the NYSE to meet the exchange requirement that 75% of their traded be stabilizing, meaning that sell orders of the equity markets. Although the group's risk adjusted capitalization and strong business profile continue to support the current rating, A.M. Best views the rating outlook as negative given the uncertainties associated with State Farm's underwriting performance improvement initiatives, sizeable exposure to equity investments and potential increases in underwriting leverage. The financial strength rating of A++ (Superior) for the following State Farm property/casualty affiliates is affirmed with a negative outlook: -- State Farm Mutual Automobile Insurance Company -- State Farm County Mutual Insurance Company of Texas -- State Farm Life and Accident Assurance Company -- State Farm Life Insurance Company The financial strength rating for State Farm Fire and Casualty Company has been lowered to A+ (Superior) from A++ (Superior) with a negative outlook. The financial strength rating of A- (Excellent) for State Farm Florida Insurance Company has been affirmed with a stable outlook. The financial strength ratings of B+ (Very Good) for the following State Farm property/casualty affiliates have been affirmed with a negative outlook: -- State Farm General Insurance Company -- State Farm Lloyds The financial strength rating of B- (Fair) for State Farm Indemnity Company has been affirmed with a positive outlook. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's web site at www.ambest.com. |
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