State Farm Posts $1.8 Billion Net Income for 2010 Despite Underwriting Losses

State Farm reported $1.8 billion in after-tax net income in 2010, compared with $800 million in 2009. The improvement “was driven by the P-C companies’ improved results,” said the bulletin, which also explained that the “P-C companies reported a $3.1 billion underwriting loss in 2010, a $0.6 billion improvement from 2009.”

Senior VP, Treasurer and CFO Paul Smith commented: “2010 was another economically challenging year for many of our customers. State Farm has maintained the financial strength needed to serve our customers. We attribute that strength not only to our continued focus on the customer, but also to our commitment to the fundamentals of our business.”

Despite the economic difficulties State Farm noted that its combined net worth “increased in 2010 by $3.1 billion to end the year at $61.2 billion. The primary reason for the improvement was a $1.9 billion increase in the value of the property-casualty (P-C) companies’ unaffiliated stock portfolio (net of deferred tax). The increase comes after a $4.8 billion increase in net worth in 2009. That followed a $10.4 billion decrease in 2008. State Farm group’s net worth is 40 percent higher than it was 10 years ago.”

The bulletin also noted that State Farm’s P/C companies “reported a pre-tax operating gain of $1.0 billion in 2010, which includes the underwriting loss of $3.1 billion, offset by investment and other income of $4.1 billion. This compares with a pre-tax operating gain of $0.4 billion in 2009, which included investment and other income of $4.1 billion and an underwriting loss of $3.7 billion. The State Farm group’s net worth is also affected by the results of operations of non-P-C affiliates, which resulted in a gain of $0.6 billion in 2010.

“Total revenue, which includes premium revenue, earned investment income and realized capital gains (losses), was $63.2 billion for 2010 compared with $61.5 billion for 2009. Financial results for State Farm’s affiliate companies are incorporated in the State Farm group’s financial results.”

State Farm’s main business sector – auto insurance, which “represents 62 percent of the P-C companies’ combined net written premium,” reported earned premium of “$31.4 billion, an increase of 1.6 percent from 2009. Incurred claims and loss adjustment expenses were $26.8 billion. The underwriting loss was $2.8 billion. Comparable 2009 figures were: earned premium, $30.9 billion; incurred claims and loss adjustment expenses, $26.2 billion; underwriting loss, $2.7 billion.”

Net written premiums in the “homeowners” sector, which includes State Farm Fire and Casualty Company, State Farm Lloyds, State Farm General Insurance Company and State Farm Florida Insurance Company, represent 35 percent of the P-C companies’ combined net written premium.

For that sector the bulletin said “earned premium was $17.3 billion, an increase of 5.9 percent from 2009. Incurred claims and loss adjustment expenses were $13.2 billion. The underwriting loss was $0.9 billion. Comparable 2009 figures were: earned premium, $16.3 billion; incurred claims and loss adjustment expenses, $12.9 billion; underwriting loss, $1.5 billion.”

Source: State Farm

Topics Profit Loss Underwriting Property Casualty