New Jersey’s Department of Banking and Insurance is seeking to prolong the State’s largest automobile insurer’s presence for as long as possible in order to give State Farm’s 800,000 plus customers time to find alternative insurance before the company stops renewing policies in accordance with its request, filed last June, to withdraw from doing business there. They could delay the company’s exit for as long as 5 years.
State Farm, however, has released figures showing that the losses it continues to experience in New Jersey’s auto insurance market are threatening its reserves, which have dropped from $445 million at the end of 1998 to $235 million at the end of June. It currently retains only 28.6 cents in surplus for every $1.00 in premium, and wants out ASAP.
Ironically, State Farm Indemnity, which was established as an independent company by its parent State Farm Mutual Auto Insurance Co. in 1992, does business only in New Jersey, but is based in Illinois. It therefore falls under the supervision of that State’s insurance regulators, who are now closely monitoring the situation, and could step in to order State Farm to cease renewing policies, or even take over the company, if the company’s reserve position continues to deteriorate.
While New Jersey regulators insist that new restrictions on recoveries for injuries suffered in auto accidents will lower the amount paid out by insurers, State Farm has expressed skepticism, and is pushing for a rate increase, which so far has been denied.
The two states are also at odds over whether State Farm Mutual, as the parent of State Farm Indemnity, owes any obligation to bail out its subsidiary. Predictably New Jersey is examining the possibility, while Illinois says no such obligation exists.
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