State Farm General tells CDI it expects $6.85bn loss from CA wildfires

By David Bull

Feb 13 - (The Insurer) - State Farm General Insurance Company has disclosed to the California Department of Insurance in an emergency rate filing that its current estimate for losses from the recent wildfires totals around $6.85bn across 7,274 claims.

According to S&P Capital IQ analysis, the total from this event alone is $2.91bn more than the subsidiary of the giant insurer’s previous record full-year California homeowners loss of $3.94bn in 2017.

The total from last month’s devastating wildfires works out at an average claims severity of around $942,100.

Non-tenant homeowners' accounts for the lion’s share of the total, at around $6.09bn from 5,346 claims with an average severity of $1.14mn.

Rental dwelling is the next biggest component at $586.7mn from 1,060 claims with an average severity of $553,500.

Tenants – condo units contributed $146.4mn to the current estimate, based on a 467 claim count and average severity of $313,500, followed by tenants – renters at $31.9mn, with 401 claims and an average severity of $79,500.

State Farm General had previously disclosed a higher number for the volume of claims at 8,700.

It is currently seeking approval for an emergency rate plan following the losses in a bid to replenish its declining policyholders’ surplus.

In a 3 February letter to California insurance commissioner Ricardo Lara, State Farm General said that although reinsurance will assist the carrier in paying what it owes to customers on wildfire claims, the cost of the event will further deplete its capital, as it warned of potential rating downgrades.

“If that were to happen, customers with a mortgage might not be able to use State Farm General insurance as collateral backing for their mortgage.

“With nearly three million policies in force, including more than one million homeowners customers, SFG needs your urgent assistance in the form of emergency interim approval of additional rate to help avert a dire situation for our customers and the insurance market in the state of California,” said the letter, whose signatories included president and CEO Dan Krause.

State Farm General is seeking interim rate increases effective 1 May 2025 of 22 percent for non-tenant homeowners, 15 percent for tenants – renters, 15 percent for tenants – condo unit owners, and 38 percent for rental dwelling.

The insurer noted that over the nine-year period ending 2024 it will have paid $1.26 in claims and expenses for every dollar collected in premium, with over $5bn in cumulative underwriting losses.

It added that its attempts to raise rates and restrict growth over the period in order to keep its risk profile in line with available surplus “were constrained by regulatory considerations and met with limited success”.

“This was due in no small part to intervenors in the rate review process, whose very efforts to delay and decrease needed rate adjustments prevented SFG from maintaining a capital position supportive of its risk profile and impaired its ability to support continued underwriting of California properties,” the letter continued.

It highlighted the “difficult decision” in May 2023 to stop writing new policies in California and in March last year to non-renew 72,000 existing policies, adding that State Farm General has abided by requests from the CDI to pause non-renewals in wildfire moratoriums.

The letter also noted that its “prudently robust” reinsurance program includes State Farm Mutual as the primary reinsurer, providing the majority of its cover, and that external reinsurer capacity to underwrite significantly greater portions of State Farm General’s “massive risk portfolio at a reasonable price (or possibly, at any price) does not exist”.

“These fires reinforce why reinsurance is a critically important part of SFG’s claims-paying capacity, now and into the future, allowing SFG to write or retain significantly more property insurance in areas with significant risk such as wildfires than would otherwise be possible.

“The situation also reinforces SFG’s absolute disagreement with any characterisation that its payments for necessary reinsurance are in any way inflated or that SFG may have ‘engineered’ its weakened financial condition – that is irresponsible and simply not true,” it added.

It concluded by suggesting that to approve the rate filings even on an interim basis “sends a strong message that the state is serious about reforming its insurance market and allowing insurers to collect sufficient premiums to protect Californians against the risk of loss to their homes.”

“When insurers are able to be self-sustaining, it drives further investment and competition in the state of California, which increases availability and supports a sustainable insurance market,” the letter said.