Introduction
The purpose of the given project was to examine the financial operations of State Farm Mutual Automobile Insurance Company. Based on the insurer’s balance sheet, total assets, total liabilities, and surplus have been calculated. Based on the income and expense statement, net income, the loss ratio, the expense ratio, and the combined ratio have been calculated. The values of the 2019 annual report have been forecasted using the calculated growth rates.
Findings
It has been found that both total assets and total liabilities decreased, so there was a slight increase in surplus. In particular, total assets decreased from $160,732 million to $159,865 million, and total liabilities decreased from $63,727 million to $59,112 million. In turn, the surplus increased from $97,005 million to $100,753 million. There was a decrease in cash and short-term investments, stock, and other assets, which is why the corresponding growth rates are negative. Based on the calculated growth rates, all the components of assets, liabilities, and surplus have been forecasted, assuming that the growth rate in the values will remain the same. It has been determined that in 2019, total assets will be equal to $161,529 million, and total liabilities will be equal to $55,313 million. Thus, in 2019, the surplus will be equal to $106,216 million.
In 2017, income before dividends and taxes was equal to -$242 million, and in 2018, it was equal to $7,068 million. In 2017 and 2018, the values of net income were equal to $1,702 million and $6,350 million, respectively. Based on the estimated growth rates, the premium earned, service and administrative fees, and investment gain are expected to increase. In 2019, the forecasted values of income before dividends and taxes and net income are $14,477 million and $13,007 million, respectively.
In 2017, the loss ratio was equal to 86.07%, and in 2018, it was equal to 73.13%. In 2019, the loss ratio will be equal to 62.28%. In 2017, the expense ratio was equal to 24.03%, and in 2018, it was equal to 23.91%. In 2019, the loss ratio will be equal to 23.80%. The combined ratios are 110.09%, 97.05%, and 86.08% for 2017, 2018, and 2019.
Conclusion
In summary, over the past two years, the financial performance of the insurer improved. It repaid some of its debt obligations and sold some assets, so the surplus increased. The value of net income generated by the company gradually increases, and the value of expenses decreases. Based on the combined ratio, the insurer’s profitability increased in 2018, and this trend is expected to remain in the following year.