Record hurricane losses, surge in claims cut State Farm profits

BLOOMINGTON, Ill. - State Farm Insurance Co., the nation's largest insurer, said Friday that profits fell 39 percent last year as claims soared during a record hurricane season that battered the Gulf Coast and other Southern states.\nThe Bloomington, Ill.-based insurer posted earnings of $3.2 billion, down from $5.3 billion the year before, despite a flurry of major hurricanes including Katrina, the costliest disaster in U.S. history.\n"All things considered, given the hurricane activity that occurred this year, they had a relatively good year," said Rich Attanasio, an analyst with A.M. Best.\nState Farm reported record hurricane losses of $6.3 billion to cover claims and expenses in the aftermath of Katrina, Rita and other tropical storms. The company said losses from hurricanes and other disasters surged 80 percent over 2004, another year of record hurricane claims.\nBut the company said losses from non-disaster related \nproperty and auto claims rose less than 1 percent, leaving overall losses just 11 percent higher than 2004. About $4 billion in investment income also offset hurricane claims that pushed total underwriting losses to nearly $780 million, the company said.\n"We are certainly pleased overall," State Farm spokesman Dick Luedke said. "We can deal with the short-term losses. Over the long term, things usually even out."\n2005 marked the third straight year of profits for State Farm after two years of losses that reached a record $5 billion in 2001.\nState Farm's reported revenue rose less than 1 percent to $59.2 billion last year, up from $58.8 billion in 2004. The company's net worth increased more than 8 percent, from $46.3 billion to $50.2 billion.\n"State Farm's results are proof positive that they're running the company quite well despite catastrophe losses that were beyond anyone's expectations ... But they have to be prepared for more of the same if not worse in the future," said Bob Hartweg, spokesman for the Insurance Information Institute, a national educational group for the industry.\nHartweg said some authorities predict hurricanes will be more frequent and intense for several decades, so insurers will have to adjust rates in storm-prone regions to align premiums with risks. That could bring increases of 50 to 100 percent in some areas, he said.\nLuedke declined to comment on State Farm's long-range rate plans. Rates vary by region, but overall he said State Farm's property insurance rates decreased 2.4 percent in 2005, while auto premiums were down 3.7 percent.\nState Farm reported a 2.7 percent increase in property policies last year, while auto policies grew by 1.5 percent, Luedke said. A $585 million underwriting gain on auto policies helped weather hurricane losses.\n"They have a balanced book of business' they don't just have homeowners. Their sizable auto business helps them, as well as the coast-to-coast area they serve," Attanasio said.\nThe company lowered its costs per claim for the sixth straight year in 2005, with employment dipping about 2 percent to 68,400, down from 70,000 in 2004, Luedke said.\nState Farm is a privately held mutual company, owned by its policyholders. Its holdings include auto, property, health and life insurance companies, as well as banking and mutual fund operations.