The January 2025 wildfires in Southern California destroyed more than 16,000 structures in parts of Los Angeles, marking the costliest wildfire disaster in US history, according to the California Department of Forestry and Fire Protection.
Morningstar DBRS estimated insured losses will exceed $30 billion. As of March 5, the California Department of Insurance reported nearly 38,000 claims filed and more than $12 billion paid. Losses varied across insurers, depending on reinsurance structures and market concentration.
Carriers like Mercury General, with a strong presence in California, reported heavier losses. The state’s FAIR Plan, which insurers high-risk properties, also reported significant losses, estimated at $4 billion. Its cash and surplus levels are expected to drop from $1.5 billion at the start of the year to $305 million by June, prompting a $1 billion assessment on private insurers.
State Farm General, the largest homeowner insurer in the state, reported $7.6 billion in gross losses but just $612 million net due to reinsurance support from its parent. The wildfires reduced its surplus by $400 million. On February 3, the company filed for a 22% emergency rate increase, which was provisionally approved in March, pending a public hearing on April 8. Under California law, increases above 7% may require a hearing or settlement if challenged.
Insurers argue current pricing does not reflect wildfire risks. Despite high economic losses from weather events, California’s average homeowners premium remains below the national average. More rate filings are expected, but regulatory delays remain a challenge.
Reinsurers are absorbing a large share of the losses, with Morningstar DBRS estimating $5 billion covered by global reinsurers, including the European Big Four and Bermuda-based firms. High reinsurance costs have led some insurers to raise retention levels, increasing their exposure.
Companies like Farmers and Mercury General have disclosed reinstatement premium costs of $250 million and $101 million, respectively.
California regulators in December approved rule changes allowing insurers to pass on reinsurance costs to policyholders, subject to conditions.
Some insurers resumed writing policies, while others remain cautious. The continued expansion of the FAIR Plan, which has grown over 300% since 2021, raises concerns about long-term market stability. Without broader reform, the reliance on the FAIR Plan may increase, adding further strain to the state’s insurance system.
