State Farm joined the ranks of property/casualty insurers reporting challenges in their auto insurance line of business. State Farm said it lost $7 billion on its auto insurance underwriting in 2016.
The State Farm property/casualty (P/C) companies reported an overall underwriting loss of $5.5 billion in 2016 on earned premium of $61.7 billion, compared to an underwriting loss of $2.1 billion on earned premium of $58.6 billion in 2015.
The 2016 underwriting loss, combined with investment and other income of $4.4 billion (up $0.4 billion from 2015), resulted in a P/C pre-tax operating loss of $1.2 billion.
Auto insurance business represents 63 percent of the P/C companies’ combined net written premium. Earned premium was $38.8 billion, an increase of 6.9 percent from 2015. Incurred claims and loss adjustment expenses were $35.8 billion. The underwriting loss was $7.0 billion.
Comparable 2015 figures were: earned premium, $36.3 billion; incurred claims and loss adjustment expenses, $31.0 billion; underwriting loss, $4.4 billion.
Last year was the first full year under Chief Executive Officer Michael Tipsord, who replaced Edward Rust in 2015.
State Farm is not alone in seeing deteriorating results in its auto insurance line. It joins GEICO, Travelers, Allstate, The Hartford and other insurers looking for ways to counter rising auto costs. Analysts have reported that the auto line has been a drag on P/C insurers’ results.
State Farm Combined
The combined net worth for the State Farm group ended the year at $87.6 billion compared with $82.7 billion at year-end 2015. The increase includes a $4.2 billion increase related to the P/C companies’ unaffiliated stock portfolio, which is primarily invested in the U.S. equities market.
Total revenue, which includes premium revenue, earned investment income, and realized capital gains (losses) was $76.1 billion for 2016 compared with $75.7 billion for 2015. State Farm reported net income of $0.4 billion in 2016, compared with $6.2 billion of net income in 2015. Results in 2015 included $3.0 billion in realized capital gains due to two corporate mergers impacting stocks owned within the unaffiliated stock portfolio.
State Farm provides insurance and financial services products across more than 84 million policies and accounts.
Financial results for the State Farm affiliated companies are incorporated in the State Farm group’s financial results. The State Farm insurance operations consist of 10 P/C insurers and two life insurers, each of which is managed on an individual affiliate level.
The P/C insurers are primarily engaged in automobile, health, homeowners, commercial multiple peril (CMP), and reinsurance lines of business. The life insurers are primarily engaged in individual life insurance and annuity business. The State Farm group also provides banking products and mutual funds through affiliated companies.
In other full year 2016 results, State Farm reported:
Homeowners, CMP, Other – The net written premium for State Farm Fire and Casualty Co., State Farm Lloyds, State Farm General Insurance Co. and State Farm Florida Insurance Co. represented 33 percent of the P/C companies’ combined net written premium. Earned premium was $20.4 billion, an increase of 2.7 percent from 2015. Incurred claims and loss adjustment expenses were $13.3 billion. The underwriting gain was $1.6 billion. Comparable 2015 figures were: earned premium, $19.9 billion; incurred claims and loss adjustment expenses, $12.2 billion; underwriting gain, $2.1 billion.
Health – The individual health insurance operations for State Farm Mutual Automobile Insurance Company reported an underwriting loss of $84 million, excluding premium deficiency reserve. Net written premium was $668 million. Comparable figures for 2015 were: underwriting loss, $98 million; net written premium, $667 million.
Life – In 2016, State Farm Life Insurance Co. and State Farm Life and Accident Assurance Co. reported premium income of $5.7 billion and $584 million in dividends to policyholders. Net income for 2016 was $562 million. There was $873.7 billion in total life insurance in force at the end of 2016. Comparable 2015 figures were: premium income, $5.5 billion; dividends to policyholders, $582 million; net income, $667 million; total life insurance in force, $844.8 billion.
State Farm Bank – Net income in 2016 was $39 million and total assets for State Farm Bank, F.S.B. were $18.3 billion as of year-end 2016. Comparable figures for 2015 were: net income, $45 million; total assets, $16.7 billion.
Mutual Funds – Total assets under management for the retail Mutual Fund operations at the end of 2016 were $12.2 billion, compared with $11.3 billion at the end of 2015. State Farm VP Management Corp. and State Farm Investment Management Corp. reported combined net income of $4 million in 2016, following net income of $12 million in 2015.