A.M. Best has upgraded the Financial Strength Rating (FSR) to A- (Excellent) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “a-” from “bbb+” of State Farm Lloyds in Richardson, Texas.
A.M. Best also has affirmed the FSR of A++ (Superior) and the Long-Term ICRs of “aa+” of State Farm Mutual Automobile Insurance Co. (State Farm Mutual) and its affiliates, State Farm Fire and Casualty Co. and State Farm County Mutual Insurance Co.of Texas, also based in Richardson, Texas.
Tge FSR of A (Excellent) and the Long Term ICR of “a+” have been affirmed for State Farm General Insurance Company; the FSR of A- (Excellent) and the Long-Term ICR of “a-” have been affirmed for State Farm Indemnity Co., headquartered in Bloomington, IL, except where specified.
The outlook for the ratings is stable.
State Farm Lloyds’ ratings upgrade is based on the company’s strengthened risk-adjusted capitalization, favorable earnings in most of the past five years, and the benefits it derives from being a member of the State Farm group. The company is strategic to State Farm as its dedicated homeowners writer in Texas.
The ratings of State Farm Mutual reflect its strong risk-adjusted capitalization, generally favorable earnings and superior business profile. Risk-adjusted capitalization continues to be supportive of the company’s ratings, and earnings have been positive in most years despite rising automobile personal injury claims costs and the low interest rate environment.
In addition, State Farm Mutual, its subsidiary and affiliated property/casualty and life insurance companies comprise the largest personal lines insurance organization in the United States based on direct premiums written and the second-largest in terms of policyholders’ surplus.
The State Farm group is the leading provider of homeowners’ and private passenger automobile insurance in the United States. The organization’s personal lines products are complemented by other lines of business such as commercial multi-peril, commercial auto liability, workers’ compensation and several other lines.
Banking and other financial services are offered through affiliates to further enhance the sale of personal lines products. The State Farm group’s main distribution channel is its exclusive independent agency force, which along with mass advertising, has contributed to high customer retention rates and below average expense ratios. The ratings for the subsidiaries and affiliate of State Farm Mutual also benefit from shared services, common management, cross selling of products and services, common distribution, brand name recognition and a comprehensive enterprise risk management program.
These positive rating aspects are offset in part by the State Farm group’s below average earnings, above average exposure to equity market volatility and continued low interest rates. Recent operating performance has primarily been adversely impacted by increased auto liability claims costs. However, these concerns are partially mitigated by actions that management continues to implement to consolidate underwriting and claims handling, reduce property exposure in high risk areas, increase rates where appropriate, upgrade and modernize systems, enhance its exclusive independent agency force and expand production by providing additional customer access points.
The outlook for the ratings of State Farm Mutual, its property/casualty subsidiaries and affiliate may be subject to negative rating pressures should the company’s operating performance and capitalization levels significantly deteriorate. However, improving operating trends that lead to sustained capital appreciation without excessive growth would further stabilize the organization’s ratings.
Source: A.M. Best
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