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State Farm Repays Its Customers

Jul 5, 2007

By Trevor Anderson, Herald-Journal, Spartanburg, S.C.

Jul. 6--Lou Ferringer of Spartanburg was pleasantly surprised last Thursday when he opened a letter from his insurer, State Farm Mutual Automobile Insurance Co., that contained a dividend check for $50.

But he didn't ask any questions. He went to the bank, cashed the check and is still trying to decide how to spend it.

"I've been a State Farm customer for 50 years and this was the first dividend check I think I have ever received," Ferringer said. "I might go out for a nice dinner."

State Farm customers in South Carolina began to receive their dividend checks in March, but last week was the first time the checks hit Spartanburg in bulk.

The payments were a result of a $1.25 billion dividend reported by State Farm Mutual in 2006, which the company shared exclusively with its mutual automobile policyholders in the U.S.

The state's portion of the dividend was $45.3 million, or 17.9 percent of the return on its semi-annual premium, which was shared with its 936,000 mutual policyholders.

With this dividend, State Farm Mutual has returned about $3.8 billion to auto policyholders companywide since 1997.

"Part of being a mutual customer means that you are part-owner of sorts in the company," said Bruce White, director of public affairs and marketing in South Carolina for State Farm Mutual Insurance Co.

"When we have a good year, we can turn around and share that with your customers. It's something we do, not because of competition, but because we answer to our policyholders."

The checks started going out in early April in the U.S. and will continue throughout the year.

The size of each policyholder's dividend was determined by their jurisdiction, but the average payout amounts to about $35.

The dividend for policyholders receiving less than $15 will be credited to their State Farm renewal premium.

State Farm's board of directors said the dividend was a result of the company posting better-than-expected auto results and a $4.1 billion reduction in catastrophe losses in 2006.

White said the state's portion of the dividend was good because customers were more careful and filed fewer claims last year.

"This isn't something we can do every year because it's determined by the company's earnings," White said. "All credit goes to the safe driving of our customers in South Carolina."

White also said that the dividend checks were just the "whipped topping on the sundae" for the company's customers in South Carolina, as State Farm has been able to reduce its overall rate in the state by 8.3 percent since 2004.

"After the state legislature passed the auto reform bill in 1999, which allows us to change our rates to match your risks, South Carolina became a feeding ground for auto insurance companies like GEICO, Progressive and others," White said. "That's why we're seeing the rate reductions and dividend returns."

State Farm lowered its overall rate in the state by 0.9 percent in January, which represents annual savings of about $4.5 million for its customers.

"I have seen my rates come down by about four dollars in the past year," Ferringer said.

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Copyright (c) 2007, Herald-Journal, Spartanburg, S.C.

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