AM Best Downgrades State Farm: What It Means for You (and Your Premium)

AM Best lowered State Farm’s Financial Strength Rating to A+ (Superior) from A++ (Superior) after five consecutive years of underwriting losses driven by tough auto and home results, heavy catastrophe losses, and regulatory constraints. The rating is still “Superior,” and AM Best continues to assess the group’s balance sheet as “strongest.” However, the operational pressure that led to the downgrade points to continued rate increases for many customers.

Last year, Trailstone flagged this trend in our 2024 video. Large personal-lines carriers would need multiple years of corrective action (including higher rates) to recover from sustained losses.

What happened, and why AM Best moved

On Nov. 14, 2025, AM Best downgraded State Farm Mutual Automobile Insurance Company and key affiliates (including State Farm Fire & Casualty and State Farm County Mutual of Texas) from A++ to A+ for Financial Strength, and cut their Long-Term Issuer Credit Ratings from aa+ to aa. The outlook is Stable. AM Best cited adverse underwriting experience in private-passenger auto and homeowners, a challenging regulatory environment, and elevated weather-related losses (hurricanes, convective storms, and wildfires). The agency notes five straight underwriting-loss years and four straight operating-loss years at the group level.

Insurance Journal’s coverage adds useful context. The downgrade reflects a revision of AM Best’s operating performance assessment from “strong” to “adequate.” Importantly, AM Best still views State Farm’s balance-sheet strength as the strongest, supported by robust capital and risk-based metrics (BCAR). The article also highlights that State Farm General (the California homeowners affiliate) remains at B (Fair) with a “bb+” ICR, the lowest ratings among the group.

AM Best’s rationale is consistent with State Farm’s recent results:

• 2024: Property/casualty underwriting loss of about $6.1B and a P/C pre-tax operating loss of $111M (compared with operating losses above $8B in each of the prior two years). State Farm reported $5.3B net income for 2024 after investment gains. Net income does not change the fact that underwriting remained negative.
• 2023: P/C underwriting loss of about $14.1B.
• 2022: P/C underwriting loss of about $13.2B.

AM Best’s release ties these cumulative losses to the downgrade and emphasizes that, despite the strain, State Farm’s capital position remains very strong (including a large common-stock portfolio that helped surplus in 2025).

So, will State Farm raise prices?

Yes, more than likely… Many have already gone up, and more are likely. Rate actions are filed state by state, but two clear signals stand out:

Homeowners in California

After January’s Los Angeles-area wildfires and capital strain at State Farm’s California unit, regulators approved a 17% emergency homeowners rate increase (with 15% for renters and condos and 38% for rental dwellings) effective June 2025. State Farm subsequently pursued another roughly 11%, aiming for about 30% total pending further hearings.

Auto in multiple states

Even before this downgrade, State Farm obtained major personal-auto rate hikes across the country in 2024 (for example, 23.1% in New Jersey, along with double-digit increases in several other states). That work is likely to continue in 2025 and 2026.

The takeaway for customers is straightforward... When an insurer posts years of underwriting losses and a ratings agency revises its performance assessment, rate increases, tighter underwriting, and deductible or coverage recalibrations are the standard tools to restore profitability. That is exactly what we are seeing.

Ok, let’s put this in context: what this downgrade is, and what it is not

• It is not a solvency alarm. A+ is still “Superior.” AM Best continues to assess State Farm’s balance sheet as “strongest.” Capital and market position remain significant.
• It is a performance warning. Five years of underwriting losses and ongoing catastrophe and regulatory headwinds mean pricing must keep catching up to claim costs, especially in homeowners and auto.
• Affiliates differ. California’s State Farm General sits at B (Fair). Other affiliates carry higher ratings with varied outlooks, which shows how local market dynamics matter.

What Trailstone recommends you do now

• Re-shop proactively. Even loyal, long-tenured customers can see large renewal jumps. Independent agents (like Trailstone) can compare multiple carriers for you.
• Consider telematics or usage-based programs to earn meaningful auto discounts if you drive safely.
• “Tune” your deductibles and coverages without underinsuring. Small changes can offset premium spikes.
• Harden your home. Roof age, mitigation (for example, fire-hardening and wind mitigation), and security updates can help with eligibility and pricing in catastrophe-exposed states.
• Maintain a clean loss history and a strong credit profile where permitted. Both influence eligibility and price bands.

So here is the Bottom line

AM Best’s downgrade does not mean State Farm is weak. It confirms what the numbers have been saying for years. Underwriting has been under heavy pressure, and prices must rise to close the gap. If your State Farm renewal climbs, or if availability tightens in your area, Trailstone can help you compare options across the market.