Business
State Farm accused of funneling excess profits to parent as it seeks rate hike
State Farm General, California’s largest home insurer, is being accused of boosting the profits of its parent company at the expense of state policyholders — while claiming it’s in financial distress and in need of a 30% rate hike.
The company bought hundreds of millions of dollars of excess reinsurance from parent State Farm Mutual Automobile Insurance Co. over the past decade, while getting little back in return, according to Consumer Watchdog, a Los Angeles group that is challenging the hike.
Insurers buy reinsurance to protect themselves from catastrophic events that could put them out of business. It is often acquired from multinational firms that specialize in the product, but subsidiaries of large insurance companies sometimes buy reinsurance from a parent.
Even during the catastrophic fire years of 2017 and 2018, during which thousands of structures were destroyed by the Thomas fire in Ventura County, the Camp fire in Butte County and others, the company would have been better off not buying the reinsurance it got, the group alleges.
“Reinsurance is a main reason State Farm is asking for its massive 30% rate hike — but the company is overpaying for reinsurance and consumers shouldn’t foot the bill,” said Carmen Balber, executive director of the group.
State Farm declined comment on the allegations, saying it was “not appropriate” to do so while the rate filing is being reviewed by the state Department of Insurance.
“The appropriate place to share facts and bring clarity to this complex matter is within the formal rate filing process. We are prepared to do that,” said Sevag Sarkissian, a spokesperson for the State Farm insurance group.
State Farm General bought a total of $2.2 billion worth of homeowners reinsurance from multiple parties from 2014-23. It received $400 million back to cover claims, meaning it recovered less than 20% of what it paid for in reinsurance, according to calculations by Consumer Watchdog. The group estimates about two-thirds came from State Farm Mutual.
In making its allegations, Consumer Watchdog analyzed 10 years of reinsurance data filed by the number two, three and four California home insurers by market share: CSAA Insurance Exchange; California Automobile Ins. Co., a subsidiary of Mercury General; and Fire Insurance Exchange, a member of Farmers Insurance Group.
While Fire Insurance Exchange also purchased substantial amounts of reinsurance from its parent, Balber said all three companies received more reimbursements for every dollar of reinsurance they purchased than did State Farm — and especially benefited during the 2017 and 2018 fire years.
As an “intervenor” in the rate review — a process established by Proposition 103, the landmark 1988 insurance reform initiative spearheaded by Consumer Watchdog — the group has asked State Farm General to provide more details about its reinsurance agreements. Balber said it has yet to receive any documents.
Actuary James Naughton, a professor at the University of Virginia’s Darden School of Business, said that Consumer Watchdog had cause to question State Farm over its reinsurance practices since the parent company appeared to financially benefit from the arrangement.
“[They] are right to be suspicious of the fact that it’s basically a State Farm-to-State Farm movement of risk,” he said.
But he added that the reinsurance did protect State Farm General from catastrophic claims, and that reinsurance contracts are customized, making it difficult to draw definitive conclusions about them.
The allegations against State Farm General come not only as the company is seeking steep rate hikes in its homeowners — as well as its condominium and renters — policies, but after it said in March it would not be renewing 72,000 home, apartment and other property policies. It cited soaring reconstruction costs, increasing wildfire risks and outdated state regulations.
State Farm General also has already received significant home insurance rate increases, including a 6.9% boost in January 2023 and a 20% jump that went into effect in March.
The company is one of a number of California insurers that have either stopped writing new policies, withdrawn from the market, raised prices or tightened underwriting standards amid a sharp increase in wildfires attributed to climate change. Others include Farmers Insurance, the Hartford and Allstate, which is seeking its own 34% rate hike.
In response, Insurance Commissioner Ricardo Lara has proposed a series of reforms intended to stabilize California’s insurance market and attract insurers back into the market. Called the Sustainable Insurance Strategy, it includes a regulation that would allow insurers to pass through their reinsurance costs to policyholders.
Consumer Watchdog opposes the regulation, and Balber cited State Farm General’s reinsurance arrangements as “exhibit one” of why it’s not a good idea.
Michael Soller, the department’s deputy commissioner for communications, declined to respond to the criticism but said the group’s allegations about State Farm’s reinsurance practices “echo concerns” of regulators, who are seeking more information about State Farm’s financial status and its reinsurance arrangements as it reviews the request for a rate increase.
“Our goal is to hold all parties accountable in our thorough and transparent rate review. We are not going to make any decisions until we have our questions answered,” he said.
In filing for its rate increase, State Farm, which also sells auto, commercial and other policies, warned that its financial condition would deteriorate if it was not approved.
