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Friday, February 27, 2009

State Farm® Net Worth Drops 16 Percent To $53.3 Billion

Nearly 90 Percent of Decline Due to Drop in Equity Values

$6.3 Billion In Catastrophe Losses Well Above Expected Levels

Bloomington, Ill., Feb. 27, 2009 -- Net worth for the State Farm group decreased in 2008 by $10.4 billion to end the year at $53.3 billion. The primary reason for the decrease was the $9.2 billion decline in the value of the property-casualty (P-C) companies’ unaffiliated stock portfolio (net of deferred tax). Although this decline was driven by general market conditions, State Farm’s P-C portfolio had a smaller percentage decline than the broader equity market.

The $10.4 billion decrease in net worth comes after five consecutive years of net worth increases. In spite of the 2008 decline, the State Farm group’s net worth is 68 percent higher than it was at the end of 2002, after two years of significant decline.

State Farm reported an after-tax net loss of $542 million in 2008, compared with $5.46 billion of net income in 2007. The after-tax net loss in 2008 was driven by the P-C companies’ pretax operating loss, which was partially offset by income tax recoveries. Extraordinary levels of catastrophe losses adversely impacted operating results in 2008.

The operating loss for State Farm follows five consecutive years of net income. The average annual amount of net income for State Farm through the first nine years of this decade is $1.6 billion.

“It is imperative in our business to achieve financial results that enable us to grow and maintain the necessary level of financial strength that ensures long-term sustainability. As a result, one should not attribute too much significance to short-term operating results without first considering the level of financial strength,” said Michael Tipsord, Vice Chairman, Treasurer and Chief Financial Officer. “This concept is as relevant to 2007 when State Farm achieved record levels of profit as it is to 2008 when we experienced significant losses. The more important message is that the positive results from 2003 through 2007 enabled State Farm to endure a record level decline in net worth during 2008 and still end the year with over $53 billion in net worth.”

The P-C companies reported a pretax operating loss of $2.1 billion in 2008, which includes the underwriting loss of $6.3 billion, partially offset by investment and other income of $4.2 billion. This compares with a pretax operating profit of $5.1 billion in 2007, which included investment and other income of $4.6 billion and an underwriting gain of $621 million. The State Farm group’s net worth is also affected by the results of operations of non-P-C affiliates, which resulted in a loss for the year of $244 million.

Total revenue, which includes premium revenue, earned investment income and realized capital gains (losses), was $61.3 billion for 2008 compared with the 2007 figure of $61.6 billion.

State Farm’s insurance operations consist of eight P-C insurers and three life insurers. The P-C insurers are primarily engaged in automobile, health, homeowners and commercial multiple peril (CMP) lines of business. The net results of State Farm Mutual Automobile Insurance Company, State Farm Indemnity Company, State Farm Guaranty Company and State Farm County Mutual Insurance Company of Texas include the Auto business as well as the Health and reinsurance lines written by State Farm Mutual. The net results of State Farm Fire and Casualty Company, State Farm Lloyds, State Farm General Insurance Company and State Farm Florida Insurance Company reflect the Homeowners, CMP and other P-C lines of business. State Farm Life Insurance Company, State Farm International Life Insurance Company Ltd. and State Farm Life and Accident Assurance Company write the Life and Annuity business. The State Farm group also provides banking products and mutual funds through affiliated companies. State Farm provides insurance and financial services products to nearly 81 million policies and accounts.

Auto – State Farm’s auto insurance business represents 63 percent of the P-C companies’ combined net written premium. Earned premium was $30.3 billion, an increase of 0.3 percent from 2007. The incurred claims and loss expenses were $25.6 billion. The underwriting loss was $2.7 billion.

Comparable 2007 figures were: earned premium, $30.2 billion; incurred claims and loss expenses, $24.4 billion; underwriting loss, $659 million.

Homeowners, CMP, Other – The net written premium for State Farm Fire and Casualty Company, State Farm Lloyds, State Farm General Insurance Company and State Farm Florida Insurance Company represents 33 percent of the P-C companies’ combined net written premium. Earned premium was $16.0 billion, an increase of 0.5 percent from 2007. The incurred claims and loss expenses were $15.1 billion. The result was an underwriting loss of $3.9 billion.
Comparable 2007 figures were: earned premium, $15.9 billion; incurred claims and loss expenses, $10.9 billion; underwriting gain, $462 million.

