State Farm Florida Ratings Lowered by A.M. Best

A.M. Best Co. has downgraded the financial strength rating to B- (Fair) from B (Fair) and issuer credit rating to bb- from bb of State Farm Florida Insurance Co., which is based in Winter Haven. The outlook for both ratings is negative.

The downgrades are based on State Farm Florida¹s continued deterioration in earnings and risk-adjusted capitalization in recent years, A.M. Best said. Some expect that some deterioration may continue over the near term.

State Farm Florida¹s deterioration has been driven by a sharp decline in net premiums written due to policy non-renewals, wind mitigation discounts, reinsurance costs and inadequate rates. In addition, due to its geographic business concentration, the company¹s gross probable maximum loss from a 100-year hurricane is well in excess of its surplus, according to A.M. Best.

Although State Farm Florida maintains a comprehensive catastrophe reinsurance program, a high net retention relative to its surplus exposes its capital position to catastrophic loss accumulation, even from relatively modest weather-related events.

The ratings organization said that partially offsetting these negative rating factors is the explicit and implicit support of its parent company, State Farm Mutual Automobile Insurance Co. (State Farm Mutual). This support has been historically demonstrated in terms of State Farm Florida issuing multiple surplus notes to State Farm Mutual in exchange for cash, as well as State Farm Mutual continuing to be a significant participant in State Farm Florida¹s catastrophe reinsurance program.

Although the parent has continued to provide significant support to State Farm Florida, A.M. Best said it believes further capital support will be required in the case of a significant catastrophic event. Based on State Farm Mutual¹s history of supporting the majority of its separately capitalized, stand-alone subsidiaries, A.M. Best anticipates that the claims paying ability of State Farm Florida will be maintained commensurate with its revised ratings in the event of frequent and/or severe hurricane activity.

Favorably impacting the ratings is the recent agreement rendered with the Florida Office of Insurance Regulation, with respect to certain risk mitigation efforts. This agreement has resulted in more favorable pricing relative to risk exposure and a non-renewal of certain high risk policies,which is anticipated to significantly reduce State Farm Florida¹s exposure to weather-related events over the long term.

Topics Florida AM Best