State Farm Says P/C Underwriting Gain Down

State Farm's net income increased by three 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.

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.

Total revenue, which includes premium revenue, earned investment income and realized capital gains (losses), was $61.6 billion for 2007 compared with the 2006 figure of $60.5 billion.