OLDWICK, N.J. - (Business Wire) A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to “bb” from “bbb-” of State Farm Florida Insurance Company (State Farm Florida) (headquartered in Winter Haven, FL). The outlook has been revised to negative from stable.

 

The rating downgrades and negative outlook are based on State Farm Florida’s recent significant deterioration in earnings and risk-adjusted capitalization and the expectation that this deterioration will continue over the near to intermediate term. The deterioration was driven by a sharp decline in net premiums written due to non renewals, wind mitigation discounts, increased reinsurance costs, rate decreases and the suspension of writing most new homeowners and commercial business. As State Farm Florida filed a withdrawal plan on January 27, 2009 from its Florida property insurance product lines, (conditionally approved by the Florida Office of Insurance Regulation), A.M. Best expects further deterioration in State Farm Florida’s earnings and risk-adjusted capitalization going forward. The withdrawal plan includes insurance coverage for homeowners, renters, condominium unit owners, personal liability, boats, personal articles and business property and liability policies.

The ratings and outlook reflect State Farm Florida’s fair capitalization and both the explicit and implicit support of its parent, State Farm Mutual Automobile Insurance Company (State Farm Mutual) (Bloomington, IL). Due to its geographic business concentration, State Farm Florida’s gross probable maximum loss (PML) from a 100-year hurricane is in excess of its surplus. However, due to the company’s comprehensive reinsurance program, which includes reinsurance from State Farm Mutual, the Florida Hurricane Catastrophe Fund and external reinsurers, the net PML is significant but manageable. Although the parent has continued to provide significant support as noted, A.M. Best believes further support may be required in the case of a significant catastrophic event. Based on State Farm Mutual’s history of supporting the majority of its separately capitalized, stand-alone subsidiaries, A.M. Best anticipates that State Farm Florida’s claims paying ability will be maintained in both the near and intermediate terms.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.