Moody's Looks To Downgrade State Farm
NU Online News Service, March 5, 1:00 p.m. EST?New York City-based rating agency Moody's Investors Service said it has placed the rating of State Farm Mutual Automobile Insurance Company [at "Aaa"] under review for possible downgrade.
The announcement came after the Bloomington, Ill.-based company reported a $2.8 billion loss for 2002.
Moody's said it has also placed the "Aaa" insurance financial strength ratings of both of State Farm's life insurance subsidiaries--State Farm Life Insurance Company and State Farm Life and Accident Assurance Company--under review for possible downgrade.
The rating firm said it has maintained a negative outlook for all these ratings since October 2002.
Moody's said the review would focus on State Farm's future operating earnings and cash flow prospects, its ongoing investment strategy, and capital adequacy in light of the significant decline in surplus.
State Farm's surplus declined from $38.1 billion as of December 2001, to $31.8 billion, as of December 2002, Moody's said.
Moody's went on to say that it believes the carrier "has taken steps to stem its underwriting losses through rate increases and restrictions on new business in certain states."
However, the carrier has not seen the impact of those actions yet on its earnings, the rating firm said. The volatility of equity holdings is also playing a role in the company's performance.
While State Farm remains dominant in its personal lines business, its underwriting has not responded to changes in the marketplace and remains weak compared to other companies, Moody's said.
Moody's added that its review of State Farm Life Insurance Company's ratings reflects the strong linkage between the life and property-casualty group from a management, distribution and regulatory perspective.
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