Health – The individual health insurance operations for State Farm Mutual reported an underwriting loss of $14 million. Net written premium was $744 million. Comparable figures for 2007 were: underwriting loss, $35 million; net written premium, $752 million.

Property-Casualty (P-C) – The combined underwriting loss was $6.3 billion on earned premium of $48.1 billion. This includes results from Auto, Homeowners, Health and other lines, as well as the reinsurance line provided by State Farm Mutual. These results, combined with investment and other income of $4.2 billion, resulted in a pretax operating loss of $2.1 billion. The after-tax net loss for the P-C companies was $673 million.

Comparable 2007 figures were: earned premium, $48.1 billion; underwriting gain, $621 million; investment and other income, $4.6 billion; auto policyholder dividends, $78 million; pretax operating profit, $5.1 billion; net income, $5.0 billion.

Life – State Farm’s life affiliates – State Farm Life Insurance Company, State Farm International Life Insurance Company Ltd. and State Farm Life and Accident Assurance Company – added $28 billion of total life insurance in force during the year, bringing the companies’ total insurance in force to $713 billion on Dec. 31, 2008.

The life affiliates reported premium income of $4.9 billion in 2008, compared with $4.0 billion in 2007. In 2008, after-tax net income was $185 million ($315 million when excluding $129 million in write-downs for impairment of invested assets). Net income was $410 million in 2007. Results for 2008 included $626 million in dividends to policyholders, compared with dividends of $608 million in 2007.
Bank – State Farm Bank®, F.S.B. increased total assets to $16.7 billion as of year-end 2008, compared with $15.9 billion at the end of 2007. The Bank reported an after-tax net loss of $159 million in 2008, compared with a 2007 loss of $18 million. The 2008 results were significantly impacted by a high provision for loan losses.

Mutual Funds – Total assets under management for the retail Mutual Fund operations at the end of 2008 were $3.5 billion, compared with $4.6 billion at the beginning of the year. State Farm VP Management Corp. and State Farm Investment Management Corp. reported a combined after-tax net loss of $21 million in 2008 compared with a loss of $7 million in 2007.

State Farm Bank, Bloomington, Illinois, is a Member FDIC and an Equal Housing Lender. Insurance and securities products offered by affiliated companies of State Farm Bank are not FDIC insured, are not guaranteed by State Farm Bank and are subject to investment risk, including possible loss of principal invested. (AP2009/02/2315)

It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal. State Farm VP Management Corp is a separate entity from those State Farm Entities which provide banking and insurance products.


State Farm Mutual Funds are available through prospectus by registered representatives of State Farm VP Management Corp., One State Farm Plaza, Bloomington, Illinois 61710, 1-800-447-4930. Please read the prospectus and consider the investment objectives, risks, charges and expenses and other information it contains about State Farm Mutual Funds carefully before investing.

Thursday, February 26, 2009

Texas Fair Plan Association

What is the Texas FAIR Plan Association and its purpose?
The Texas FAIR Plan Association is an entity established by Texas Insurance Code
Article 21.49A to provide residential property insurance to qualified consumers who are having difficulty obtaining this coverage from licensed insurance companies.

Who is eligible to apply for coverage through the Texas FAIR
Plan Association?

Consumers who have been declined residential property insurance by at least two
insurance companies licensed to write and actually writing residential property
insurance in Texas may apply for coverage. In addition, to be eligible, consumers may
not have received a valid offer of comparable residential property insurance from an
insurance company licensed in Texas (not including any surplus lines insurers).

What types of residential property insurance will the Texas FAIR Plan Association provide for eligible applicants?
The Texas FAIR Plan Association provides limited coverage for one and two family
dwellings, townhouse units, and condominium units that are owner occupied and that
meet its underwriting standards. The Texas FAIR Plan Association also provides
limited coverage for other residential property –i.e. rental dwellings (one and two family), their contents and personal property of tenants living in rental dwellings.

