It looks like California’s largest homeowners insurer is getting a large rate increase following billions of dollars in losses from the Los Angeles wildfires and pullback on writing new policies in the state.
Administrative Law Judge Karl Seligman recommended approval of State Farm interim rate hike on Monday. California Insurance Commissioner Ricardo Lara still must make the final approval.
Specifically, State Farm’s non-tenant HO-3 line would get a 17% increase, a 15% increase in its renter/condo line and a 38% increase in rental dwelling, while the carrier committed to refraining from a new round of nonrenewals through the end of 2025. The agreement also stipulates that parent company State Farm Mutual will make a $400 million capital infusion into State Farm.
Related: In The Wake of Devastating LA Fires, Residents Begin to Rebuild
The interim rates remain temporary, and are subject to a full hearing process.
S&P Global Ratings on Tuesday lowered its financial strength and issuer credit ratings on State Farm General Insurance Co. to ‘A+’ from ‘AA’.
The ratings remain on CreditWatch with negative implications, according to an announcement from S&P.
“The rating action indicates uncertainties related to capital support from the State Farm group, raising questions about SFGI’s group status assessment and the associated rating impact,” the announcement states. “The company has had weak underwriting performance over the past five years and potential earnings and capital pressures in 2025. This was largely from the recent California wildfires and led to capital deteriorating near the regulatory authorized control level (ACL).”
During the time of underperformance and declining capital, State Farm has not provided any capital support to SFGI beyond reinsurance agreements. “We also consider the California Insurance Department’s ambiguity around rate approval,” the statement reads.
Consumer Watchdog, which has opposed State Farm’s requests for a rate hike, said the decision would make consumers pay now and allow State Farm to wait months before having to justify the hike is “a great disappointment for consumers.”
“Voter-approved Proposition 103 says a rate hike shouldn’t come before the rate justification, but that’s what happened here,” the statement continues. “We urge the Commissioner to reject the proposed decision so State Farm policyholders, many of whom are struggling to get their claims paid by the company after the Los Angeles fires, aren’t overcharged,” said Carmen Balber, executive director of Consumer Watchdog.”
Lara’s office issued the following statement through a California Department of Insurance spokesman:
“Californians deserve a process grounded in fairness, transparency, and integrity — not politics or posturing. That is why I requested an independent review of the evidence by an administrative law judge, who presented a proposed decision. I ordered this hearing to ensure that the parties have the opportunity to present their arguments before a neutral arbiter. I am balancing all the facts. Protecting all State Farm customers and the integrity of our insurance market is an urgent matter.”
State Farm issued the a statement in response to a request for comment:
“We thank the Administrative Law Judge for his careful consideration of this important matter. We look forward to the Commissioner’s final decision.”
The company’s California emergency rate request made in February was provisionally OK’d in March by Lara, who made the hike dependent on the company justifying the rate increase with data during a public hearing.
The request was then dropped to 17% after an early April hearing during which lawyers for the company, the California Department of Insurance and Consumer Watchdog presented arguments to determine the fate of State Farm’s request.
Related: Bill to Address California Wildfire And Insurance Crises Moving Through Legislature
State Farm has put some of its troubles on the L.A wildfires, which destroyed more than 11,500 properties. As of March, the carrier had reported paying out $2.5 billion for the LA wildfires in January.
The fallout from the wildfires touched many large carriers and has made the marketplace in California tougher, with availability and high rates already a growing concern. According to the California Department of Insurance, 37,749 claims have been filed related to the fires and $12.1 billion has been paid out.
The losses have factored into bottom lines and even the state’s carrier of last resort. Lara in February approved a controversial California FAIR Plan request for a $1 billion assessment on admitted market insurers to cover claims from the wildfires.
Bloomington, Illinois-based State Farm said at the time of its initial request that the increases were needed to align cost and risk, and enable State Farm to rebuild capital. Over the last nine years, the lack of alignment has meant that for every $1 collected in premium, the carrier has spent $1.26, resulting in more $5 billion in cumulative underwriting losses, according to State Farm.
Adding to State Farm’s troubles, the company is also part of two lawsuits filed in Los Angeles that allege major home insurance companies colluded to limit coverage in California communities at high risk for wildfires and force homeowners onto the FAIR Plan.
Insurers, including State Farm and 24 other companies that hold 75% of California’s home insurance market, were part of an “illegal scheme” in violation of California’s antitrust and unfair competition laws, according to one of the lawsuits filed in April.
Topics California Legislation Pricing Trends