The company saw its net losses grow to $880 million last year from $98.4 million in 2022. However, losses narrowed to $53.8 million in the first six months of this year, according to rating agency A.M. Best, which this month rated the company’s financial strength as “B” with a stable outlook, meaning it had a “fair” ability to meet its financial obligations.
Parent State Farm Mutual Automobile Insurance Co., which lost $4.7 billion last year, earned $1.56 billion in the first six months of this year. This month it earned A.M. Best’s top financial strength rating of A++ but with a “negative outlook.”
Business
U.S. Space Force awards $1.6 billion in contracts to South Bay satellite builders
The U.S. Space Force announced Friday it has awarded satellite contracts with a combined value of about $1.6 billion to Rocket Lab in Long Beach and to the Redondo Beach Space Park campus of Northrop Grumman.
The contracts by the Space Development Agency will fund the construction by each company of 18 satellites for a network in development that will provide warning of advanced threats such as hypersonic missiles.
Northrop Grumman has been awarded contracts for prior phases of the Proliferated Warfighter Space Architecture, a planned network of missile defense and communications satellites in low Earth orbit.
The contract announced Friday is valued at $764 million, and the company is now set to deliver a total of 150 satellites for the network.
The $805-million contract awarded to Rocket Lab is its largest to date. It had previously been awarded a $515 million contract to deliver 18 communications satellites for the network.
Founded in 2006 in New Zealand, the company builds satellites and provides small-satellite launch services for commercial and government customers with its Electron rocket. It moved to Long Beach in 2020 from Huntington Beach and is developing a larger rocket.
“This is more than just a contract. It’s a resounding affirmation of our evolution from simply a trusted launch provider to a leading vertically integrated space prime contractor,” said Rocket Labs founder and chief executive Peter Beck in online remarks.
The company said it could eventually earn up to $1 billion due to the contract by supplying components to other builders of the satellite network.
Also awarded contracts announced Friday were a Lockheed Martin group in Sunnyvalle, Calif., and L3Harris Technologies of Fort Wayne, Ind. Those contracts for 36 satellites were valued at nearly $2 billion.
Gurpartap “GP” Sandhoo, acting director of the Space Development Agency, said the contracts awarded “will achieve near-continuous global coverage for missile warning and tracking” in addition to other capabilities.
Northrop Grumman said the missiles are being built to respond to the rise of hypersonic missiles, which maneuver in flight and require infrared tracking and speedy data transmission to protect U.S. troops.
Beck said that the contracts reflects Rocket Labs growth into an “industry disruptor” and growing space prime contractor.
Business
California-based company recalls thousands of cases of salad dressing over ‘foreign objects’
A California food manufacturer is recalling thousands of cases of salad dressing distributed to major retailers over potential contamination from “foreign objects.”
The company, Irvine-based Ventura Foods, recalled 3,556 cases of the dressing that could be contaminated by “black plastic planting material” in the granulated onion used, according to an alert issued by the U.S. Food and Drug Administration.
Ventura Foods voluntarily initiated the recall of the product, which was sold at Costco, Publix and several other retailers across 27 states, according to the FDA.
None of the 42 locations where the product was sold were in California.
Ventura Foods said it issued the recall after one of its ingredient suppliers recalled a batch of onion granules that the company had used n some of its dressings.
“Upon receiving notice of the supplier’s recall, we acted with urgency to remove all potentially impacted product from the marketplace. This includes urging our customers, their distributors and retailers to review their inventory, segregate and stop the further sale and distribution of any products subject to the recall,” said company spokesperson Eniko Bolivar-Murphy in an emailed statement. “The safety of our products is and will always be our top priority.”
The FDA issued its initial recall alert in early November. Costco also alerted customers at that time, noting that customers could return the products to stores for a full refund. The affected products had sell-by dates between Oct. 17 and Nov. 9.
The company recalled the following types of salad dressing:
- Creamy Poblano Avocado Ranch Dressing and Dip
- Ventura Caesar Dressing
- Pepper Mill Regal Caesar Dressing
- Pepper Mill Creamy Caesar Dressing
- Caesar Dressing served at Costco Service Deli
- Caesar Dressing served at Costco Food Court
- Hidden Valley, Buttermilk Ranch
Business
They graduated from Stanford. Due to AI, they can’t find a job
A Stanford software engineering degree used to be a golden ticket. Artificial intelligence has devalued it to bronze, recent graduates say.
The elite students are shocked by the lack of job offers as they finish studies at what is often ranked as the top university in America.
When they were freshmen, ChatGPT hadn’t yet been released upon the world. Today, AI can code better than most humans.
