State Farm Faces More Than $600M in Losses from LA Wildfires

State Farm Faces More Than $600M in Losses from LA Wildfires

State Farm General, a unit of Illinois-based State Farm Mutual Automobile Insurance, faces a staggering $612 million in losses from the recent wildfires that ravaged thousands of homes in Los Angeles County.

Estimated Losses and Reinsurance

The state’s largest insurer estimates it will cost $7.6 billion to settle its wildfire claims. However, reinsurance will lower its losses to $612 million. The company has already paid $1.75 billion to cover about 9,500 claims.

Reinsurance and Parent Company Support

State Farm General will handle all of its fire-related expenses, as the majority of losses will be absorbed by its parent company, which also provides reinsurance. This reinsurance will lower the losses State Farm General must absorb to $212 million.

Assessment for California Fair Plan

However, the company expects to be assessed around $400 million to help bail out the California Fair Plan, an insurer of last resort backed by licensed state carriers, which now faces $4 billion in fire-related losses.

Insurance Commissioner’s Decision

This announcement comes after State Insurance Commissioner Ricardo Lara turned down a request by State Farm General to raise home insurance rates by an average of 22 percent to help pay for the Los Angeles wildfires. The commissioner denied the increase, stating that the company failed to prove it was warranted.

S&P Global’s Rating Warning

S&P Global 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 stated that S&P’s ratings watch "reinforces the need for urgency" in getting its emergency rate increase.

Other Insurers’ Losses

Woodland Hills-based Farmers Insurance, the state’s No. 2 home insurer, expects to lose at least $600 million from the Los Angeles-area fires, excluding any FAIR Plan assessment. Mercury Insurance, also based in Los Angeles, estimates its gross losses could total as much as $2 billion, with net losses of under $200 million after reinsurance and possible recoveries from Southern California Edison, if the utility is found liable for having sparked the Eaton fire that burned down half of Altadena.

Conclusion

The devastating impact of the recent wildfires on the insurance industry is evident, with State Farm General facing significant losses. The company’s reliance on reinsurance and support from its parent company has helped mitigate some of the losses, but the assessment for the California Fair Plan and potential rate hikes may still pose significant challenges.

Frequently Asked Questions

• What is State Farm General’s estimated loss from the LA wildfires?
  • $612 million
• What is the estimated cost to settle State Farm General’s wildfire claims?
  • $7.6 billion
• How much will reinsurance lower State Farm General’s losses?
  • $212 million
• What is State Farm General’s expected assessment for the California Fair Plan?
  • $400 million