March 1, 2017—State Farm's annual profit fell 94 percent on car insurance claims costs, Bloomberg reports.
Net income dropped to $400 million from $6.2 billion in 2015, when results included one-time gains in the stock portfolio tied to pharmaceutical deals, the company said Tuesday in a statement. The underwriting loss from auto insurance widened to $7 billion from $4.4 billion.
State Farm’s net worth, a measure of assets minus liabilities, climbed to $87.6 billion on Dec. 31, 2016 from $82.7 billion a year earlier. The boost includes a $4.2 billion increase in the property-casualty units’ stock portfolio.
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 favorable tailwind for the 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.”
The results are the first for a full year under CEO Michael Tipsord, who was promoted in 2015 to replace Edward Rust. His compensation was $8.16 million for 2016, Dave Phillips, a spokesman for the company, said in an email.
