The rating downgrade of State Farm Florida by the A.M. Best Company on June 18 is an unfortunate but understandable consequence of the environmental challenges facing Florida property insurers. The state’s exposure to mega-catastrophe losses from hurricanes presents uniquely difficult challenges to Florida’s government and regulatory officials.
Five months ago, State Farm Florida announced its plan to withdraw from the property insurance market because of its deteriorating financial condition. Claim losses and expenses continue to outpace premium income. To date, State Farm Florida has not received any regulatory or rate relief.
State Farm Florida began operations in December 1998, and received initial capitalization of $607.5 million from its parent, State Farm Mutual Automobile Insurance Company. It received additional financial support following the hurricanes of 2004 and 2005 in the form of surplus notes totaling $750 million. State Farm Florida’s current net worth is less than the amount of these surplus notes. Additional financial support from the parent cannot be presumed under the present circumstances.
State Farm Florida continues to actively engage with Florida regulatory officials in seeking approval of its announced withdrawal.
It is important to note that State Farm Mutual Insurance Company remains strong and maintains its AA+ (superior) rating, which is A.M. Best’s highest financial strength. The Company’s other subsidiaries also remain strong.
More information is available in the news release from A.M. Best.