State Farm just lost its perfect credit score. After decades at the top of AM Best’s rating scale, the nation’s largest auto insurer dropped from A++ (Superior) to A+ (Superior) on November 14, 2025. Your policy didn’t change overnight, but the financial ground beneath 83 million policyholders just shifted.
Here’s what happened and what you should do about it.
Business Wire reported that AM Best—the credit agency that grades insurance companies—downgraded State Farm Mutual Automobile Insurance Company and its affiliated companies due to “increased underwriting risk and volatility.” Translation: State Farm is paying out significantly more in claims than expected, particularly for auto and home insurance.
Why AM Best Downgraded State Farm (The Numbers Tell the Story)
Three forces converged to trigger the downgrade:
- Auto claims exploded. Accidents are happening more frequently, and each crash costs insurers far more to settle—driven by expensive vehicle technology, supply chain delays for parts, and higher medical costs.
- Homeowners claims surged too. State Farm faces mounting catastrophe losses from wildfires, hurricanes, and severe storms that now hit with alarming regularity across multiple states.
- The operating environment got brutal. Rising costs for repairs, medical care, and rebuilding homes squeezed profit margins while claims frequency stayed stubbornly high.
The downgrade hit more than just the parent company. State Farm Fire and Casualty Company, State Farm Life Insurance Company, and even State Farm Bank, F.S.B. all dropped ratings. AM Best also cut the Long-Term Issuer Credit Rating from “aaa” to “aa+”—still strong, but no longer at the absolute peak.
The stable outlook means AM Best doesn’t expect another downgrade soon. But it also signals no quick return to A++ status.
What Does A+ vs. A++ Actually Mean for Your Policy?
Both ratings fall in AM Best’s “Superior” category, which sounds reassuring. And State Farm remains financially solid—don’t panic about your insurer collapsing. But the difference matters more than you’d think.
An A++ rating represents the absolute strongest financial position an insurer can hold. It tells you the company can handle massive catastrophe losses, economic shocks, and prolonged underwriting losses without threatening policyholder claims. Think of it as having an emergency fund that covers 2-3 years of expenses.
An A+ rating still reflects superior financial strength, but with slightly less cushion. The company can weather significant storms, but sustained volatility—like back-to-back catastrophe years or prolonged auto claim surges—puts more pressure on reserves. Your emergency fund now covers 12-18 months instead of 24-36 months.
For State Farm policyholders, this means increased likelihood of:
| Potential Impact | Probability | Timeline |
|---|---|---|
| Premium increases | High | Next renewal cycle (2026) |
| Stricter underwriting | Moderate | 6-12 months |
| Reduced coverage options | Low-Moderate | 12+ months |
| Market exit (high-risk states) | Low | 18+ months |
State Farm won’t announce these changes until they file rate adjustments with state regulators. But the pattern across other downgraded insurers suggests premiums will rise to restore profitability.
Should You Switch Insurance Companies After This Downgrade?
Not immediately. Here’s why a knee-jerk switch could cost you more than staying put.
First, State Farm’s A+ rating still ranks in the top tier nationally. Most competitors carry ratings of A or lower—meaning you’d potentially trade a superior-rated insurer for a weaker one. Check any alternative insurer’s AM Best rating before switching to ensure you’re moving laterally or up, not down.
Second, switching insurers often triggers higher premiums due to loss of loyalty discounts, introductory rate expiration after 6-12 months, and the administrative hassle of transferring coverage. You might save 10-15% initially, only to see rates jump 20-25% at your first renewal with the new carrier.
Third, State Farm still processes claims reliably. The downgrade reflects financial pressure from paying out massive claim volumes—which means they’re actually honoring policyholder claims, not denying them to preserve profits.
However, you SHOULD switch if:
- Your premium jumps more than 20-30% at renewal without corresponding claims or coverage changes on your policy.
- State Farm restricts coverage or increases deductibles significantly in your state (watch for this in catastrophe-prone areas like California, Florida, Louisiana).
- You live in a high-risk area and State Farm non-renews your policy—several insurers have exited catastrophe zones entirely, and State Farm may follow in select markets.
- You find a carrier rated A+ or A++ offering 15%+ lower premiums with comparable coverage (rare, but worth checking).
The National Association of Insurance Commissioners recommends comparing at least 3-5 insurers annually, regardless of rating changes, to ensure you’re getting competitive rates.
Where the Auto Insurance Industry Is Heading (And Why)
State Farm’s downgrade isn’t happening in isolation. The entire auto insurance sector faces a perfect storm of cost pressures that won’t ease anytime soon.
Modern vehicles cost dramatically more to repair. A fender bender that cost $2,000 to fix in 2019 now runs $4,500–$6,000 due to advanced sensors, cameras, and computer systems embedded in bumpers and body panels. Replacing a side mirror on a 2024 vehicle with blind-spot detection can cost $1,200 versus $200 for older cars.
Medical costs continue rising faster than inflation. The average bodily injury claim climbed from $18,000 in 2020 to $26,000 in 2024—a 44% jump in just four years. More accident victims seek treatment for minor injuries, and providers charge higher rates for each service.
Supply chain disruptions linger. Parts shortages force repair shops to keep damaged vehicles for weeks or months, driving up rental car costs that insurers must cover. State Farm and competitors now pay for 30-60 day rentals where 7-10 days used to be standard.
Catastrophe losses are breaking records. The Insurance Information Institute reports that insurers paid out over $100 billion in catastrophe claims in 2024—the third-highest year on record. State Farm’s heavy homeowners insurance exposure in California, Texas, and Florida amplified their catastrophe losses.