Can the Texas FAIR Plan Association refuse to insure an eligible applicant?
Yes. The Texas FAIR Plan Association may refuse to insure an applicant if the
applicant or the property to be insured does not meet the Texas FAIR Plan
Association’s underwriting standards.
Revised 06/29/2007

What are some of the underwriting standards that may cause an eligible applicant to be denied coverage through the Texas FAIR Plan Association?
An applicant may be denied coverage through the Texas FAIR Plan Association for any
of the following reasons:
• Property condemned due to condition of the property.
• Property in disrepair or with existing damage.
• Vacant property.
• Property with excessive or unusual liability exposure, (e.g. dangerous animal,
pool or trampoline not within a fenced yard).
• Applicant who has a conviction for arson, fraud, or other insurance related
offenses.
• Applicant with more than eight paid claims (excluding glass claims) within the
past three years.
• Mobile home, unless the wheels are removed and the mobile home is tied down.
• Farm or ranch used for business.
• Any dwelling occupied for business use.

How do I obtain coverage through the Texas FAIR Plan Association?
Coverage must be obtained through an authorized licensed Texas agent. Any agent
licensed to write property & casualty insurance in Texas can be authorized to write
coverage through the Texas FAIR Plan Association. To find an authorized agent in your
area, you can go the Texas FAIR Plan Association website
http://www.texasfairplan.org/.

Can you apply directly to the Texas FAIR Plan Association for coverage?
No. You may apply for coverage only through an authorized agent of the Texas FAIR
Plan Association.
Revised 06/29/2007

How long can I be insured with the Texas FAIR Plan Association?
Policies are issued for a term of one year, however, every two years you must reapply
for residential property insurance in the voluntary market. You will be eligible for a renewal policy with the Texas FAIR Plan Association if you are declined residential
property insurance by at least two insurance companies licensed to write and actually
writing residential property insurance in Texas and if you do not receive a valid offer of comparable residential property insurance from an insurance company licensed in Texas, not including any surplus lines insurers.

How are the coverages offered through the Texas FAIR Plan Association different than coverages offered by other insurers?
The Texas FAIR Plan offers policies with limited coverage. Many insurers add
coverages that are not provided in the basic policy offered by the Texas FAIR Plan
Association.

The following is a list of the additional perils that may be covered by other
insurers in their policies, which are not covered in a Texas FAIR Plan Association
policy:
• ***Sudden and accidental discharge of water or steam
• Falling trees or limbs, falling objects
• Collapse of a building or a part of a building
• Breakage of glass
• Damage from the weight of ice, snow or sleet
• Freezing of plumbing, heating, air condition or automatic fire protective
sprinkler system or household appliance
• Mold, fungi or other microbe remediation (insurers provide or offer this
coverage for the basic perils)
Revised 06/29/2007
• Back up of sewer or drains
• Items that may be scheduled, such as expensive jewelry
*** For an additional premium charge, may be added by endorsement to the following
policy forms: Homeowners policy (HO-A), Renter policy (HO-BT) and
Condominium policy (HO-CONB)

How do the rates charged by the Texas FAIR Plan Association compare to those charged by other insurers?
Insurers offering residential property insurance in the voluntary market have more rating variables and discounts available for their insureds than the Texas FAIR Plan
Association. Insurer rating variables for credit scores, new homes, and companion auto policies make a comparison with rates for the Texas Fair Plan Association difficult. Since the Texas FAIR Plan Association policies provide less coverage than the policies provided by most insurers, coverage differences must also be considered when comparing rates between the Texas FAIR Plan and other insurers.

What discounts and surcharges does the Texas FAIR Plan offer?
The Texas FAIR Plan offers a discount for insureds who have had zero claims paid in
the preceding five-year period. Insureds who have had one or more paid claims in the
preceding three-year period will receive a surcharge based on the number of claims
paid. The Texas FAIR Plan Association may also offer discounts for home security devices and sprinkler systems with proper certification and documentation.

How do I file a claim on my Texas FAIR Plan Association
policy?

