Liberty NJ Auto Rate Increase Approved, Best Downgrades State Farm Indemnity

The ongoing battle between New Jersey’s automobile insurers and the State’s politicians and regulators recorded two new developments yesterday with the announcement that Liberty Mutual Fire Co. and its affiliate Liberty Insurance were given permission to raise rates, and A.M. Best again downgraded the financial strength rating of State Farm Indemnity, NJ’s largest auto insurer.

Liberty Mutual agreed to accept a 6 percent rate increase, rather than the 20 percent hike it had been seeking, and Liberty Insurance accepted an 8.9 percent rise, instead of its requested 25 percent. Neither company has indicated that it intends to withdraw from the market, as have AIG’s NJ affiliate and State Farm, as well as a number of smaller companies.

State Farm’s problems were highlighted by A.M. Best’s downgrade from B+ (Very Good) to B- (Fair). It was the second time this year that Best has downgraded the company. Last June it lowered its ratings from A- (Excellent) to B+. The rating agency noted that State Farm’s capital position “has declined by approximately 55 % due primarily to continued underwriting losses” since the end of 1998 through the first nine months of this year.

Best’s analysis took into account the recent rate increase State Farm was granted (See IJ Website Nov.12), but said that this would result in only a modest earnings increase, and that the “overall impact to the company’s capital position and leverage will be negligible given the current tenuous position of its balance sheet.”

“While the company is a wholly owned subsidiary of the Superior rated State Farm Mutual Automobile Insurance Company, management has indicated that without fundamental reforms to the New Jersey regulatory environment, there are no foreseeable circumstances that would warrant further commitment to the New Jersey automobile market,” Best’s announcement concluded.

Topics Trends Auto Pricing Trends New Jersey