State Farm General Insurance downgraded by AM Best

AM Best has downgraded the financial strength rating of State Farm General Insurance Co. from stable to negative, moving from A (excellent) to B, while the insurer’s long-term issuer credit rating (ICR) fell from “a” (excellent) to “bb+” and now also carries a negative outlook, according to the ratings agency.

State Farm General’s balance sheet strength, marginal operating performance, neutral business profile and enterprise risk management were assessed as weak.

The ratings agency reported the carrier’s policyholder surplus has been deteriorating, which has directly resulted in declines in overall risk-adjusted capitalization. The influence of increasing claims severity of State Farm General’s umbrella and commercial multi-peril lines was a contributing factor to these declines.

The continued negative outlook on State Farm General’s long-term ICR is being driven by profitability and internal capital generation challenges, adverse reserve developments due to prior year claims and California’s difficult regulatory environment, AM Best reported.

Concerning the rating agency’s final point, State Farm General recently announced nonrenewals for some 72,000 California policies across commercial and personal property lines. The policies facing nonrenewal represent about 2% of the company’s book of business in the state.

According to the National Association of Insurance Commissioners’ 2023 market share report, State Farm Group is the largest homeowners (multi-peril) carrier in the U.S. and holds a nearly 18% market share. The group is also the largest overall P&C insurer in the U.S. across all lines, accounting for 9.76% of the market.

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