You may contact your agent or file a claim directly with the Texas FAIR Plan
Association by calling the toll-free number provided with your policy.
I have a complaint about my agent or about the service I received from the Texas FAIR Plan Association.

Who do I contact?
You may write the Texas FAIR Plan Association at P.O. Box 99080, Austin, Texas
78709-9080 or you may contact the Texas Department of Insurance’s Consumer
Protection Division at 1-800-252-3439 or file a complaint on-line at www.tdi.state.tx.us.

How are authorized agents of the Texas FAIR Plan compensated?
The only method of compensation for agents writing policies in the FAIR Plan is
commission. Agents are prohibited from charging fees (other than those designated by
the Texas FAIR Plan Association) and agents are prohibited from requiring ‘tie-in’ sales.

What type of coverage will the Texas FAIR Plan Association provide for my dwelling and/or personal property?
The Texas FAIR Plan Association provides limited coverage through the Texas
Homeowners Policy - Form A (HO-A), Texas Dwelling Policy – Form 1 (TDP-1), Texas
Fair Plan Condominium Policy, and Texas FAIR Plan Tenant Policy.
The policies provide:
Coverage for Your Dwelling (HO-A and TDP-1 only) – Policies provide actual
cash value coverage for your dwelling and outbuildings. Actual cash value is
replacement cost minus depreciation.

The HO-A policy can be changed to provide replacement cost coverage.
Replacement cost is what you would pay to rebuild or repair your dwelling, based
on current construction costs. Replacement cost is different from market value. It
does not include the value of your land. Replacement Cost coverage is not
available on the TDP-1.

To be eligible for replacement cost coverage you must insure your dwelling for as
close to 100 percent of its replacement cost as possible. If at the time of loss your
home is insured for less than 80 percent of the full replacement cost, the Texas
FAIR Plan Association will pay only part of the loss.

Coverage for Your Personal Property – The Homeowners HO-A policy provides
50% of the dwelling amount of insurance for household contents, clothes,
appliances, etc. This means if you insure your dwelling for $100,000, its contents
are insured for $50,000. Increased Personal Property Coverage of 60% or 70% of
the dwelling amount of insurance is available at an additional premium charge.

The Texas Dwelling policy (TDP-1), Condominium policy and Tenant policy provide
coverage for contents at selected limits up to a maximum of 50% of the dwelling
amount of insurance on the TDP-1 and up to a maximum of $500,000 on the
Condominium and Tenant policies. Limitations of coverage apply to certain
contents, including business personal property, jewelry, watches, furs, and money.
This coverage pays only the actual cash value of damaged, stolen or destroyed
household goods. Actual cash value is an item's replacement cost minus
depreciation.

For an additional premium, policies may provide replacement cost coverage for
your personal property (not available on the TDP-1). Replacement cost coverage
gives you more protection than actual cash value coverage. (Example: A burglar
steals your six-year-old television set. With actual cash value coverage your claim
payment would be based on the cost to replace the television set with a similar set
minus depreciation and your deductible. With replacement cost coverage, the
insurance company would pay to replace your TV with a new set similar to the one
stolen, minus your deductible, once you have complied with all the policy
conditions.)

The Homeowners, Condominium and Tenant policies also provide Liability,
Medical Payments, and Loss of Use coverage:
Liability Coverage – protects you against financial loss if you are legally liable for someone else’s injury or property damage up to the limit of liability.

Medical Payments – pays medical expenses for persons other than residents of
the household injured while on your premises and for some injuries that may
happen away from your premises up to the limit of liability.

Loss of Use Coverage – pays additional living expenses if your home is
uninhabitable due to a loss caused by an insured peril while repairs are being
made.

Coverage Limits – the following coverage limits are available, where applicable:
• Dwelling – Up to $1,000,000 Maximum value
• Other Structures – 10 percent of Dwelling Coverage amount
• Personal Property – 50, 60, or 70 percent of Dwelling Coverage amount on the

HO-A. Optional up to 50 percent of Dwelling Coverage on the TDP-1. For
Condominium and Tenant policies, limits are available up to a maximum of
$500,000.
• Liability - $100,000 or $300,000 limit
• Medical Payments - $5,000 limit
• Loss of Use – 10 percent of Dwelling Coverage amount, 20 percent of Personal
Property Coverage amount on the Condominium and Tenant policies.

