State Farm Net Worth Drops $10B; $500M Loss Reported

State Farm today reported its net worth dropped $10.4 billion--to end the year at $53.3 billion--and an after-tax loss of $542 million for 2008.

The Bloomington, Ill.-based mutual insurer said the primary reason for the decrease was the $9.2 billion decline in the value of the property-casualty company's stock portfolio.

The decline comes after five consecutive years of net worth increases, and despite the decline, the company's net worth is 68 percent higher than it was at the end of 2002, the company said.

The company reported an after-tax loss of $542 million in 2008, compared with net income of $5.46 billion in 2007. State Farm said "extraordinary levels of catastrophe losses" adversely affected its 2008 results.

"It is imperative in our business to achieve financial results that enable us to grow and maintain the necessary level of financial strength that ensures long-term sustainability. As a result, one should not attribute too much significance to short-term operating results without first considering the level of financial strength," said Michael Tipsord, vice chairman, treasurer and chief financial officer.

State Farm reported the p-c company's pretax operating loss at $2.1 billion in 2008, which includes the underwriting loss of $6.3 billion. This was partially offset by investment and other income of $4.2 billion. The result compares with a pretax operating profit of $5.1 billion in 2007. The State Farm group's net worth was also affected by the results of operations of non-p-c affiliates, which resulted in a loss for the year of $244 million.

Total revenue was $61.3 billion for 2008 compared with the 2007 figure of $61.6 billion.

State Farm said its auto business, which accounts for 63 percent of the p-c company's combined earned premium, was $30.3 billion, an increase of $100 million from 2007. Incurred claims and loss expenses were $25.6 billion, translating into an underwriting loss of $2.7 billion.

Homeowners earned premium was $16 billion in 2008, compared to $15.9 billion in 2007. Claims and loss expense stood at $15.1 billion, resulting in an underwriting loss of $3.9 billion.

The company's property-casualty business combined underwriting loss, which also includes health, affiliates and other underwriting entities, was $6.3 billion on earned premium of $48.1 billion. This translates into a pretax operating loss of $42.1 billion. The after-tax net loss for the p-c company was $673 million.

In an analyst's note, Meyer Shields with Stifel Nicolaus called State Farm's weak underwriting results good news for its competitors. He singled out Allstate, Progressive and Erie as beneficiaries. The results, he said, mean State Farm is not charging enough rate and will have to make increases to compensate for losses.