Policies up, record new policy volume
Almost a year on from its decision to withdraw from the California homeowners’ market, State Farm reported severe losses in its financials for 2023.
While the giant insurer’s property and casualty insurance companies saw an increase in policy numbers, State Farm found itself facing with underwriting losses in the segment due to high claims severity and significant catastrophe events affecting both the auto and homeowners’ insurance sectors.
The P-C segment reported an underwriting loss of $14.1 billion on earned premium of $87.6 billion for 2023, compared to a $13.2 billion underwriting loss on $74.3 billion in earned premium for 2022. This change, State Farm explained, reflects an improvement in auto lines underwriting results, counterbalanced by a surge in homeowners’ catastrophe claims.
In the auto insurance sector, State Farm reported an underwriting loss of $9.7 billion, with homeowners, commercial multiple peril (CMP), and other lines experiencing a $4.7 billion underwriting loss. The health insurance sector reported an underwriting loss of $106 million, while the life insurance sector saw net income of $1.2 billion in 2023.
While it maintained that its decision to halt new policies in the state was “necessary” to improve the company’s financial strength, State Farm’s exit from the California homeowners’ segment invited intense scrutiny. A consumer advocacy group has accused it and fellow insurer Allstate – which also exited the market – of engaging in extortion tactics.
The exits also led to a call to investigate if it was a coordinated move, aimed at further driving up costs amid a challenging economic climate.
State Farm has opted to continue its business across other states – for a steeper price. The Illinois-based conglomerate is looking at a 12.3% increase for both new businesses and renewals beginning March and May, respectively. This is in addition to a hefty 20% adjustment first announced in January for California homeowners.
Results across other lines of businesses
Despite the underwriting losses, the insurer did manage to see better results in other segments, with State Farm Mutual Automobile Insurance Company reporting a substantial $3.5 billion growth in net worth.
The segment’s net worth closed the year at $134.8 billion, up from $131.2 billion at the end of 2022. This increase was partly due to the growth in the value of the P-C companies’ unaffiliated stock portfolio, influenced by the rising US equities market, despite the P-C group’s pre-tax operating loss.
Additionally, the State Farm life insurance entities distributed over $725 million in dividends to policyholders and achieved $118 billion in new policy volume, escalating the total individual life insurance in force to $1.1 trillion.
On the investment side, State Farm’s operation ended 2023 with $13.8 billion in assets under management, reporting a combined net loss of $41 million.
Overall, State Farm faced a pre-tax operating loss of $8.5 billion for 2023, similar to the $8.3 billion loss in 2022, with total revenue reaching $104.2 billion, up from $89.3 billion in 2022.
Senior vice president, treasurer, and chief financial officer Mark Schwamberger addressed the company’s financial performance, noting improvements in auto lines profitability in 2023, despite not meeting the company’s expectations.
“Catastrophe losses were widespread in 2023, and our claims and operations team members, along with the State Farm independent contractor agents, responded throughout the year to help customers,” Schwamberger said. “State Farm Mutual Automobile Insurance Company remains financially strong, and it is that strength that allows us to handle uncertainty and serve more customers in more ways over the long term.”
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