Texas FAIR Plan Association policies provide coverage for damage caused by:
PERIL HO-A TDP-1 CONDO TENANT
FIRE
LIGHTNING
SUDDEN AND ACCIDENTAL DAMAGE FROM SMOKE
WINDSTORM, HURRICANE AND HAIL*
EXPLOSION
AIRCRAFT
VEHICLES VANDALISM AND MALICIOUS MISCHIEF
RIOT AND CIVIL COMMOTION
THEFT
*By law, the Texas FAIR Plan Association may not provide windstorm, hurricane and hail coverage for property located in the designated catastrophe area consisting of 14 coastal counties and a portion of Harris County on Galveston Bay. A policy written by the Texas FAIR Plan Association on such property must have a Windstorm, Hurricane and Hail Exclusion Agreement attached to the policy. Consumers in a designated catastrophe area may purchase windstorm, hurricane and hail insurance on insurable property through the Texas Windstorm Insurance Association.

Available Endorsements:
ENDORSEMENT # AND NAME HO-A TDP-1 CONDO TENANT
HO-140 - WINDSTORM, HURRICANE AND
HAIL EXCLUSION
HO-142 – EXCLUSION OF RESIDENTIAL
COMMUNITY PROPERTY CLAUSE
HO-205 - OFFICE, PRIVATE SCHOOL OR
STUDIO - SECTION II LIABILITY
HO-225 – ADDITIONAL PREMISES LIABILITY
COVERAGE
HO-301 - ADDITIONAL INSURED
HO-382 – CONDOMINIUM LOSS
ASSESSMENT COVERAGE
HO-400 LIMITED WATER DAMAGE
HO-401 LIMITED WATER DAMAGE
HO-800 - AMENDATORY MANDATORY
HO-801 - AMENDATORY MANDATORY
HO-802 - REPLACEMENT COST FOR
DWELLING
HO-803 - REPLACEMENT COST FOR
PERSONAL PROPERTY
HO-804 – REPLACEMENT COST COVERAGE
A (DWELLING), EXCEPT ROOF COVERINGS 􀀹
HO-806 - WINDSTORM, HURRICANE AND
HAIL EXCLUSION
HO-806B - WINDSTORM, HURRICANE AND
HAIL EXCLUSION
HO-809 – UNIT OWNERS RENTAL TO
OTHERS
HO-810 - SPECIFIED BUILDING OR ANIMAL
EXCLUSION
HO-811 - SPECIFIED ANIMAL EXCLUSION
TDP-001 - WINDSTORM, HURRICANE AND
HAIL EXCLUSION TDP-003 – EXCLUSION OF RESIDENTIAL
COMMUNITY PROPERTY CLAUSE 􀀹
TDP-017 – FAIR RENTAL VALUE 􀀹
TDP-800 - AMENDATORY MANDATORY 􀀹
TDP-810 - SPECIFIED BUILDING EXCLUSION 􀀹

Discounts:
• Home Security Devices Credit (must have certificate), not available on Texas
Dwelling Policy (TDP-1)
• Automatic Sprinkler Credit (must have certificate), not available on Texas
Dwelling Policy (TDP-1)
• Claims Free Discount (must have zero paid claims in the preceding five-year
period)
Payment Options:
• Annual Pay – Pay in Full
• Escrow Pay – Pay in full – Mortgagee Billed for Renewals
• **Semi-Annual – 50 Percent Due with Application; Balance Due in 180 Days
• **Four Payment Plan – 25 Percent Due with Application; Balance Due in Three
Equal Payments in 90-Day Intervals
**A $3.00 Service Charge is added to Each Payment

Revised 06/29/2007

Friday, February 20, 2009

Flood Insurance FAQ's

National Flood Insurance Program (NFIP) FAQs
Q. What is the difference between a flood insurance policy issued by the NFIP and a policy issued by an insurance company? Does one provide better coverage than the other?
A. Flood insurance is provided by the federal government through the NFIP. The policies that are sold by insurance companies are usually NFIP policies sold through the write your own (WYO) program. This is done to make it easier to purchase flood policies through local insurance agents. Even though the policies are purchased through the insurance companies, they are NFIP policies. Claims are handled by NFIP adjusters and by insurance company adjusters that are certified by the NFIP to handle flood claims. Questions and complaints can be referred to the NFIP at 1-888-225-5356. Some insurance companies may also offer flood coverage other than the NFIP policy. You should check with your agent or company to see if flood coverage other than the NFIP policy is available, and to compare the coverages being offered to determine the best coverage for your needs.

