AM Best Tweaks State Farm Outlook to Negative After Weather, Regulatory Issues

The AM Best financial rating firm has downgraded its outlook for multiple State Farm insurance companies due to weather losses and regulations that the firm said hinder the insurance giant’s ability to adequately raise rates.

“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,” AM Best said in a news release Friday.

The downgrades, from stable to negative, were for State Farm Mutual Automobile Insurance Co. and its affiliates, State Farm Fire and Casualty Co. and State Farm County Mutual Insurance Co. of Texas, based in Richardson, Texas. AM Best referred to those as the State Farm Group.

The rating firm also revised its outlook to negative for State Farm Florida Insurance Co., based in Winter Haven, Florida, and for MGA Insurance, based in Dallas. It also revised the outlook to negative for State Farm General Insurance and for State Farm Life Insurance and State Farm Life and Accident Assurance Co.

“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,” AM Best officials said in the press release.

State Farm is one of several of the country’s largest property insurers that have made moves to reduce exposure in California, Florida and Louisiana, after hurricanes, wildfires and other losses. Carriers have blamed California’s regulatory environment for limiting rate increases needed to meet the reality of a changing climate.

California’s insurance commissioner late last week announced major changes to that state’s regulations, allowing more inclusion of climate change models in rate making.

“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,” AM Best officials said in the press release.

AM Best said that it has mostly affirmed the financial strength ratings for the State Farm companies, all of which have received top FSR marks in recent rating reviews. These include State Farm Lloyds, based in Texas; and HiRoad Assurance Co. and State Farm Indemnity Co., both headquartered in Bloomington, Illinois.

“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),” the rating firm noted.

State Farm Group’s investment portfolio has remained strong, despite market volatility. The group increased its capitalization this year due to its stock market valuations, AM Best said.

“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 firm wrote.

Topics California Florida Trends Texas Legislation AM Best