Understanding A.M. Best Ratings for State Farm Insurance

When shopping for insurance, it’s important to choose a financially stable company that can pay out claims. One way to evaluate an insurer’s financial strength is to look at its A.M. Best rating. This article explains A.M. Best ratings, focuses on the high rating received by State Farm, and discusses why strong financials matter when buying insurance.

What is A.M. Best?

Founded in 1899, A.M. Best Company is the oldest and most widely recognized credit rating agency focused exclusively on the insurance industry. A.M. Best analyzes the financial strength and creditworthiness of insurers to determine their ability to meet ongoing insurance policy and contract obligations.

A.M. Best Ratings Scale

A.M. Best uses a letter grade system to rate the financial strength of insurers, ranging from A++ (Superior) to D (Poor):

• A++, A+ (Superior): Exceptionally strong ability to meet financial obligations
• A, A- (Excellent): Excellent ability to meet financial obligations
• B++, B+ (Good): Good ability to meet financial obligations
• B, B- (Fair): Fair ability to meet financial obligations
• C++, C+ (Marginal): Marginal ability to meet financial obligations
• C, C- (Weak): Weak ability to meet financial obligations
• D (Poor): Poor ability and could be referred to state insurance regulators
• F (Under Regulatory Supervision): Insurer has been placed under regulatory supervision
• S (Rating Suspended): Rating is not currently available

State Farm’s A.M. Best Rating

State Farm has received the highest possible rating from A.M. Best – A++ (Superior). This means A.M. Best has assessed State Farm’s balance sheet strength, operating performance, business profile, and enterprise risk management and determined it has a superior ability to meet its ongoing insurance obligations.

State Farm has maintained the A++ (Superior) rating for over 60 straight years.

Why Strong Financial Ratings Matter When Buying Insurance

There are a few reasons why an insurer’s A.M. Best rating should be considered when purchasing insurance:

• It indicates ability to pay claims: Companies with high ratings like A++ or A+ are considered to have superior financial strength to pay out insurance claims. Lower rated insurers may struggle to meet obligations.

• Shows financial stability: Insurers with strong A.M. Best ratings have healthy levels of capital reserves and liquidity to maintain stability, even in challenging economic conditions. This suggests longevity and ability to pay future claims.

• Highlights effective management: Top-rated insurers earn high marks in areas like investment strategy, underwriting practices, and enterprise risk management. This demonstrates a well-run company.

• Meets state requirements: Most states require insurance companies to have a minimum A.M. Best rating (usually B+ or higher) to be legally authorized to do business. High ratings like State Farm’s A++ indicate financials well above state minimums.

While A.M. Best ratings aren’t the only factor to consider, they provide valuable insight into an insurance company’s financial strength and claims-paying ability.

State Farm’s Strong Financial Foundation

In addition to receiving top marks from A.M. Best, State Farm has a strong financial foundation:

• Mutual company structure: State Farm is a mutual insurance company, owned by policyholders rather than investors. This structure provides great incentive to focus on customer satisfaction and financial strength.

• Diversified offerings: State Farm provides a wide range of insurance products – auto, home, life, health, business, banking, investments. This diversification helps stabilize financial performance.

• Reinsurance programs: State Farm strategically leverages reinsurance to transfer portions of risk. This provides protection against catastrophic or unexpected losses.

• Strong results: State Farm has reported solid financial results over decades with strong reserves, liquidity, and profitability.

This robust financial profile has enabled State Farm to pay over $500 billion in claims since 1946. It gives policyholders confidence that State Farm has the strength to deliver on its promises.

State Farm’s History of Financial Strength

With origins dating back to 1922, State Farm has demonstrated exceptional financial strength across many decades:

• 1930s: Withstood challenges of Great Depression era when many insurers failed.

• 1940s: Paid claims promptly after WWII despite increased loss costs.

• 1950s: Rapid growth in auto owners led to expansion into 48 states and Canada. Remained financially sound.

• 1970s: Withstood high inflation environment and began offering additional products like life insurance and banking.

• 1980s: Named #1 home and auto insurer in U.S. while achieving attractive returns on surplus.

• 1990s: Expanded offerings while achieving strong 10-year financial performance.

• 2000s: Remained fiscally strong despite housing crisis and recession.

• 2010s: Continued revenue and policy growth while paying over $65 billion in claims in 2019 alone.

This long track record underscores State Farm’s commitment to financial strength, even in difficult circumstances.

State Farm’s Strong Financial Outlook

State Farm is well positioned for continued financial success, including:

• Robust capital position: State Farm has over $100 billion in consolidated policyholder surplus. This provides a substantial buffer against potential losses.

• Disciplined underwriting: State Farm follows disciplined pricing and underwriting practices. This minimizes risk exposure while achieving target profit margins.

• Expanding offerings: State Farm continues expanding offerings in insurance and financial services. This supports growth and stability.

• Technology investments: State Farm is making major technology investments to drive efficiency and digital capabilities like online self-service for customers.

• Experienced leadership: The executive team driving State Farm’s strategy has an average tenure of over 20 years in insurance. Their deep expertise promotes sound decision-making.

Barring major unforeseen events, State Farm’s size, scale, diversification, and prudent management should enable it to maintain its position as an exceptionally financially stable insurer.

Key Takeaways on State Farm’s A.M. Best Rating

• An A++ A.M. Best rating indicates State Farm has a superior ability to meet its financial obligations and pay insurance claims. This is the highest rating possible.

• State Farm has maintained an A++ (Superior) rating for over 60 consecutive years, underscoring its long-term financial stability.

• Strong insurer financial ratings should be considered when buying insurance to ensure your provider can pay claims and weather challenging economic conditions.

• State Farm’s mutual company structure, diversified offerings, reinsurance programs, and strong profits over many decades provide confidence in its financial standing.

• Policyholders can depend on State Farm to deliver on its promises thanks to exceptional financial strength built over 100 years in business.

So when it comes time to buy insurance, make sure to evaluate the insurer’s A.M. Best rating. State Farm’s A++ rating signifies it has the financial resources to protect you today and long into the future.