State Farm(R) Announces $1.25 Billion Mutual Auto Policyholder Dividend
Light Hurricane Season Reverses Companywide Net Income Decline
BLOOMINGTON, Ill., March 1 -- State Farm Mutual Automobile Insurance Company, the largest insurer of autos in the nation, announced today it will pay $1.25 billion in dividends to its mutual auto insurance policyholders in 46 states, the District of Columbia and the Canadian province of New Brunswick.
The record-breaking payment of dividends, approved by the State Farm Mutual board of directors, eclipses the previous high of just over $1 billion in June, 2000.
The better-than-expected auto results combined with a $4.1 billion reduction in catastrophe losses in 2006 resulted in an increase in State Farm's companywide net income -- an increase that was almost identical to the previous year's decline. In other words, net income in 2006 was almost identical to that of 2004. The company is reporting an after-tax net income from all sources of $5.32 billion, compared with $5.31 billion in net income reported in 2004 (two years ago). State Farm's net income in the hurricane- laden year of 2005 was $3.24 billion. The three consecutive years of profit follow a three-year period (2001-2003) during which State Farm lost nearly $5 billion.
"2006 was a profitable year, but our evaluation of financial success is defined by our accomplishments over a longer period of time than one year," said Michael Tipsord, Vice Chairman, Treasurer and Chief Financial Officer. "Given the potential for volatility in the insurance business, we must avoid the temptation of attributing too much significance to short-term financial results. Our customers expect us to maintain the financial strength necessary to deliver on the promises we make to them over a long period of time."
The company is reporting a property-casualty (P-C) underwriting gain in 2006 of $3.0 billion. It is only the third time in the last ten years a P-C underwriting gain has been achieved. The other two years in which that happened are 2004 and 1997.
The combined net worth of the State Farm companies increased by $8.0 billion to $58.1 billion. The primary reasons for this improvement were the insurance operating results and the $3.6 billion realized and unrealized gain (net of deferred tax) on P-C companies' unaffiliated stock portfolios. State Farm's net worth was also impacted by a pension contribution of $900 million. The P-C companies reported a pretax operating profit of $6.0 billion in 2006, including investment and other income of $3.0 billion and the underwriting gain of $3.0 billion. This compares with a pretax operating profit of $3.5 billion in 2005, which included investment and other income of $4.3 billion and an underwriting loss of $779 million. The combined net worth of the State Farm companies is also affected by the results of operations of non-P-C affiliates, which resulted in a gain for the year of $586 million, primarily driven by results for State Farm Life Insurance Company.
Total revenue, which includes premium revenue, earned investment income and realized capital gains (losses), was $60.5 billion for 2006 compared with the 2005 figure of $59.2 billion.
State Farm's insurance operations consist of eight P-C insurers and two life insurers. The P-C insurers are primarily engaged in automobile, health, homeowners and commercial multiple peril (CMP) lines of business. The net results of State Farm Mutual Automobile Insurance Company, State Farm Indemnity Company, State Farm Guaranty Company and State Farm County Mutual Insurance Company of Texas include the Auto, Health and Reinsurance lines of business. The net results of State Farm Fire and Casualty Company, State Farm Lloyds, State Farm General Insurance Company and State Farm Florida Insurance Company reflect the Homeowners, Commercial Multiple Peril (CMP) and other P-C lines of business. State Farm Life Insurance Company and State Farm Life and Accident Assurance Company write the Life and Annuity business. State Farm also provides banking products and mutual funds through affiliated companies.
Auto - State Farm's auto insurance business represents 63 percent of the P-C companies' combined net written premium. Earned premiums were $30.7 billion, an increase of 0.2 percent from 2005. The incurred claims and loss expenses were $23.1 billion. The underwriting gain was $945 million.
Comparable 2005 figures were: earned premium, $30.6 billion; incurred claims and loss expenses, $23.8 billion; underwriting gain, $585 million.
With this latest dividend, State Farm Mutual will have returned $3.8 billion to auto policyholders in four dividends since 1997. In addition, State Farm Mutual reduced its overall auto rate level by 10.2 percent between the beginning of 2004 and the end of 2006. This represents $2.9 billion in implemented auto rate reductions for the Company's customers.
State Farm does not plan on paying dividends when setting prices, but can pay them to customers at the discretion of its board of directors when financial results are better than anticipated and business conditions permit.
"As a mutual company, State Farm's primary obligation is to its policyholders," said Tipsord. "At State Farm, we work hard to be good stewards for our policyholders and to provide them the very best combination of product, price, service and financial stability. One way we provide value to State Farm Mutual auto policyholders is to pay dividends to them when financial results and business conditions permit. Our customers' safe driving habits have contributed to our positive underwriting results, and we are delighted to pass along the benefits from those results to them."
The size of each policyholder's dividend will vary significantly by jurisdiction, but the average per insured vehicle will be about $35. Dividend payments will begin in early April and will continue throughout the year. Policyholders can expect to receive their dividend near the time of their policy renewal. Most customers will receive their dividend by check. The dividend for policyholders receiving less than $15 will be credited to their State Farm renewal premium.
State Farm's New Jersey policyholders insured by State Farm Indemnity received $130 million in dividends in December 2006.
Homeowners, CMP, Other - The net written premium for State Farm Fire and Casualty Company, State Farm Lloyds, State Farm General Insurance Company and State Farm Florida Insurance Company represents 33 percent of the P-C companies' combined net written premium. Earned premiums were $15.5 billion, an increase of 3.6 percent from 2005. The incurred claims and loss expenses were $9.8 billion. The result was an underwriting gain of $1.2 billion.
