A.M. Best Looks at State Farm Florida’s Capital Management Efforts

October 22, 2004

A.M. Best Co. reported it acknowledges State Farm Florida Insurance Company’s (State Farm Florida) (Winterhaven Fla.) capital management efforts following hurricanes Charley, Frances, Ivan and Jeanne, which resulted in a significant decline in capital.

These capital management efforts included the contribution of $250 million from its parent company, State Farm Mutual Automobile Insurance Company (State Farm Mutual) (Bloomington, Ill.) through the issuance of a surplus note.

Further, State Farm Mutual is in the process of developing a new reinsurance agreement that will provide additional financial support for State Farm Florida in the case of any subsequent weather-related catastrophic events.

Although A.M. Best is encouraged by the demonstrated parental support following these events, the financial strength rating of A- (Excellent) of State Farm Florida remains under review with negative implications as its risk-adjusted capitalization is not supportive of its current rating.

Accordingly, A.M. Best anticipates the need for additional, significant capital support from State Farm Mutual over the intermediate term. The rating will remain under review pending completion of this additional capital initiative. In the absence of additional support and improved risk-adjusted capitalization, the rating will be downgraded.

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