The deadly wildfires that have devastated the greater Los Angeles region in Southern California over the last week are estimated to be the costliest in the state’s history, which will leave insurers operating in the state facing significant losses.
The wildfires, which have been driven by strong Santa Ana winds through dry regions of the greater Los Angeles area, have killed at least 24 people while burning about 40,000 acres. Communities like Pacific Palisades, Malibu and Altadena have been particularly hard hit, while more than 12,000 structures have been destroyed or damaged.
Preliminary estimates have put insured losses from the wildfires as the costliest in California history. An analysis by JPMorgan last week estimated insured losses could top $20 billion, while Wells Fargo’s estimate from the weekend put insured losses at $30 billion within a range of $20 billion to $40 billion. Both estimates would surpass the $10 billion in insured losses caused by the 2018 Camp Fire that impacted the town of Paradise and neighboring communities in Northern California.
Moody’s Ratings produced an analysis last week that examined the largest insurers in California using S&P Global Market Intelligence data based on full-year data from 2023, as annual data from 2024 isn’t yet available.
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It found that the insurer with the most direct homeowners insurance premiums written in California in 2023 was State Farm, which accounted for over $2.7 billion in written premiums for residences in the Golden State.
Farmers Insurance ranked second with more than $2 billion in written California homeowners premiums. It was followed by Liberty Mutual with $908 million, CSAA Insurance Exchange with $895 million and Mercury Insurance with $839 million. Other insurers with over $700 million in California homeowners premiums in 2023 were Allstate ($792 million), USAA ($742 million) and Auto Club ($720 million).
Moody’s Ratings found that the insurers whose California homeowners business accounted for the largest share of their total U.S. homeowners insurance policies were Mercury (19%), CSAA (15%) and Auto Club (12%).
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JPMorgan’s analysis also included 2023 homeowners insurance data in California based on regulatory filings and data from S&P Financial. It included similar figures for written premiums, with some slight differences, and also included an estimate of insurers’ market share in the California homeowners insurance market from 2023.
State Farm had the largest California market share in 2023 with 19.9%, followed by Farmers Insurance with 14.9%, as well as CSAA Insurance Exchange and Liberty Mutual with 6.5% each. Other insurers with over 5% market share in California in 2023 include Mercury Insurance (6.1%), Allstate (5.8%), Auto Club Insurance (5.8%) and USAA (5.4%).
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Despite the historically large estimates for insured losses in the Southern California wildfires, Wells Fargo wrote in its analysis, “Regardless of outcome, we see this as a manageable event for insurers,” adding that at $40 billion in insured losses it “would represent a 2.0% hit to equity.”
Several leading insurers have in recent years stopped offering new homeowners or commercial insurance policies in fire-prone areas, while some have canceled policies or declined to renew them due to excessive risk.
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Insurers have also increased premiums to account for the risk of wildfires and other disasters, though state law restricts those increases and requires special approval for premium hikes above 7% and spreads increases over a period of three years.
Homeowners who lost their coverage or could no longer afford higher premiums and were unsuccessful in finding a private insurance policy can use California’s FAIR Plan, which is the insurer of last resort and tends to charge even higher premiums.
Moody’s Ratings found that as of September 2024, exposure under the FAIR Plan in Los Angeles County was about $112 billion, representing about 23.1% of the entire FAIR portfolio following year-over-year growth of about 53%.
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