NU Online News Service, June 7, 2:54 p.m.EDT

State Farm is in a strong reserve position, which may restrainthe company from seeking aggressive rate increases, but twoindustry observers were at odds on the overall impact that may haveon personal-lines rate increases in general.

In an analyst's note, Stifel Nicolaus says the Bloomington,Ill.-based insurer has $30.9 billion in stated statutory lossreserves, a figure calculated by the analyst based on data from theNational Association of Insurance Commissioners released throughSNL Financial.

The number exceeds Stifel Nicolaus' midpoint range of $27.7billion by $3.2 billion. The midpoint range is Stifel Nicolaus'estimate of how far reserves can deteriorate before turningadverse.

The firm says State Farm's reserve strength can “sustain strongreserve releases” and “could also dampen pricing, which is a clearnegative for the industry.”

This assumption is based on the fact that, according to figuresfrom SNL, State Farm has close to 20 percent of the personal linesmarket and is the largest personal auto and homeowners insurer inthe United States.

“Its pricing actions are a bell weather for the industry,” notesStifel Nicolaus.

However, Robert P. Hartwig president and economist with theInsurance Information Institute, says while State Farm is themarket leader in the U.S. personal-lines market, “its redundantreserve position can't necessarily be used to draw a conclusionabout pricing trends.”

In an e-mail, Hartwig says the personal-lines market remains“highly price competitive in its own right, especially inprivate-passenger auto.”

He adds, “Given a projected auto combined ratio of approximately100 to 101 in 2012, little changed from the prior several years,and rate increases in the 2.5 to 2.9 percent range so far in 2012(approximately the rate of inflation), the auto market is bestcharacterized as stable.

“On the homeowners side, the driving factor for virtually allinsurers is near-record catastrophe losses in 2011 and high lossesin several prior years,” Hartwig continues. “This pushed thehomeowners combined ratio up to roughly 120 last year.

“All insurers are seeking to price their catastrophe-riskexposures appropriately while also dealing with higher reinsurancecosts.”

A call to State Farm was not returned.