NU Online News Service, Aug. 3, 4:14 p.m.EDT

The financial strength rating of State Farm Florida has beendowngraded by A.M. Best Co. several days before the insurer beginsnon-renewing policies under a previous agreement with the state tokeep it in Florida.

State Farm Florida was downgraded to "B-minus" from "B," with anegative outlook, due to the company's "continued significantdeterioration in earnings and risk-adjusted capitalization inrecent years and the expectation that some deterioration maycontinue over the near term," said the rating agency.

The downgrade "shines a spotlight on the challenges facing theFlorida property insurance market," said State Farm spokesmanMichael Grimes.

"There is still work to do to make Florida a viable insurancemarket," said Mr. Grimes, who added that the company would continueto work with state officials in an attempt to improve themarket.

State Farm Florida had already decided Florida was not viableand chose to leave because its net worth was dwindling fast. Butafter negotiations with regulators, the company stayed aftergetting a 14.8 percent rate increase for homeowners and condominiumpolicies and permission to not renew up to 125,000 of its 810,416residential policies.

The company can start non-renewing Aug. 8.

A.M. Best said State Farm Florida's problems are driven by adrop in net premiums written, wind mitigation discounts,reinsurance costs and inadequate rate. Its probable maximum lossfrom a 100-year hurricane is well in excess of its surplus, A.M.Best said.

According to Highline Data, which is owned by Summit BusinessMedia, which also owns National Underwriter, State FarmFlorida reported a net loss of more than $180 million lastyear.

In the 2010 first quarter, the company reported a net loss of$36.7 million