Net income rose to $5.32 billion from $3.24 billion in 2005, the Bloomington, Ill.-based company said today in a statement. The company, which is owned by its policyholders, will pay a record $1.25 billion dividend to its auto customers.

State Farm's catastrophe claims plunged 61 percent to $2.6 billion, a year after a record storm season, said spokesman Dick Luedke. Hurricanes Katrina, Rita and Wilma contributed to $57.3 billion in insured hurricane losses for the industry in 2005, according to the Insurance Services Office in Jersey City, New Jersey. The ultimate costs may rise as policyholders sue companies over coverage disputes.

State Farm's net worth, or its assets minus liabilities, rose by $8 billion to $58.1 billion during the year. The gain was driven by a $3 billion increase in underwriting profit and a gain in its stock portfolio, the company said.

Katrina's record devastation in 2005 left room for widespread disputes that continue to play out in courts in Mississippi and Louisiana. Most insurance policies cover wind-related damage, not flooding, and policyholders argue State Farm and other insurers have underpaid claims and misattributed damage to flooding.

State Farm and other insurers, including Allstate Corp. and Nationwide Mutual Insurance Co., are facing criticism from state and federal politicians for their claims-handling practices. A federal judge in January ordered State Farm to pay $1 million in punitive damages to a Mississippi couple who lost their home to Katrina. The company has since proposed paying at least $50 million to reconsider claims from as many as 36,000 policies in the state.

Another trial is scheduled to begin in Gulfport, Miss., on Monday.

The dividend, State Farm's fourth since 1997, trumps the company's previous record of just over $1 billion, announced in June 2000. It will pay eligible customers an average of $35 per insured vehicle.

Dividend payments to policyholders will begin in early April and will continue throughout the year, the company said. The dividends will vary by state, depending on the profitability of State Farm's business in the state.

Auto policyholders in Massachusetts will receive the biggest payout at $122 per vehicle, said Luedke.

Customers in Hawai'i, where State Farm is the second largest auto insurer behind Warren Buffett's Geico Corp., will receive an average of $100, the second highest dividend.

Policyholders in Delaware, Louisiana, Mississippi, New Jersey, and the provinces of Alberta and Ontario won't qualify for the payout, it said. New Jersey customers received $130 million in dividends in December.

State Farm can pay dividends to customers at the discretion of its board of directors when financial results are better than anticipated and business conditions permit.

The company reports its results based on state accounting rules for insurers. Publicly traded insurers must use U.S. generally accepted accounting principles.