State Farm Mutual Automobile Insurance Co. is on pace for its worst homeowners direct incurred loss ratio in over two decades even as its private auto ratio shows signs of improvement.

In 2023, the world's largest property and casualty insurer's homeowners loss ratio thus far stands at 84% — its worst nine-month figure since 2008, when it amounted to 85.9%. The nine-month loss ratio is significantly worse than the 60.2% ratio for 2022.

Should the ratio stay at that elevated level for the remainder of the year, it would mark the fourth time that the largest US homeowners insurer's direct incurred loss ratio surpassed 80% since 1996. The previous years were in 2001, 2008 and 2017 with a direct loss ratio of 87.5%, 81.2% and 80.9%, respectively.

By contrast, the insurer's private auto ratio has shown improvement through the first nine months of 2023. While its loss ratio still remains high when compared to the previous 27 years, its 85.2% loss ratio through Sept. 30 was a 9.5-percentage-point improvement from the prior full year. State Farm's private auto loss ratio through the first nine months of 2022 was 91.7%.

Weather takes heavy toll

At the root of the significant rise in State Farm's homeowners loss ratio was a large number of severe storms, which substantially increased the amount of incurred losses — the amount paid in claims and set aside for reserves — so far in 2023. The incurred claim amount of nearly $16 billion through the first three quarters was a 47.3% increase from the prior nine-month period in 2022 and almost $2 billion more than the full year.

The third quarter was marked by eight one-billion-dollar weather events across the US, including hail storms in the South, severe wind events in the Midwest and Southeast, and Hurricane Idalia. The insurer also had the heaviest homeowners exposure in Hawaii, where a devastating firestorm swept over the island of Maui and generated almost $6 billion in losses.

Storms also impacted the physical damage coverages in the private auto business. However, the combination of historically high prices to repair or replace damaged vehicles and the greater frequency of more severe crashes since the onset of COVID-19 has contributed to the increase in private auto incurred losses.

State Farm's direct losses incurred in its private auto line of business year-to-date totaled $33.98 billion, up 12.6% from the prior year period.

Those elevated losses have fueled State Farm's quest for rate increases, which has aided the company's premium growth. Its private auto direct premiums written have surged 24.1% year over year during the first nine months of 2023, to $42.88 billion compared to $34.54 billion a year ago.

The increase also suggests that State Farm may be growing its customer base at the same time it has been materially hiking rates. So far in 2023, its homeowners direct premiums written are up by double digits, growing 10.4% year over year to $20.40 billion.

– Read an article about insurers with the largest third-quarter catastrophe losses. – Click here to access the third-quarter homeowners market share article.

Chasing rate

State Farm saw a rise in approvals to increase renewal business rates in both the homeowners and private auto lines.

The number of approved private auto rate hikes with renewal business effective in 2022 was 196, up from 115 in 2023. The majority of those rate hikes were for an overall rate impact of less than or equal to 5%.

In addition to the increase in rate hike approvals, state regulators also signed off on more substantial rate hikes for private auto policies renewing in 2023. The number of rate hike approvals with an overall rate increase of more than 5% was 137 in 2023, a significant rise from 11 in 2021 and 85 in 2022.

State regulators signed off on 54 homeowners rate hikes with renewal business effective date in 2023, which is double the previous year, at 25.

Though the number of rate hikes in the homeowners segment is significantly smaller than the private auto segment, State Farm also received more substantial homeowners rate hike approvals that are set to take effect in 2023, at 22, which is twice as many as the two previous years combined.