Downgrade Of State Farm General’s Credit Rating

(CTN News) – The Financial Strength Rating (FSR) and Long-Term Issuer Credit Rating (Long-Term ICR) of State Farm General Insurance Company have been downgraded by AM Best.

The rating agency has lowered State Farm General’s FSR from A (excellent) to B (fair) and its Long-Term ICR from “a” (excellent) to “bb+” (fair).

A new outlook has also been issued by the rating agency for the insurer’s FSR, which has been revised from stable to negative. It is also a negative outlook for State Farm General’s Long-Term ICR, according to AM Best.

According to AM Best, the revised ratings indicate that States Farm General has a weak balance sheet, marginal operating performance, neutral business profile, and an appropriate enterprise risk management (ERM) program as a result of the revised ratings.

This downgrade has been attributed to “continued deterioration” in the insurer’s policyholder surplus as of December 31, which led to a consequent decline in overall risk-adjusted capitalization and “weakening balance sheet metrics.” as a result.

Among the factors contributing to this decline was a sharp increase in the severity of claims, which negatively affected State Farm General’s umbrella and multiperil lines of business, according to AM Best.

The continued negative outlook on Long-Term ICR reflects the uncertainty of the company’s ability to stabilize and strengthen its risk-adjusted capitalization given ongoing challenges regarding profitability and internal capital generation.

State Farm General (as well as industry peers) have been challenged by the challenging regulatory environment in California’s marketplace to increase premium rates in a timely manner due to trending adverse reserves from previous accident years.”

It was said by AM Best. It will take time for management’s corrective actions to generate positive results over the intermediate term, even if it takes corrective actions to stabilize its balance sheet strength.”

A decision driven by factors including inflation, the increasing frequency of natural disasters, and regulations recently led State Farm General to withdraw from 72,000 California insurance policies.

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