Q. How can I obtain insurance coverage to protect my home and contents from damage caused by flooding?
A. The NFIP makes flood insurance available to people who live in communities that participate in the NFIP. Contact your agent or the NFIP at 1-888-225-5356 to purchase a NFIP policy. The home need not be near a body of water or in a floodplain to qualify.

Q. Is flood insurance expensive?
A. The average flood insurance policy costs a little more than 400 a year for 100,000 of coverage. People in low risk areas can purchase flood insurance for just over 100 a year.

Q. Why would I buy flood insurance if my property is in a low or moderate risk area?
A. Twenty to 25 percent of all flood insurance claims come from low to moderate risk areas.

Q. Can I buy flood insurance if I rent?
A. You can buy up to 100,000 of flood insurance for your contents.

Q. How much flood insurance can I buy?
A. You can buy up to 250,000 for the dwelling and 100,000 for your contents.

Q. Does the policy provide any coverage for additional living expense?
A. No, the NFIP policy does not provide coverage for additional living expense.

Q. How is damaged residential property valued after a loss under an NFIP policy?
A. If the property is insured to at least 80 percent of its value and is your principle residence, the dwelling will be valued at replacement cost if the dwelling is replaced. If the dwelling is rebuilt at a new location, the replacement cost won't exceed what it would have cost to replace at the former location. Contents, appliances, carpets and carpet pads and outdoor property are valued at actual cash value. Actual cash value is the cost to repair with new material of like kind and quality less depreciation.

Q. Is there coverage for the cost of debris removal? What about loss avoidance measures?
A. The cost of removing debris on your property, and the cost of removing debris of your property that is on someone else's property is covered, but it's subject to the limit of the policy. You will be compensated at the Federal minimum wage if you perform the work yourself. Loss avoidance is limited to 1,000 for the cost of sandbags, temporary levees, pumps and plastic sheeting and lumber, including the value of your work. An additional 1,000 is available for the cost of moving insured property to protect it from flood. These benefits do not increase the limit of insurance.

Q. If my automobile was parked on my property and damaged by flood, does the flood policy cover the damage?
A. No, automobiles are not covered property under the NFIP policy. If you have comprehensive or full coverage under your auto policy, flood should be covered by that policy. If you have liability only, there is no coverage for the auto.

Q. Does flood insurance cover damage to built-in appliances?
A. Check to see what flood insurance coverage you have. Then, call the NFIP at 1-888-225-5356 to determine what would be covered in a flood insurance policy. Generally, flood policies provide coverage for the structure and personal property. Built-in appliances may fall under either category.

Q. What coverage is available for commercial buildings?
A. Up to 500,000 is available for non-residential buildings, and an additional 500,000 for contents of non-residential buildings. Buildings and contents are valued at actual cash value.

Q. When does coverage become effective under an NFIP policy?
A. There is a 30-day waiting period before coverage goes into effect after an NFIP policy is purchased. However, there is an exception to the 30-day waiting period when a new policy is initially purchased in connection with a loan. In that case, the policy becomes effective at the time of the loan closing.

Q. What if my dwelling or commercial building is valued over the maximum limits available?
A. The insurance company that insures your commercial building for fire might add excess flood coverage. That coverage usually has the NFIP maximum limits as a deductible. Availability might depend on the flood zone of each location. There may be insurers that will write excess policies for dwellings over the 250,000 maximum limits. You should contact your agent to learn more about available coverage.

Q. Where can I get more information about flood insurance?
A. Visit www.floodsmart.gov.