State Farm says it will pay $7.6 billion for L.A. fires but reinsurance will slash losses
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State Farm General, California’s largest home insurer, estimated Tuesday that it will cost $7.6 billion to settle its Los Angeles-area fire claims, but it said reinsurance will lower its losses to about $612 million.
The company disclosed it has already paid $1.75 billion to cover about 9,500 claims and will be able to handle all of its fire-related expenses because the majority of losses will be absorbed by its parent company, State Farm Mutual Automobile Insurance Co., which also provides it with reinsurance.
That reinsurance will lower the losses State Farm General must absorb to $212 million. But the company also expects to be assessed about $400 million to help bail out the California Fair Plan, an insurer of last resort backed by licensed state carriers, which is facing some $4 billion in fire-related losses.
Although State Farm General’s direct losses are far larger than other California insurers have announced, reflecting its leading market share, its net losses are in line with — if not smaller than — what some other insurers have disclosed.
Insurance Commissioner Ricardo Lara on Friday rejected State Farm General’s request for an emergency 22% home insurance rate hike due to the Los Angeles fires unless the insurer can provide more evidence it is warranted.
Los Angeles-based Farmers Insurance, the state’s No. 2 home insurer, said last week that it expects to lose at least $600 million from the Los Angeles-area fires, though that figure does not include any FAIR Plan assessment.
Mercury Insurance, also based in Los Angeles, said its gross losses could total as much as $2 billion but could net under $200 million after reinsurance and possible recoveries from Southern California Edison, if the utility is found liable for having sparked the Eaton fire.
Even so, S&P Global on Tuesday afternoon announced that it had put State Farm General’s AA financial rating on a negative watch, citing its “weak underwriting performance over the past five years” and “potential earnings pressure in 2025, largely from the recent California wildfires.”
State Farm General released its loss figures one day before a meeting with state Insurance Commissioner Ricardo Lara, after its request for an emergency hike of 22% in its home insurance rates.
State Farm General said S&P’s ratings watch “reinforces the need for urgency” in getting its emergency rate increase.
The company has said it needs the premium revenue as it awaits a decision on a proposed rate hike it filed in June, when the company asked for a 30% rate increase for its homeowner policies as well as 36% for condo owners and 52% for renters.
State Farm General said it is prepared to issue refunds for customers who pay the interim emergency rates if the department approves lower increases than the rate hikes it sought last year.
Lara turned down the emergency request this month pending more financial and other information from the carrier, which has retreated from the state’s home insurance market amid rising wildfire and other claims.
In March 2024, the company announced that it would not renew 72,000 home, apartment and other property policies in California, citing wildfire risks and other concerns. That followed its decision in May 2023 to stop writing new business, homeowners, and other personal property and casualty insurance in the state. State Farm continues to sell personal auto policies.
In announcing its losses Tuesday, State Farm General said its request was not based on its Los Angeles-area wildfire losses, though it noted the fires would reduce the company’s surplus by an additional $400 million. An insurer’s surplus is a financial cushion that helps pay for catastrophes and other unexpected claims.
The company urged Lara to approve its request for an emergency rate increase.
“Immediate interim approval is an indispensable and critical first step to eventually restoring the company’s financial strength. Financial strength is necessary so an insurance company can pay for any future claims for the risks it insures,” the company said in a statement.
FAIR Plan to assess insurers $1 billion for L.A. fires; consumers may be on the hook for nearly half
The California FAIR Plan, the insurer of last resort, received approval to assess member carriers $1 billion to help pay its L.A. fire losses -- with consumers possibly on the hook for nearly half.
State Farm General also released a letter it sent to Lara answering questions he posed to the insurer after initially turning down its request for the emergency rate request, which also asked for an increase of 38% for rental dwellings as well as 15% for renters and condo owners.
Even if those requests are granted, that would not be sufficient for it to begin offering policies to new customers seeking property insurance, it said in the letter.
After last month’s wildfires, at the request of Lara, State Farm offered one-year renewals to all Los Angeles County residents whose property policies had not expired prior to the fires’ start Jan. 7.
Under state law, homeowners who suffered a total loss in the fires must be offered renewals for two years.
The insurer estimated that its offer would apply to roughly 70%, or 1,100, of the 1,626 residential policies it had in Pacific Palisades’ primary ZIP Code when it announced it would not offer renewals last year.
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