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Bloomberg
State Farm Mutual Automobile Insurance Co., the largest U.S. property-casualty insurer, said annual profit fell 94 percent on car insurance claims costs.
Net income dropped to $400mn from $6.2bn in 2015, when results included one-time gains in the stock portfolio tied to pharmaceutical deals, the Bloomington, Illinois-based firm said. The underwriting loss from auto insurance widened to $7bn from $4.4bn.
US insurers have been pressured by rising costs on auto policies as smartphones distract drivers and repair costs climb. Travelers Cos. said it had begun to increase auto premiums because of higher expenses, following Allstate Corp. and Berkshire Hathaway’s Geico.
State Farm’s “highly unprofitable auto insurance results should provide further room for the industry to raise auto insurance rates. We would view this as a favourable tailwind for other major auto insurers†such as Geico, Allstate, and Progressive Corp.,†Jay Gelb, an analyst at Barclays Plc, said in a note to investors. “Improved pricing should eventually lead to better auto insurance underwriting margins, which have been negatively affected by increased claims cost inflation.†Allstate jumped 1% to $82.16 at in New York, biggest advance in 21-company S&P 500 Insurance Index. Progressive climbed 0.7%, while Berkshire rose 0.5%.
State Farm’s net worth, a measure of assets minus liabilities, climbed to $87.6bn on December 31 from $82.7bn a year earlier. The boost includes a $4.2bn increase in property-casualty units’ stock portfolio. State Farm is among largest holders in firms including Walt Disney Co., Johnson & Johnson and International Business Machines Corp., and counts on investments to help cushion underwriting losses.