Comparable 2005 figures were: earned premiums, $15.0 billion; incurred claims and loss expenses, $9.6 billion (after recovery of $4.1 billion from internal and external reinsurers under catastrophe reinsurance agreements); underwriting gain, $1.4 billion.
Health - The individual health insurance operations for State Farm Mutual reported an underwriting loss of $32 million. Net written premiums were $753 million. Comparable figures for 2005 were: underwriting loss, $16 million; net written premiums, $761 million.
Property-Casualty (P-C) - The combined underwriting gain was $3.0 billion on earned premiums of $48.0 billion. This includes results from Auto, Homeowners, Health and other lines, as well as the Reinsurance line provided by State Farm Mutual. The Reinsurance line of business reported an underwriting gain of $755 million in 2006. The total P-C underwriting gain, combined with net investment income earned and other income of $3.0 billion, resulted in a pretax operating profit of $6.0 billion. After-tax net income for the P-C companies was $4.8 billion.
Comparable 2005 figures were: earned premiums, $47.5 billion; underwriting loss, $779 million; reinsurance underwriting loss, $2.8 billion; net investment income earned and other income, $4.3 billion; pretax operating profit, $3.5 billion; net income, $3.0 billion.
Life - State Farm's Life affiliates -- State Farm Life Insurance Company and State Farm Life and Accident Assurance Company -- added $42 billion of total life insurance in force during the year, bringing the companies' total insurance in force to $651 billion on Dec. 31, 2006.
The Life affiliates reported premium income of $3.9 billion in 2006, compared with $3.8 billion in 2005. The gain from operations after dividends and before taxes was $618 million compared with 2005's reported gain of $511 million. The Life affiliates reported an after-tax net income of $408 million in 2006. This compares with a net income of $333 million in 2005.
Bank - State Farm Bank(R), F.S.B. reported an after-tax net income of $24 million in 2006, compared with $22 million in 2005. Total assets for the Bank rose to $13.5 billion in 2006 compared with assets of $12.2 billion at the end of 2005.
Mutual Funds - Total assets under management for the retail Mutual Fund operations at the end of 2006 were $3.9 billion, compared with $2.8 billion at the beginning of the year. State Farm VP Management Corp. and State Farm Investment Management Corp. reported a combined after-tax net loss of $14 million in 2006 compared with a loss of $18 million in 2005.
State Farm Bank, Bloomington, Illinois, is a Member FDIC and an Equal Housing Lender. Insurance and securities products offered by affiliated companies of State Farm Bank are not FDIC insured, are not guaranteed by State Farm Bank and are subject to investment risk, including possible loss of principal invested.
Securities are available through registered representatives of State Farm VP Management Corp. State Farm VP Management Corp. is a separate entity from those State Farm entities that provide banking products and auto, life, fire and health insurance products.
2007 State Farm Mutual Policyholder Dividend*
Percent of prior term
Semi-Annual Premium Total Dividend Amount
Alabama 8.3% $21.6 million
Alaska 5.3% $2.3 million
Arizona 20.3% $50.8 million
Arkansas 10.2% $15.2 million
California 15.0% $195.2 million
Colorado 7.0% $19.1 million
Connecticut 10.7% $3.3 million
Dist. Columbia 3.0% $0.6 million
Florida 2.0% $25.2 million
Georgia 11.2% $61.8 million
Hawaii 25.0% $13.0 million
Idaho 16.5% $7.7 million
Illinois 7.5% $59.8 million
Indiana 14.4% $41.9 million
Iowa 21.8% $25.4 million
Kansas 15.1% $19.8 million
Kentucky 10.4% $19.6 million
Maine 15.7% $5.6 million
Maryland 4.0% $12.7 million
Massachusetts 25.0% $2.2 million
Michigan 3.4% $18.8 million
Minnesota 25.0% $72.0 million
Missouri 7.3% $21.8 million
Montana 23.7% $11.9 million
Nebraska 16.1% $15.8 million
Nevada 13.1% $13.7 million
New Hampshire 10.9% $4.8 million
New Mexico 13.7% $13.0 million
New York 17.6% $79.7 million
North Carolina 14.5% $38.0 million
North Dakota 22.8% $5.2 million
Ohio 12.6% $57.9 million
Oklahoma 12.5% $21.4 million
Oregon 15.1% $25.8 million
Pennsylvania 4.4% $27.1 million
Rhode Island 3.7% $0.1 million
South Carolina 17.9% $45.3 million
South Dakota 14.9% $4.7 million
Tennessee 4.1% $12.6 million
Texas** 7.9% $91.0 million
Utah 10.9% $10.0 million
Vermont 13.4% $1.8 million
Virginia 5.2% $15.8 million
Washington 4.0% $9.9 million
West Virginia 2.0% $2.8 million
Wisconsin 12.0% $16.6 million
Wyoming 20.5% $6.4 million
New Brunswick 25.0% $3.1 million
* The following jurisdictions will not receive a dividend: Delaware,
Louisiana, Mississippi, New Jersey (New Jersey policyholders insured by
State Farm Indemnity received $130 million in dividends in
December 2006), Alberta and Ontario. Residual market policies are also
excluded.
** Texas dividends are subject to approval by the state Department of
Insurance.