A.M. Best Co. placed the “B+” (Very Good) financial strength ratings of two separately rated subsidiaries of State Farm Mutual Automobile Insurance Company—State Farm General Insurance Company (Bloomington, Ill.) and State Farm Lloyds (Dallas, Texas)—under review with negative implications. Weakened stand-alone capitalization of each company, expectation that near term operating results will be unfavorable and uncertainty regarding adequate financial support from the parent drove the action.
State Farm General provides property coverage in California and currently has marginal capitalization and lackluster operating performance. Although State Farm General has increased rates and issued a moratorium on new business, the immediate benefit will be modest given the annual term of the homeowner policy and the challenging California regulatory environment.
A.M. Best suggested that capital commitment from the parent is required in light of the continued deterioration in results.
For State Farm Lloyds, the Texas property writer, the under review action reflects extremely poor financial performance and a well-above average premium leverage position. Despite an initial surplus note from the parent of $350 million in November 2001 and a subsequent addition to the note of $300 million in the first quarter of 2002, capitalization remains weak due to ongoing operating losses, impacted significantly by mold relatedclaims.
State Farm Lloyds currently uses Texas’ revised HO-B policy and plans to roll out the State Farm country-wide homeowner policy form in September 2002. It has declined new business since September 2001 and has considerably increased rates on renewals. These actions should stabilize operating results over the longer term, but the near-term impact will be minimal.
A.M. Best believes an additional capital commitment from the parent is needed. The ratings will remain under review pending further discussions with management and clarification on the parent’s capital allocation strategies.
The financial strength ratings of “A++” (Superior) for other members of the State Farm Group are unaffected.
Topics Texas
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