NU Online News Service, Aug. 3, 4:14 p.m. EDT
The financial strength rating of State Farm Florida has been downgraded by A.M. Best Co. several days before the insurer begins non-renewing policies under a previous agreement with the state to keep it in Florida.
State Farm Florida was downgraded to "B-minus" from "B," with a negative outlook, due to the company's "continued significant deterioration in earnings and risk-adjusted capitalization in recent years and the expectation that some deterioration may continue over the near term," said the rating agency.
The downgrade "shines a spotlight on the challenges facing the Florida property insurance market," said State Farm spokesman Michael Grimes.
"There is still work to do to make Florida a viable insurance market," said Mr. Grimes, who added that the company would continue to work with state officials in an attempt to improve the market.
State Farm Florida had already decided Florida was not viable and chose to leave because its net worth was dwindling fast. But after negotiations with regulators, the company stayed after getting a 14.8 percent rate increase for homeowners and condominium policies and permission to not renew up to 125,000 of its 810,416 residential policies.
The company can start non-renewing Aug. 8.
A.M. Best said State Farm Florida's problems are driven by a drop in net premiums written, wind mitigation discounts, reinsurance costs and inadequate rate. Its probable maximum loss from a 100-year hurricane is well in excess of its surplus, A.M. Best said.
According to Highline Data, which is owned by Summit Business Media, which also owns National Underwriter, State Farm Florida reported a net loss of more than $180 million last year.
In the 2010 first quarter, the company reported a net loss of $36.7 million
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