Despite the double downgrade from S&P, State Farm General still meets the rating requirement for mortgage lenders at this time. (Credit: Diego M. Radzinschi/ALM)

The firm announced that it has downgraded State Farm General Insurance from an A+ to an A- rating. It cited the company’s weak operating performance and high exposure to natural catastrophe risk in California’s homeowners insurance market.

At the same, S&P removed it’s “CreditWatch—Negative” label from the rating, changing it to a “stable” outlook for State Farm’s California business.

State Farm said they weren’t surprised by the downgrade, which was part of a previously announced review by S&P.

‘The outcome was anticipated, and our approach is unchanged,” the company said in a statement. “We remain deeply concerned about the financial position of State Farm General, as it is difficult to match price to risk in California. To ensure the long-term sustainability of State Farm General, we are being diligent in our efforts to turn around the financial stability of the company.”

This is the second downgrade in a matter of months for State Farm General. In May, S&P lowered the company from an AA to an A+ rating. In 2024, another large credit rating agency, A.M. Best, downgraded the subsidiary from an A rating to a B rating.

Credit ratings are important in the insurance industry for a number of reasons. They’re an indicator of the insurer’s financial health and claims-paying ability and can determine the quality of investors the company is able to attract.

Fannie Mae and Freddie Mac also have specific requirements for mortgage lenders, including minimum credit rating thresholds for insurers used by borrowers. Despite the double downgrade from S&P, State Farm General still meets the rating requirement for mortgage lenders at this time.

State Farm was hit hard by the LA wildfires in January. An S&P analysis in May found State Farm General recorded direct incurred losses of almost $7.39 billion in the first quarter, higher than its losses in the previous 12 quarters combined.

In a statement, State Farm said it was taking steps to improve the financial health of State Farm General, citing the recent emergency interim rate increase approved by California as well as a $400 million investment from State Farm Mutual Automobile in June.

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