State Farm profit doubles to $1.8 bil. on underwriting

State Farm Mutual Automobile Insurance Co., the biggest U.S. home and car insurer, said full- year profit more than doubled as underwriting losses narrowed.

Net income for 2010 rose to $1.8 billion from $777 million a year earlier, the Bloomington,-based company said today in a statement. The insurer is owned by its policyholders and reports results once annually.

State Farm, led by Chief Executive Officer Ed Rust, was helped by a recovery in debt and equity markets and a hurricane season that left the U.S. largely unscathed. A rebound in policy sales led by a revival in personal auto and home coverage bolstered revenue at U.S. property-casualty insurers.

State Farm is “a well-managed company” that shows how insurers can profit when investment returns cushion losses from underwriting, said billionaire investor Warren Buffett in his annual letter to Berkshire Hathaway Inc. shareholders on Feb. 26. Berkshire's Geico Corp. competes with State Farm for customers seeking auto coverage.

Rust, 60, was paid $10.2 million in 2010, a figure tied to three years of results including customer retention, employee satisfaction, growth and financial results, said Dick Luedke, a State Farm spokesman. Rust's compensation, which totaled $9.44 million a year earlier, includes a guaranteed salary that has been about $1.75 million since 2001.

The insurer's net worth, a measure of assets minus liabilities, rose 5.3 percent to $61.2 billion on the investment gains, including a $1.9 billion increase in its property and casualty stock portfolio.

The Standard & Poor's 500 Index returned 15 percent last year, including dividends, after a 26 percent gain in 2009. State and local government bonds returned 2.3 percent in 2010, including invested interest, after rising 14 percent a year earlier, according to Bank of America Merrill Lynch's Municipal Master Index.

Catastrophes after reinsurance cost State Farm $4 billion in 2010 and contributed to a $3.1 billion underwriting loss at its property-casualty businesses, Luedke said. A year earlier, disaster claims cost the insurer $3.6 billion and led to an underwriting loss of $3.7 billion.

None of 19 named storms last year made landfall in the U.S. as a hurricane, according to the National Hurricane Center in Miami.

Policy sales throughout the industry rose 2.3 percent to $110.7 billion in the three months ended Sept. 30, the Property Casualty Insurers Association of America said on Dec. 21. The last time sales climbed more was in the third quarter of 2006, according to the group's data.

Allstate Corp., the second-biggest home and auto insurer in the U.S., said annual profit increased to $928 million last year from $854 million in 2009.

Underwriting losses at State Farm's auto business, which provides the majority of its property-casualty premium revenue, widened to $2.8 billion from $2.7 billion a year earlier. The insurer had about 42.5 million auto policies at the end of 2010, little changed from the previous year, Luedke said.

Allstate, based in Northbrook, reported eight straight quarterly declines in the number of standard auto policyholders. Progressive Corp., the fourth-largest car insurer, added policies in 2010.

Losses at State Farm's bank narrowed to $35 million last year from $158 million in 2009, as revenue rose on improved credit quality, the statement said. The bank's assets fell to $15.1 billion at yearend from $16.2 billion a year earlier.

Allstate said last month that it's exiting the banking business and selling about $1.1 billion in deposits to Riverwoods-based Discover Financial Services amid heightened scrutiny from industry regulators.

State Farm had 65,900 employees at the end of 2010, compared with 67,500 a year earlier, Luedke said. Other insurers, including American International Group Inc. and Principal Financial Group Inc. also trimmed payrolls last year. MetLife Inc. and Berkshire Hathaway increased the size of their workforces in 2010.

State Farm, which has no publicly traded debt, reports results based on state accounting rules for insurers. Publicly traded insurers must use U.S. generally accepted accounting principles, making comparisons inexact.