Earlier this month, Standard & Poor’s Global Ratings announced another downgrade for State Farm General Insurance Co., lowering the California company’s financial strength rating to A- in spite of a show of financial support from its parent.
In May, S&P had lowered its financial strength and issuer credit ratings of the California affiliate of State Farm Mutual Automobile Insurance Company downward by two notches—to A+ from AA— leaving the ratings on CreditWatch with negative implications.
On Aug. 4, S&P lowered the ratings two more notches—to A- from A+, this time removing the Credit Watch negative status—even though casual observers might see 400 million reasons not to take this action.
State Farm General Insurance recently received a $400 million investment from its parent in the form of surplus note, S&P reported in an Aug. 4 announcement. In spite of that extra capital, S&P said State Farm General’s “significant exposure to natural catastrophe risk will continue to add volatility to both earnings and capital.”
Leading up to the latest action, S&P had originally put the ratings on CreditWatch Negative in late February, citing weak underwriting performance over the past five years that has eroded the company’s capital position and impacted regulatory solvency ratios.
While offering a similar assessment of underwriting results in the May downgrade announcement, that move seemed to hinge more squarely on the relationship between the affiliate and the parent.
Related: Too Late? S&P Downgrades State Farm General (Updated)
“The rating action indicates uncertainties related to capital support from the State Farm group,” the May announcement said. This, in turn, impacted S&P’s “group status assessment,” which the rating agency has changed to “strategically important” from “core.”
Fast forward to August. Some of the uncertainty about parental support seems to have dissipated. “We think the [$400 million] capital infusion will help improve SFGI’s [State Farm General’s] regulatory solvency ratios and stabilize its capitalization at the 99.5 percent confidence level under our risk-based capital adequacy model,” S&P said in the Aug. 4 announcement.
S&P said its current assessment “also considers recent rate increases and the company’s initiatives to reduce exposure in catastrophe-prone areas.”
In May, on the same day that S&P announced its first two-notch downgrade of the year, State Farm General received approval of emergency interim rate increases, effective June 1, 2025. (The approved increases were 17% for the non-tenant HO-3 line, 15% for renter/condo policies and 38% for rental dwelling policies.)