State Farm Profit Jumps 48% to $6.2 Billion on Pharma Deals

  • Results include $3 billion increase in realized capital gains
  • CEO Tipsord reports earnings for first time after Rust's exit

State Farm Mutual Automobile Insurance Co., the largest U.S. property-casualty insurer, said 2015 profit rose 48 percent on investment gains tied to pharmaceutical holdings.

Net income increased to $6.2 billion from $4.2 billion in 2014, the Bloomington, Illinois-based company said Friday in a statement on its website. The 2015 results included a $3 billion increase in capital gains as the insurer booked profits when Actavis Plc completed its takeover of Allergan Inc., and Merck KgaA acquired Sigma-Aldrich Corp. State Farm had stakes in both of the target companies.

The insurer is one of the largest investors in companies including Walt Disney Co., Johnson & Johnson, Exxon Mobil Corp. and Wells Fargo & Co., and counts on long-term stock gains to overcome losses from car coverage. State Farm’s auto underwriting loss widened to $4.4 billion in 2015 from $3.4 billion a year earlier, as claims costs rose.

Chief Executive Officer Michael Tipsord is seeking to protect market share from rivals such as Geico and Allstate Corp. while contending with an industrywide increase in claims costs for auto policies. Insurers are concerned that, in the long term, car ownership will decline, squeezing insurance sales. The more immediate pressure comes from lower gas prices, which encourage drivers to spend more time behind the wheel, increasing the frequency of car accidents.

CEO Transition

Tipsord was promoted last year to the top post from chief operating officer. He replaced Edward Rust, who oversaw the insurer’s expansion during three decades as CEO. State Farm also sells home insurance and life policies.

Rust’s compensation climbed 3.7 percent last year to $13.3 million, said Dave Phillips, a spokesman for the insurer. The figure is tied to results spanning three years, including metrics of financial results, growth, customer retention and employee satisfaction, he said in a phone interview. State Farm won’t release Tipsord’s pay until 2017, according to the spokesman.

Net worth, a measure of assets minus liabilities, climbed to $82.7 billion on Dec. 31 from $80 billion a year earlier.

The results at State Farm compare with a 24 percent decrease at Allstate, which posted 2015 net income of $2.17 billion. Tipsord’s company, which is owned by policyholders and has no publicly traded debt, reports results once a year and uses state accounting rules for insurers. Publicly traded insurers must use U.S. generally accepted accounting principles, making comparisons inexact.

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