AM Best revised the outlooks of the A++ financial strength rating and aa+ long-term issuer credit ratings of State Farm Mutual Automobile Insurance Company (State Farm Mutual) and two affiliates, the rating agency announced Friday.

Collectively referred to as State Farm Group, State Farm Mutual Automobile Insurance Company, State Farm Fire and Casualty Company and State Farm County Mutual Insurance Company of Texas, all three carry the highest AM Best rating financial strength rating of A++.

The AM Best announcement stated that the push to negative outlooks for these property/casualty rating units—and others, which currently have lower AM Best ratings—primarily reflects:

  • Recent adverse underwriting experience in the private passenger auto insurance line of business
  • The challenging regulatory environment that have constrained the ability of State Farm (as well as its industry peers) to increase premium rates in a timely fashion
  • Continued elevated catastrophe-related loss experience in many parts of the country.

In a media statement, AM Best commented that while State Farm experienced underwriting losses in 2022 and through the first six months of 2023 in its personal automobile line, the same was true for nearly all major automobile insurance writers, as a result of record high inflation and repair costs. “Notwithstanding these interim challenges, AM Best believes that State Farm Group’s operations will return to profitability and that capital market volatility will not impact either its risk-adjusted capitalization or business operations meaningfully,” the statement said.

AM Best also changed the outlook to negative from stable on these State Farm units:

  • State Farm Florida Insurance Company and of MGA Insurance Company, Inc., both carrying FSRs
  • of A- and long-term ICRs of a-
  • State Farm General Insurance Company, FSR of A and long-term ICR of a
  • State Farm Life Insurance Company and State Farm Life and Accident Assurance Company, collectively referred to as the State Farm Life Group (State Farm Life), FSRs of A++ and the long-term ICRs of aa+

While announcing the outlook change, AM Best affirmed the ratings of all the companies listed above. In addition, AM Best affirmed the FSRs State Farm Lloyds, HiRoad Assurance Company and State Farm Indemnity Company (A FSR, a ICR), keeping the outlooks of these entities at stable.

Commenting on the ratings affirmations, AM Best said the ratings of State Farm Group reflect its balance sheet strength, which AM Best assesses as strongest, and its strong operating performance, very favorable business profile and appropriate enterprise risk management.

Even though the operating performance of State Farm Group deteriorated recently, State Farm Group’s balance sheet strength remains at the strongest assessment level supported by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). In fact, the group’s capitalization increased in the first half of 2023, AM Best said, noting the group’s sizeable equity

Source: AM Best