State Farm said that more than $6 billion in hurricane losses contributed to a 39 percent drop in net income for 2005, the first time it has publicly reported its losses from this past season's hurricanes.
The Bloomington, Ill.-based insurer said today that hurricane losses and loss adjusted expense totaling $6.3 billion, after reinsurance, contributed to the reduction in the company's after-tax net income. State Farm reported net income of $3.24 billion, down from $5.31 billion reported in 2004.
The company said its property-casualty companies reported a pretax operating profit of $3.5 billion in 2005, compared with $5.5 billion for 2004. Investment and other income was $4.3 billion, compared with $3.57 billion in 2004. The p-c business reported an underwriting loss of $779 million, compared with an underwriting gain of $1.96 billion for 2004.
Total revenue was $59.2 billion, compared with 2004′s $58.8 billion.
In its individual health insurance company, State Farm said it reported an underwriting loss of $16 million on net written premiums of $761 million, compared with an underwriting gain of $8 million on net written premium of $766 million in 2004.
The company's life business reported after-tax net income of $333 million, compared with $247 million in 2004. This was on total life insurance in force of $609 billion.
Its bank business reported net income of $22 million, compared with $9 million in 2004, on total assets of $12.2 billion, compared with $10.4 billion in 2004.
State Farm's mutual fund business held total assets under management of $2.8 billion, an $800 million increase over 2004. State Farm VP Management Corp. and State Farm Investment Management Corp. reported a combined after-tax net loss of $18 million, an improvement over 2004′s $25 million loss.
James B. Auden, senior director for insurance for Fitch Ratings, noted that this was the first time State Farm has made a public report of losses.
He added that it appears, from the report, that the company has been able to absorb the losses. The numbers appear to be within the range of expectations, he said.
Unlike other insurers who have suffered tremendous losses from Hurricanes Katrina, Rita and Wilma this year, it does not appear that the company will have to replenish capital. Mr. Auden noted that Fitch has had the company on rating watch since the hurricanes, and would be reviewing the rating shortly.
For the industry as a whole, Mr. Auden said State Farm's losses would probably translate into current personal lines pricing remaining the same for the industry with increased underwriting discipline over a longer period of time, but there would be no marketwide increases.
But, areas struck by the hurricanes would probably see increases, and there could be some capacity issues, he said.
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