State Farm reported a pre-tax operating loss of $1.2 billion for 2016 after recording pre-tax profits of $1.9 billion in 2015 and $3.4 billion in 2014, according to the company’s 2016 financial results statement released Feb. 28.
The State Farm property-casualty (P-C) companies took an 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 company said.
The last time State Farm had a pre-tax operating loss was a $160 million deficit in 2011 – a year that included Hurricane Irene and four other notable catastrophes that impacted results.
Auto insurance underwriting losses were the primary culprit in 2016, increasing to $7 billion from $4.4 billion in 2015. State Farm Mutual Automobile Insurance Co., the largest U.S. P-C insurer, saw its annual profit in 2016 plunge 94% with net income of $400 million compared to $6.2 billion 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.
The 2016 underwriting loss, combined with investment and other income of $4.4 billion (up $0.4 billion from 2015), resulted in the pre-tax operating loss of $1.2 billion.
The combined net worth for the State Farm group still increased in 2016, ending 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.
“Our focus of putting customers first for nearly 95 years continues to underscore our position as the leader in auto and home insurance and a leader in individual life insurance. Our financial strength, local presence and broad product offerings allow us to help customers recover from the unexpected and be there to help life go right,” said Senior Vice President, Treasurer and Chief Financial Officer Jon Farney.
The 2016 figures are the first for a full year under State Farm CEO Michael Tipsord, who Bloomberg reports earned $8.16 million in 2016 compensation.
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. State Farm provides insurance and financial services products across more than 84 million policies and accounts.
A closer look at the different sectors:
Auto: The State Farm auto insurance business represented 63% of the P-C companies’ combined net written premium. Earned premium was $38.8 billion, an increase of 6.9% 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.
State Farm spokesman Dave Phillips told the Bloomington, Ill.-based company’s hometown newspaper The Pantagraph that the number of claims and the payout on claims for property damage and medical costs from accidents had a significant impact on the underwriting loss in the auto insurance sector.
State Farm auto rates increased overall by 5.1% in 2016, Phillips said, noting that trend continues into 2017 – and that other insurers are also raising rates.
A Feb. 28 Bloomberg Markets article about State Farm noted that Travelers said in January it had begun to increase auto premiums because of higher expenses, following Allstate and Geico.
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 represented 33% of the P-C companies’ combined net written premium. Earned premium was $20.4 billion, an increase of 2.7% 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 Company and State Farm Life and Accident Assurance Company 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.
• See also: Allstate finishes 2016 with strong profitability