State Farm on Thursday reported its second-straight year of operating losses for its property-casualty insurance businesses, as the company pledged to get leaner and make significant internal changes.
In its annual financial statement, the Bloomington-based insurer reported a property-casualty pretax operating loss of $1.7 billion in 2017. That’s the largest such loss in recent years. State Farm said it was driven by a $6.5 billion underwriting loss caused by “significant catastrophe losses,” notably historic wildfires in California and hurricanes Harvey and Irma in the south.
Those losses were offset in part by increasing value of State Farm’s stock portfolio and a $2.2 billion increase in earned premium. That contributed to net income of $2.2 billion in 2017, the company said. (That includes premium revenue, earned investment income, and realized capital gains/losses.) State Farm saw its net worth jump to $97 billion, buoyed by its stock holdings and the impact of the federal tax overhaul.
Internal Changes
State Farm is Bloomington-Normal’s largest employer, with company watchers looking for clues in its every move about its future here. The company says it has no plans of exiting Bloomington-Normal and will maintain its 15,000-person workforce here, even as some people move in and out of the area. Unit 5’s school board president, who works for State Farm, said Wednesday he’s transferring to Phoenix.
The company disclosed last fall that it was realigning its IT functions, including some voluntary buyouts affecting an unknown number of employees. The IT realignment was expected to affect operations in Bloomington and hub locations in Atlanta, Dallas, and Phoenix. It’s unclear if involuntary separations will occur.
In January, State Farm announced plans to close its offices in Tacoma, Washington, by the end of 2018. Around 600 of its 1,400 jobs in Tacoma will be moved to another location in Washington state. Most of the remaining work will move to State Farm offices in Bloomington and Phoenix. Bloomington's workforce is expected to grow by around 250 positions as a result, the company said.
Also in January, State Farm announced it was vacating its downtown Bloomington location, a significant symbol of the company’s history and an iconic part of the local skyline. A few weeks later, the company disclosed that it was giving $1,000 one-time bonuses to some of its employees.
“Our employees, agents and agent team members are making significant changes and process improvements across our company to better serve our customers,” said Jon Farney, State Farm’s senior vice president, treasurer and chief financial officer. “We will continue becoming a leaner and stronger company in our pursuit of helping customers recover from the unexpected and being there to help life go right.”
State Farm will operate "more efficiently out of fewer locations" in the future, added company spokesperson Roszell Gadson. State Farm had 67,000 employees at the end of 2017.
"As those changes occur, we'll continue to migrate employees to Bloomington and the State Farm hub locations in Atlanta, Dallas, and Phoenix," Gadson said.
Major Catastrophes
The $1.7 billion operating loss is worse than the $1.2 billion lost in 2016. And that came after four straight years of operating profits, from 2012-2015.
The $6.5 billion in combined underwriting losses for 2017 in State Farm’s property-casualty businesses is the largest such loss in recent years. Underwriting losses were $5.5 billion in 2016.
Catastrophe claims were higher than expected in 2017 due largely to separate wildfires in northern and southern California, both among the 25 costliest events in State Farm history, said Gadson. And there were three significant auto events—hurricanes Irma and Harvey and a major spring hailstorm in Colorado and New Mexico—that were also among the Top 25 costliest events in company history, Gadson said.
"We're proud of our response as a State Farm team. But when looking at our results, it's important to consider that in a business as highly cyclical as ours, one year's results do not provide a complete picture of a company's long-term performance," Gadson said.
Auto insurance makes up two-thirds of State Farm’s property-casualty business. Last year’s underwriting loss of $2.8 billion was down from $7 billion in 2016. The other third of the business (including homeowners’ insurance) saw a $2.8 billion underwriting loss—its first loss after four-straight years of gains.
Even with these operating losses, State Farm said it remains financially strong.
“In 2017, State Farm helped our customers recover from unexpected losses, including several catastrophic events,” Farney said. “While we had operating losses for the year, we are built to handle these events and we continue to be ‘good neighbors’ and have the financial resources to be there in our customers’ time of need.”
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