Hurricanes Drive 39% Decline in Net Income for Giant State Farm

February 26, 2006

Hurricane losses and loss adjustment expenses totaling $6.3 billion (after reinsurance) contributed to a reduction in State Farm’s 2005 net income. The company is reporting an after-tax net income from all sources of $3.24 billion, down 39 percent from the $5.31 billion in net income for 2004.

Net worth for the State Farm group increased by $3.9 billion to $50.2 billion. The primary reasons for this improvement were the insurance operating results and the $759 million realized and unrealized gain (net of deferred tax) on property-casualty companies’ unaffiliated stock portfolios. The P/C companies reported a pretax operating profit of $3.5 billion in 2005, including investment and other income of $4.3 billion and an underwriting loss of $779 million. This compares with a pretax operating profit of $5.5 billion in 2004, which included investment and other income of $3.57 billion and an underwriting gain of $1.96 billion.

The State Farm group’s net worth also is affected by the results of operations of non-P/C affiliates, which resulted in a gain for the year of $379 million, primarily driven by results for State Farm Life Insurance Company.

Total revenue, which includes premium revenue, earned investment income and realized capital gains (losses), was $59.2 billion for 2005 compared with the 2004 figure of $58.8 billion.

State Farm’s insurance operations consist of seven P/C insurers and two life insurers. The P/C insurers are primarily engaged in automobile, health, homeowners and commercial multiple peril (CMP) lines of business. The net results of State Farm Mutual Automobile Insurance Company, State Farm Indemnity Company and State Farm County Mutual Insurance Company of Texas include the Auto and Health business. The net results of State Farm Fire and Casualty Company, State Farm Lloyds, State Farm General Insurance Company and State Farm Florida Insurance Company reflect the Homeowners, Commercial Multiple Peril (CMP) and other P-C lines of business. State Farm Life Insurance Company and State Farm Life and Accident Assurance Company write the Life and Annuity business. The State Farm group also provides banking products and mutual funds through affiliated companies.

Property-Casualty (P/C) — The combined underwriting loss was $779 million on earned premiums of $47.5 billion. This includes results from Auto, Homeowners, Health and other lines, as well as the reinsurance line provided by State Farm Mutual. The reinsurance line of business reported an underwriting loss of $2.8 billion in 2005 due to significant catastrophe reinsurance provided to affiliates. These results, combined with net investment income earned and other income of $4.3 billion, resulted in a pretax operating profit of $3.5 billion. After-tax net income for the P/C companies was $3.0 billion.

Comparable 2004 figures were: earned premiums, $47.3 billion; underwriting gain, $1.96 billion; reinsurance underwriting loss, $0.5 billion; net investment income earned and other income, $3.57 billion; pretax operating profit, $5.5 billion; net income, $5.1 billion.

Auto — State Farm’s auto insurance business represents 64 percent of the P/C companies’ combined net written premium. Earned premiums were $30.6 billion, a decrease of 2.7 percent from 2004. The incurred claims and loss expenses were $23.8 billion. The underwriting gain was $585 million.

Comparable 2004 figures were: earned premium, $31.5 billion; incurred claims and loss expenses, $23.0 billion; underwriting gain, $1.8 billion.

Homeowners, CMP, Other — The net written premium for State Farm Fire and Casualty Company, State Farm Lloyds, State Farm General Insurance Company and State Farm Florida Insurance Company represents 32 percent of the P/C companies’ combined net written premium. Earned premiums were $15.0 billion, an increase of 5.7 percent from 2004. The incurred claims and loss expenses were $9.6 billion after the recovery of $4.1 billion from reinsurers (internal and external) under catastrophe reinsurance agreements. The result was an underwriting gain of $1.4 billion.

Comparable 2004 figures were: earned premiums, $14.2 billion; incurred claims and loss expenses, $9.3 billion; underwriting gain, $0.7 billion.

Health — The individual health insurance operations for State Farm Mutual reported an underwriting loss of $16 million. Net written premiums were $761 million. Comparable figures for 2004 were: underwriting gain, $8 million; net written premiums, $766 million.

Life — State Farm’s Life affiliates — State Farm Life Insurance Company and State Farm Life and Accident Assurance Company — added $38 billion of total life insurance in force during the year, bringing the companies’ total insurance in force to $609 billion on Dec. 31, 2005.

The Life affiliates reported premium income of $3.8 billion in 2005, compared with $3.7 billion in 2004. The gain from operations after dividends and before taxes was $511 million compared with 2004’s reported gain of $455 million. The Life affiliates reported an after-tax net income of $333 million in 2005. This compares with a net income of $247 million in 2004.

Bank — State Farm BankĀ®, F.S.B. reported an after-tax net income of $22 million in 2005, compared with $9 million in 2004. Total assets for the Bank rose to $12.2 billion in 2005 compared with assets of $10.4 billion at the end of 2004.

Mutual Funds — Total assets under management for the retail Mutual Fund operations at the end of 2005 were $2.8 billion, compared with $2.0 billion at the beginning of the year. State Farm VP Management Corp. and State Farm Investment Management Corp. reported a combined after-tax net loss of $18 million in 2005 compared with a loss of $25 million in 2004.

Source: State farm

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