The 2025 Los Angeles (L.A.) area wildfires were a significant stress event for the California property and casualty (P&C) insurance sector. While the industry has been resilient and positive reforms such as allowances for rate increases have been implemented, the sector is still vulnerable to another significant loss event especially as the California Fair Access to Insurance Requirements (FAIR) Plan total exposure grows.
KEY HIGHLIGHTS
-- The U.S. P&C insurance sector has recovered from the 2025 wildfire losses thanks to premium increases and low catastrophe losses for the remainder of the year.
-- State Farm General Insurance Company, the entity writing California property risk for State Farm, was particularly vulnerable and remains in a weaker position.
-- Allowance for premium increases and other reforms are a move in the right direction to create a sustainable property insurance market, but the reliance on the FAIR Plan is a risk for the industry and doesn't incentivize accurate pricing of risk.
"A year after the January 2025 L.A. area wildfires, the U.S. P&C insurance sector has generally remained resilient, with no failure among the leading insurers in the California property market," said Patrick Douville, Vice President Global Insurance and Pension Ratings. "However, State Farm General Insurance Company, which is a leading property insurer in California, has incurred $7.6 billion in catastrophe losses and remains in a relatively weak, although stable, financial position. California's FAIR Plan received a $1 billion payment from the insurance industry in 2025, after it ran out of funds to cover approximately $4 billion in claims related to the L.A. wildfires. With the total exposure of the FAIR Plan growing fast and reaching $696 billion, the risk remains significant for the industry."
"One Year Later: Consequences of the Los Angeles Area Wildfires for the Insurance Sector"
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