This environment explains why Allstate, Progressive, and Travelers also faced rating pressure in 2024-2025, though none fell from the A++ tier like State Farm.
What State Farm Policyholders Should Do Right Now
Take these three steps before your next renewal:
1. Request a policy review and quote comparison.
Contact your State Farm agent and ask for a complete coverage review. Document your current premiums, deductibles, and coverage limits. Then get quotes from at least two competitors rated A+ or higher (check AM Best ratings at web.ambest.com). Compare total costs over 12 months, not just the first 6-month premium.
2. Optimize your current policy for potential rate increases.
If you’re staying with State Farm, maximize discounts now:
- Bundle auto and home insurance (typically saves 15-25%)
- Increase deductibles from $500 to $1,000 (can cut premiums 10-15%)
- Install dashcams or usage-based monitoring devices (saves 5-15%)
- Complete defensive driving courses (saves 5-10% in most states)
- Verify all applicable discounts: good driver, good student, military, multi-car, safety features
These adjustments soften the blow if State Farm implements rate increases in 2026.
3. Monitor state insurance department filings.
State Farm must file rate change requests with your state’s insurance department before increasing premiums. Most state regulators publish these filings publicly online. Search “[Your State] insurance department rate filings” and bookmark the page. Check quarterly for State Farm submissions that signal upcoming rate changes.
You’ll typically see filings 90-120 days before rate increases take effect, giving you time to shop alternatives before your renewal date.
The Bigger Picture: What This Signals About Insurance Stability
When the largest auto insurer in America loses its perfect rating, it reflects broader industry instability that affects all policyholders.
State Farm holds roughly 16-17% of the U.S. auto insurance market—far larger than any competitor. Their financial struggles suggest smaller insurers face even more severe pressure. Several regional carriers have already exited unprofitable states or lines of business entirely.
This consolidation typically leads to reduced competition and higher consumer prices. If State Farm pulls back from certain markets or tightens underwriting standards, the remaining insurers face less pricing pressure and can charge more.
The downgrade also highlights climate change’s accelerating impact on insurance economics. Insurers can no longer price for historical loss patterns when catastrophes now strike with unprecedented frequency and severity. State Farm’s homeowners exposure amplified their rating pressure in ways that pure auto insurers avoided.
Expect continued industry volatility through 2026-2027 as insurers adjust to this new normal. More rating actions, market exits, and premium increases will follow.
Frequently Asked Questions
Is my State Farm policy still safe after the downgrade?
Yes. State Farm remains financially strong with an A+ (Superior) rating from AM Best. Your claims will be paid, and the company isn’t at risk of insolvency. The downgrade signals increased financial pressure, not imminent failure. State insurance regulators also monitor carrier financial health and would intervene long before policyholders faced risk. However, expect premium increases and potentially tighter underwriting standards as State Farm works to restore profitability.
How much will my State Farm premium increase after this downgrade?
State Farm hasn’t announced specific rate increases yet, but recent history suggests 10-25% increases are likely over the next 12-24 months. The actual increase depends on your state, claims history, coverage levels, and vehicle type. States with higher catastrophe exposure (California, Texas, Florida, Louisiana) may see larger increases. Watch for rate filing announcements from your state insurance department starting in early 2026. State Farm must receive regulatory approval before implementing changes.
Should I switch from State Farm to another insurer now?
Not necessarily. Get quotes from competitors rated A+ or A++ by AM Best, but don’t switch unless you save at least 15-20% with equal coverage. Switching costs you loyalty discounts, and many insurers offer low introductory rates that spike at first renewal. State Farm’s A+ rating still outranks most alternatives. Switch only if you face a massive premium increase (25%+), coverage restrictions, or non-renewal in your area. Otherwise, optimize your current policy and compare rates at each renewal.
What caused State Farm’s rating downgrade?
AM Best cited “increased underwriting risk and volatility” driven by higher claim frequency and severity in auto and homeowners insurance. Vehicle repairs cost dramatically more due to advanced technology, medical costs continue rising, and catastrophe losses from wildfires, hurricanes, and storms have surged. State Farm’s heavy exposure to catastrophe-prone states like California, Texas, and Florida amplified losses. The combination of rising costs and increased claims volume eroded the financial cushion that earned their A++ rating.
Will State Farm exit my state after this downgrade?
Unlikely in most states, but possible in high-risk catastrophe zones. State Farm has already reduced homeowners insurance exposure in California and Florida, and the downgrade increases pressure to exit unprofitable markets. Monitor state insurance department filings for non-renewal announcements or market withdrawal notifications. If you live in a wildfire-prone area (California, Oregon, Colorado), hurricane zone (Florida, Louisiana, Texas coast), or flood-prone region, consider securing backup coverage quotes now. Most insurers give 60-90 days notice before non-renewal.
Bottom Line: Stay Informed, Not Alarmed
State Farm’s downgrade from A++ to A+ matters, but it’s not a five-alarm fire for policyholders. You’re still insured by one of the strongest companies in the industry, rated higher than most competitors.
What changed is State Farm’s financial margin for error. They can handle significant losses, just not as easily as before. That translates to higher premiums, potentially stricter underwriting, and reduced appetite for high-risk policies in certain markets.
Your action plan: Review your coverage before renewal, get competitive quotes, optimize discounts, and monitor rate filings in your state. Don’t panic-switch, but don’t ignore the warning signs either. The auto insurance landscape is shifting, and informed consumers will navigate it better than those who wait for premium shock at renewal time.
State Farm built their reputation on reliability over 100+ years. An A+ rating still reflects that strength. But the days of assuming your insurer will never raise rates significantly? Those ended on November 14, 2025.