State Farm® Net Income Increases Slightly In 2007

Auto Rate Reductions Trigger Decrease In Underwriting Gain

Bloomington, Ill., Feb. 29, 2008 -- State Farm's net income increased by 3 percent, from $5.32 billion in 2006 to $5.46 billion in 2007. However, the property-casualty (P-C) underwriting gain was down 79 percent, from $3.0 billion in 2006 to $621 million in 2007.  Approximately half of the $2.4 billion decline in the underwriting gain resulted from a fourth straight year of auto rate decreases, which also reduced net income.

The primary reason net income increased slightly while the P-C underwriting gain decreased sharply is a significant year-to-year difference in auto policyholder dividends. Were it not for the declaration of $1.3 billion more in dividends in 2006 than in 2007, net income in 2007 would be 11 percent lower than that of 2006. 

This was the fifth consecutive year of profit for State Farm, following two years of significant losses. The average annual amount of net income for State Farm through the first eight years of this decade is $1.8 billion. State Farm provides insurance and financial services products through nearly 80 million policies and accounts.

"Given the nature of our business, we assess our financial results over a longer period of time than one year, or even five years," said Michael Tipsord, Vice Chairman, Treasurer and Chief Financial Officer. "Because there can be significant volatility in the insurance business, we must avoid the temptation of attributing too much significance to short-term financial results – long-term sustainability is the key. More importantly, 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."

Net worth for the State Farm group increased by $5.6 billion to $63.7 billion. The primary reasons for this improvement were the insurance operating results and the $2.5 billion realized and unrealized gain (net of deferred tax) on the P-C companies' unaffiliated stock portfolios. The State Farm group's net worth was also impacted by pension contributions of $1.9 billion. The P-C companies reported a pretax operating profit of $5.1 billion in 2007, including investment and other income of $4.6 billion and the underwriting gain of $621 million, less auto policyholder dividends of $78 million. This compares with a pretax operating profit of $6.0 billion in 2006, which included investment and other income of $4.4 billion, auto policyholder dividends of $1.4 billion and the underwriting gain of $3.0 billion. The State Farm group's net worth also is affected by the results of operations of non-P-C affiliates, which resulted in a gain for the year of $295 million, primarily driven by results for State Farm Life Insurance Company.

El ingreso total, que incluye el ingreso de primas, el ingreso percibido por inversiones y las ganancias (pérdidas) de capital realizadas, fue de $61.6 mil millones para 2007 comparado con la cifra de 2006 que fue de $60.5 mil millones.

State Farm's insurance operations consist of eight P-C insurers and three 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 business as well as the Health and reinsurance lines provided by State Farm Mutual. 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, CMP and other P-C lines of business. State Farm Life Insurance Company, State Farm International Life Insurance Company Ltd. and State Farm Life and Accident Assurance Company write the Life and Annuity business. The State Farm group also provides banking products and mutual funds through affiliated companies.

Auto – State Farm's auto insurance business represents 62 percent of the P-C companies' combined net written premium. Earned premiums were $30.2 billion, a decrease of 1.8 percent from 2006. The incurred claims and loss expenses were $24.4 billion. The underwriting loss, fueled in part by $1.2 billion in realized rate reductions, was $659 million.

Las cifras comparables del 2006 fueron: primas ganadas, $30.7 mil millones; reclamos incurridos y gastos por pérdidas, $23.1 mil millones; ganancia por suscripción, $945 millones.

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 32 percent of the P-C companies' combined net written premium. Earned premiums were $15.9 billion, an increase of 2.7 percent from 2006. The incurred claims and loss expenses were $10.9 billion. The result was an underwriting gain of $462 million.
Las cifras comparables de 2006 fueron: primas ganadas, $15.5 mil millones; reclamos y gastos de pérdidas incurridos, $9.8 mil millones; ganancia de suscripción, $1.2 mil millones.

Health – The individual health insurance operations for State Farm Mutual reported an underwriting loss of $35 million. Net written premiums were $752 million. Comparable figures for 2006 were: underwriting loss, $32 million; net written premiums, $753 million.

Property-Casualty (P-C) – The combined underwriting gain was $621 million on earned premiums of $48.1 billion. This includes results from Auto, Homeowners, Health and other lines, as well as the reinsurance line provided by State Farm Mutual. These results, combined with investment and other income of $4.6 billion, less auto policyholder dividends of $78 million, resulted in a pretax operating profit of $5.1 billion. After-tax net income for the P-C companies was $5.0 billion.

Comparable 2006 figures were: earned premiums, $48.0 billion; underwriting gain, $3.0 billion; investment and other income, $4.4 billion; auto policyholder dividends, $1.4 billion; pretax operating profit, $6.0 billion; net income, $4.8 billion.

Life – State Farm's Life affiliates – State Farm Life Insurance Company, State Farm International Life Insurance Company Ltd. and State Farm Life and Accident Assurance Company – added $34 billion of total life insurance in force during the year, bringing the companies' total insurance in force to $685 billion on Dec. 31, 2007.

The Life affiliates reported premium income of $4.0 billion in 2007, compared with $3.9 billion in 2006.  After-tax net income was $410 million in 2007. Net income was $408 million in 2006.  Results for 2007 included $608 million in dividends to policyholders, compared with dividends of $585 million in 2006.

Bank – State Farm Bank®, F.S.B. increased total assets to $15.9 billion as of year-end 2007, compared with $13.5 billion at the end of 2006. The Bank reported an after-tax net loss of $18 million in 2007, compared with a 2006 gain of $24 million. The 2007 results were negatively impacted by operating expenses and an increased loan loss provision due to the impact of deteriorating market conditions.

Mutual Funds – Total assets under management for the retail Mutual Fund operations at the end of 2007 were $4.6 billion, compared with $3.9 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 $7 million in 2007 compared with a loss of $14 million in 2006.