Top tech companies just don’t need as many fresh graduates.
“Stanford computer science graduates are struggling to find entry-level jobs” with the most prominent tech brands, said Jan Liphardt, associate professor of bioengineering at Stanford University. “I think that’s crazy.”
While the rapidly advancing coding capabilities of generative AI have made experienced engineers more productive, they have also hobbled the job prospects of early-career software engineers.
Stanford students describe a suddenly skewed job market, where just a small slice of graduates — those considered “cracked engineers” who already have thick resumes building products and doing research — are getting the few good jobs, leaving everyone else to fight for scraps.
“There’s definitely a very dreary mood on campus,” said a recent computer science graduate who asked not to be named so they could speak freely. “People [who are] job hunting are very stressed out, and it’s very hard for them to actually secure jobs.”
The shake-up is being felt across California colleges, including UC Berkeley, USC and others. The job search has been even tougher for those with less prestigious degrees.
Eylul Akgul graduated last year with a degree in computer science from Loyola Marymount University. She wasn’t getting offers, so she went home to Turkey and got some experience at a startup. In May, she returned to the U.S., and still, she was “ghosted” by hundreds of employers.
“The industry for programmers is getting very oversaturated,” Akgul said.
The engineers’ most significant competitor is getting stronger by the day. When ChatGPT launched in 2022, it could only code for 30 seconds at a time. Today’s AI agents can code for hours, and do basic programming faster with fewer mistakes.
Data suggests that even though AI startups like OpenAI and Anthropic are hiring many people, it is not offsetting the decline in hiring elsewhere. Employment for specific groups, such as early-career software developers between the ages of 22 and 25 has declined by nearly 20% from its peak in late 2022, according to a Stanford study.
It wasn’t just software engineers, but also customer service and accounting jobs that were highly exposed to competition from AI. The Stanford study estimated that entry-level hiring for AI-exposed jobs declined 13% relative to less-exposed jobs such as nursing.
In the Los Angeles region, another study estimated that close to 200,000 jobs are exposed. Around 40% of tasks done by call center workers, editors and personal finance experts could be automated and done by AI, according to an AI Exposure Index curated by resume builder MyPerfectResume.
Many tech startups and titans have not been shy about broadcasting that they are cutting back on hiring plans as AI allows them to do more programming with fewer people.
Anthropic Chief Executive Dario Amodei said that 70% to 90% of the code for some products at his company is written by his company’s AI, called Claude. In May, he predicted that AI’s capabilities will increase until close to 50% of all entry-level white-collar jobs might be wiped out in five years.
A common sentiment from hiring managers is that where they previously needed ten engineers, they now only need “two skilled engineers and one of these LLM-based agents,” which can be just as productive, said Nenad Medvidović, a computer science professor at the University of Southern California.
“We don’t need the junior developers anymore,” said Amr Awadallah, CEO of Vectara, a Palo Alto-based AI startup. “The AI now can code better than the average junior developer that comes out of the best schools out there.”
To be sure, AI is still a long way from causing the extinction of software engineers. As AI handles structured, repetitive tasks, human engineers’ jobs are shifting toward oversight.
Today’s AIs are powerful but “jagged,” meaning they can excel at certain math problems yet still fail basic logic tests and aren’t consistent. One study found that AI tools made experienced developers 19% slower at work, as they spent more time reviewing code and fixing errors.
Students should focus on learning how to manage and check the work of AI as well as getting experience working with it, said John David N. Dionisio, a computer science professor at LMU.
Stanford students say they are arriving at the job market and finding a split in the road; capable AI engineers can find jobs, but basic, old-school computer science jobs are disappearing.
As they hit this surprise speed bump, some students are lowering their standards and joining companies they wouldn’t have considered before. Some are creating their own startups. A large group of frustrated grads are deciding to continue their studies to beef up their resumes and add more skills needed to compete with AI.
“If you look at the enrollment numbers in the past two years, they’ve skyrocketed for people wanting to do a fifth-year master’s,” the Stanford graduate said. “It’s a whole other year, a whole other cycle to do recruiting. I would say, half of my friends are still on campus doing their fifth-year master’s.”
After four months of searching, LMU graduate Akgul finally landed a technical lead job at a software consultancy in Los Angeles. At her new job, she uses AI coding tools, but she feels like she has to do the work of three developers.
Universities and students will have to rethink their curricula and majors to ensure that their four years of study prepare them for a world with AI.
“That’s been a dramatic reversal from three years ago, when all of my undergraduate mentees found great jobs at the companies around us,” Stanford’s Liphardt said. “That has changed.”
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