BLOOMINGTON - State Farm Insurance Cos. reported a 2005 profit of $3.2 billion, down 39 percent from a year earlier, after record-setting hurricane damage in the Gulf Coast.
Those disasters, including the powerful Katrina, cost the Bloomington-based insurer $6.3 billion, according to information released Friday in the company's annual report.
"Coming out of '05, we survived and did reasonably well in a very tough year," State Farm Chairman and CEO Ed Rust Jr. told The Pantagraph. "The biggest impact: the hurricane season this year was about twice what last year's was."
Rust added, "We feel good about where we are."
State Farm attributed its profitability to unusually light insurance payouts outside of the Gulf Coast region, just as industry analysts predicted.
Despite that, State Farm reported a $779 million underwriting loss in auto and property insurance. That factors in the hurricane-related costs, including expenses related to adjusting claims in the Gulf Coast and reinsurance paid to the company.
In 2004, with only $2.9 billion in hurricane claims, State Farm reported nearly a $2 billion underwriting gain. It was the only underwriting gain in the last seven years, said spokesman Dick Luedke.
But it was a strong performance in the stock market that pulled State Farm into the black, according to the report.
Investment income offset the underwriting loss, leaving State Farm's property and auto companies with a $3.5 billion pretax profit and boosting the company's net worth $3.9 billion to $50.2 billion.
Based on total assets worth nearly $150 billion, State Farm dropped one spot on the Fortune 500 list to No. 19. The company remains the highest ranked property and casualty insurer.
The 2005 profit also marks State Farm's third year removed from a $1.6 billion loss in 2002 and a $5 billion loss in 2001. Start Farm posted profits of $5.3 billion in 2004 and $2.8 billion in 2003.
Despite the turn around, Rust said State Farm still faces serious challenges and he said employment levels in Bloomington will remain slow but steady. State Farm has no significant growth plans, he said.
If not for Katrina and the other Gulf Coast hurricanes, the company's 2005 profits may have set records.
Before Katrina, insurance companies were on-track to earn record profits, according to the New York-based Insurance Information Institute.
They were in that position by increasing prices to mirror risk, said Robert Hartwig, the institute's chief economist. In a rare feat, insurers were earning more in premiums than they were paying out, he said.
Rust said, "The first six months were extremely light in terms of normal catastrophe activity. The last half of the year just wipes that out."
Hartwig said State Farm and other insurers likely will increase rates for some customers and place moratoriums on new policies for others so that high-risk areas like the Gulf Coast can be profitable again. That would give insurers less reliance on investment and low payouts around the rest of the country.
The other major Bloomington-based insurer, Country Insurance & Financial Services, plans to release its 2005 financial figures on Wednesday.