State Farm Mutual Automobile Insurance Company has stopped selling annuities from the Phoenix Companies Inc. following Phoenix’s recent financial problems.
A spokesman for State Farm, Bloomington, Ill., says a principal reason for the move was recent financial strength downgrades of Phoenix by rating agencies.
Meanwhile, Phoenix, Hartford, announced its recently reported financial results for 2008 overstated its losses. As a result, Phoenix will delay filing its annual report on Form 10-K.
Phoenix now expects to report a net loss of $378.3 million for the fourth quarter, rather than the $424.3 million loss it had reported in financial statements filed last week. Its net loss for the year would be $726 million rather than the $772 million originally reported, the company says.
Phoenix says the restatement was a result of an error in accounting for income taxes.
The company expects to file its amended 10-K statement with the Securities and Exchange Commission within 15 days, which it notes would be within statutory requirements for delayed statements.
It also says that State Farm intends to suspend the sale of Phoenix products “pending a reevaluation of the relationship between the companies.” Phoenix adds that it is assessing the impact of the sales suspension on its business prospects, operations and strategy, and on the related disclosures in its Form 10-K.
It also says expects to report in its Form 10-K “that it has a material weakness in its internal control over financial reporting designed to ensure proper accounting for income taxes.”
Earlier this week, Fitch Ratings downgraded the insurer financial strength ratings assigned to the life insurance subsidiaries of Phoenix to BBB+ from A and placed their ratings on rating watch negative.
Fitch says its action was due to a decline in Phoenix’s statutory capital and risk-based capital. “These declines were primarily a result of investment impairments, unrealized losses and variable annuity reserving requirements, given the unprecedented economic turmoil,” the agency stated.
The downgrade also partly due to the recent suspension of sales of the company’s products by “a major distributor,” Fitch said, without naming State Farm.