State Farm(R) Net Income Increases Slightly in 2007

Auto Rate Reductions Trigger Decrease in Underwriting Gain BLOOMINGTON, Ill., Feb. 29 /PRNewswire/ -- State Farm's net incomeincreased by 3 percent, from $5.32 billion in 2006 to $5.46 billion in2007. However, the property-casualty (P-C) underwriting gain was down 79percent, from $3.0 billion in 2006 to $621 million in 2007. Approximatelyhalf of the $2.4 billion decline in the underwriting gain resulted from afourth straight year of auto rate decreases, which also reduced net income. The primary reason net income increased slightly while the P-Cunderwriting gain decreased sharply is a significant year-to-yeardifference in auto policyholder dividends. Were it not for the declarationof $1.3 billion more in dividends in 2006 than in 2007, net income in 2007would be 11 percent lower than that of 2006. This was the fifth consecutive year of profit for State Farm, followingtwo years of significant losses. The average annual amount of net incomefor State Farm through the first eight years of this decade is $1.8billion. State Farm provides insurance and financial services productsthrough nearly 80 million policies and accounts. "Given the nature of our business, we assess our financial results overa longer period of time than one year, or even five years," said MichaelTipsord, Vice Chairman, Treasurer and Chief Financial Officer. "Becausethere can be significant volatility in the insurance business, we mustavoid the temptation of attributing too much significance to short-termfinancial results -- long-term sustainability is the key. More importantly,our customers expect us to maintain the financial strength necessary todeliver on the promises we make to them over a long period of time." Net worth for the State Farm group increased by $5.6 billion to $63.7billion. The primary reasons for this improvement were the insuranceoperating results and the $2.5 billion realized and unrealized gain (net ofdeferred tax) on the P-C companies' unaffiliated stock portfolios. TheState Farm group's net worth was also impacted by pension contributions of$1.9 billion. The P-C companies reported a pretax operating profit of $5.1billion in 2007, including investment and other income of $4.6 billion andthe underwriting gain of $621 million, less auto policyholder dividends of$78 million. This compares with a pretax operating profit of $6.0 billionin 2006, which included investment and other income of $4.4 billion, autopolicyholder dividends of $1.4 billion and the underwriting gain of $3.0billion. The State Farm group's net worth also is affected by the resultsof operations of non-P-C affiliates, which resulted in a gain for the yearof $295 million, primarily driven by results for State Farm Life InsuranceCompany. Total revenue, which includes premium revenue, earned investment incomeand realized capital gains (losses), was $61.6 billion for 2007 comparedwith the 2006 figure of $60.5 billion. State Farm's insurance operations consist of eight P-C insurers andthree 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, StateFarm Indemnity Company, State Farm Guaranty Company and State Farm CountyMutual Insurance Company of Texas include the Auto business as well as theHealth and reinsurance lines provided by State Farm Mutual. The net resultsof State Farm Fire and Casualty Company, State Farm Lloyds, State FarmGeneral Insurance Company and State Farm Florida Insurance Company reflectthe Homeowners, CMP and other P-C lines of business. State Farm LifeInsurance Company, State Farm International Life Insurance Company Ltd. andState Farm Life and Accident Assurance Company write the Life and Annuitybusiness. The State Farm group also provides banking products and mutualfunds through affiliated companies. Auto -- State Farm's auto insurance business represents 62 percent ofthe P-C companies' combined net written premium. Earned premiums were $30.2billion, a decrease of 1.8 percent from 2006. The incurred claims and lossexpenses were $24.4 billion. The underwriting loss, fueled in part by $1.2billion in realized rate reductions, was $659 million. Comparable 2006 figures were: earned premium, $30.7 billion; incurredclaims and loss expenses, $23.1 billion; underwriting gain, $945 million. Homeowners, CMP, Other -- The net written premium for State Farm Fireand Casualty Company, State Farm Lloyds, State Farm General InsuranceCompany and State Farm Florida Insurance Company represents 32 percent ofthe P-C companies' combined net written premium. Earned premiums were $15.9billion, an increase of 2.7 percent from 2006. The incurred claims and lossexpenses were $10.9 billion. The result was an underwriting gain of $462million. Comparable 2006 figures were: earned premiums, $15.5 billion; incurredclaims and loss expenses, $9.8 billion; underwriting gain, $1.2 billion. Health -- The individual health insurance operations for State FarmMutual reported an underwriting loss of $35 million. Net written premiumswere $752 million. Comparable figures for 2006 were: underwriting loss, $32million; net written premiums, $753 million. Property-Casualty (P-C) -- The combined underwriting gain was $621million on earned premiums of $48.1 billion. This includes results fromAuto, Homeowners, Health and other lines, as well as the reinsurance lineprovided by State Farm Mutual. These results, combined with investment andother income of $4.6 billion, less auto policyholder dividends of $78million, resulted in a pretax operating profit of $5.1 billion. After-taxnet income for the P-C companies was $5.0 billion. Comparable 2006 figures were: earned premiums, $48.0 billion;underwriting gain, $3.0 billion; investment and other income, $4.4 billion;auto policyholder dividends, $1.4 billion; pretax operating profit, $6.0billion; net income, $4.8 billion. Life -- State Farm's Life affiliates -- State Farm Life InsuranceCompany, State Farm International Life Insurance Company Ltd. and StateFarm Life and Accident Assurance Company -- added $34 billion of total lifeinsurance in force during the year, bringing the companies' total insurancein force to $685 billion on Dec. 31, 2007. The Life affiliates reported premium income of $4.0 billion in 2007,compared with $3.9 billion in 2006. After-tax net income was $410 millionin 2007. Net income was $408 million in 2006. Results for 2007 included$608 million in dividends to policyholders, compared with dividends of $585million in 2006. Bank -- State Farm Bank(R), F.S.B. increased total assets to $15.9billion as of year-end 2007, compared with $13.5 billion at the end of2006. The Bank reported an after-tax net loss of $18 million in 2007,compared with a 2006 gain of $24 million. The 2007 results were negativelyimpacted by operating expenses and an increased loan loss provision due tothe impact of deteriorating market conditions. Mutual Funds -- Total assets under management for the retail MutualFund operations at the end of 2007 were $4.6 billion, compared with $3.9billion at the beginning of the year. State Farm VP Management Corp. andState Farm Investment Management Corp. reported a combined after-tax netloss of $7 million in 2007 compared with a loss of $14 million in 2006. State Farm Bank, Bloomington, Illinois, is a Member FDIC and an EqualHousing Lender. Insurance and securities products offered by affiliatedcompanies of State Farm Bank are not FDIC insured, are not guaranteed byState Farm Bank and are subject to investment risk, including possible lossof principal invested. (AP2008/02/0078) Securities are available through registered representatives of StateFarm VP Management Corp. State Farm VP Management Corp. is a separateentity from those State Farm entities that provide banking products andauto, life, fire and health insurance products.