A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to “bb”
from “bbb-” of State Farm Florida Insurance Co.
The rating agency’s outlook for the insurer has been revised to negative from stable.
A.M. Best said the rating downgrades and negative outlook are based on State Farm Florida’s recent significant deterioration in earnings and risk-adjusted capitalization and the expectation that this deterioration will continue over the near to intermediate term. The deterioration was driven by a sharp decline in net premiums written due to nonrenewals, wind mitigation discounts, increased reinsurance costs, rate decreases and the suspension of writing most new homeowners and commercial business.
As State Farm Florida filed a withdrawal plan on Jan. 27, 2009 from its Florida property insurance product lines, A.M. Best said it expects further deterioration in its earnings and risk-adjusted capitalization going forward. The withdrawal plan affects homeowners, renters, condominium unit owners, personal liability, boats, personal articles and business property and liability policies.
The ratings and outlook reflect State Farm Florida’s fair capitalization and both the explicit and implicit support of its parent, State Farm Mutual Automobile Insurance Co., State Farm Mutual in Bloomington, Illinois, A.M Best said.
Due to its geographic business concentration, State Farm Florida’s gross probable maximum loss (PML) from a 100-year hurricane is in excess of its surplus. However, due to the company’s comprehensive reinsurance program, which includes reinsurance from State Farm Mutual, the Florida Hurricane Catastrophe Fund and external reinsurers, the net PML is significant but manageable, A.M. Best said.
Although the parent has continued to provide significant support, A.M. Best said it believes further support may be required in the case of a significant catastrophic event. Based on State Farm Mutual’s history of supporting the majority of its separately capitalized, stand-alone subsidiaries, A.M. Best anticipates that State Farm Florida’s claims paying ability will be maintained in both the near and intermediate terms.
Source: A.M. Best
Was this article valuable?
Here are more articles you may enjoy.