On an underwriting basis – only weighing claims and operational costs against premiums collected – State Farm Mutual Automobile Insurance reported a loss of $8.6 billion.
At the same time in 2021, State Farm Mutual Auto had generated a net loss of $137 million en route to a full-year loss of $722 million.
The nation’s largest auto insurer, State Farm is also by far the biggest loser among the Big Four, which includes Chevy Chase, Md. Geico; Progressive based in Mayfield, Ohio; and Allstate based in Northbrook.
In the three quarters of 2022, Allstate’s auto insurance business generated more than $2 billion in underwriting losses. Geico, the nation’s second-largest auto insurer, posted a nine-month pretax underwriting loss of $1.4 billion.
Progressive has been the major insurer best able to navigate high inflation and other negative trends that have rocked the auto insurance industry. It generated a pretax underwriting profit of $389 million on its auto insurance business.
State Farm has the financial wherewithal to absorb such massive losses. Its auto unit had $124 billion in surplus on hand as of Sept. 30, even after the net loss, according to the filing.
But the insurer appears to be on track for a year of potentially record losses. Its previous worst annual auto insurance loss was $7 billion in 2016. At $8.6 billion through Sept. 30, State Farm already tops that figure.
In an emailed statement, State Farm said it “continues to experience impressive growth. The company expects to release its 2022 financial results early next year. It’s important to remember that in a business as highly cyclical as ours, a snapshot in time is not enough to provide a complete picture of a company’s long-term performance.”
Under CEO Michael Tipsord, State Farm has taken advantage of the unprecedented disruption in the highly competitive auto insurance industry to grow at the expense of its main rivals. As a mutual insurer, technically owned by its policyholders, State Farm does not face the same shareholder pressure as Allstate and Progressive. Geico, a publicly traded unit of Berkshire Hathaway run by Warren Buffett, arguably answers more to the “Oracle of Omaha” than anyone.
Allstate is in the midst of unprecedented rate hikes for auto policyholders in a bid to restore profitability as soon as possible. Geico has also significantly increased its rates. State Farm’s rate increases were more measured and it continued to advertise its prices aggressively on television, while Allstate and Geico pulled their advertising because they care more about profitability than growth.
Auto premiums acquired from State Farm of $34.2 billion through Sept. 30 were up 10% from $31.2 billion in the same period a year earlier.
The destruction of Hurricane Ian in Florida in September surely exacerbated what was already a difficult year. Unlike most hurricanes, which damage homes and other buildings more than other property, Ian’s floods totaled many cars. State Farm has not commented on the extent of its auto losses due to Ian.
Its direct unpaid losses in Florida for nine months exceeded $2.9 billion. State Farm’s written premiums in the Sunshine State during that period were just $2.7 billion, according to the NAIC filing.
State Farm is also the largest home insurer in the United States, and that business has recovered from a tough 2021. State Farm Fire & Casualty, the company’s primary home insurance unit, generated $357 million in underwriting income over three quarters. In the same period last year, it had an underwriting loss of $1.8 billion, according to a filing obtained from the NAIC.
State Farm Fire & Casualty’s overall net income topped $1 billion in nine months. In 2021, the unit generated a net profit of $245 million thanks to a hot stock market that more than offset underwriting losses.
But State Farm Mutual Auto and State Farm Fire together generated $4 billion in net losses through September 30 of this year.