State Farm announces $1.2 Billion mutual auto policyholder dividend

March 12, 2007

State Farm Mutual Automobile Insurance Co. recently announced it will pay $1.25 billion in dividends to its mutual auto insurance policyholders in 46 states, the District of Columbia and the Canadian province of New Brunswick. Policyholders in 12 Midwestern states will be recipients of dividends.

The dividends approved by the State Farm Mutual board of directors, eclipses the previous high of just over $1 billion in June, 2000.

The better-than-expected auto results combined with a $4.1 billion reduction in catastrophe losses in 2006 resulted in an increase in State Farm’s companywide net income — an increase that was almost identical to the previous year’s decline. In other words, net income in 2006 was almost identical to that of 2004. The company is reporting an after-tax net income from all sources of $5.32 billion, compared with $5.31 billion in net income reported in 2004 (two years ago). State Farm’s net income in the hurricane-laden year of 2005 was $3.24 billion. The three consecutive years of profit follow a three-year period (2001-2003) during which State Farm lost nearly $5 billion.

“2006 was a profitable year, but our evaluation of financial success is defined by our accomplishments over a longer period of time than one year,” said Michael Tipsord, vice chairman, treasurer and chief financial officer. “Given the potential for volatility in the insurance business, we must avoid the temptation of attributing too much significance to short-term financial results. Our customers expect us to maintain the financial strength necessary to deliver on the promises we make to them over a long period of time.”

The company is reporting a property/casualty (P/C) underwriting gain in 2006 of $3.0 billion. It is only the third time in the last ten years a P/C underwriting gain has been achieved. The other two years in which that happened are 2004 and 1997.

The combined net worth of the State Farm companies increased by $8.0 billion to $58.1 billion. The primary reasons for this improvement were the insurance operating results and the $3.6 billion realized and unrealized gain (net of deferred tax) on P/C companies’ unaffiliated stock portfolios. State Farm’s net worth was also impacted by a pension contribution of $900 million. The P/C companies reported a pretax operating profit of $6.0 billion in 2006, including investment and other income of $3.0 billion and the underwriting gain of $3.0 billion.

Source: State Farm

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