The paragraph of this letter that jumps off the page is:
Insurance will cost more for customers in California going forward because the risk is greater in California. Immediate emergency interim approval of additional rate is essential to more closely align cost and risk and enable State Farm General to rebuild capital. We must appropriately match price to risk. That is foundational to how insurance works. Higher risks should pay more for insurance than lower risks. Over the last 9 years, the lack of alignment between price and risk means that for every $1.00 collected in premium, State Farm General paid $1.26, resulting in over $5 billion in cumulative underwriting losses.
A combined ratio of 126% over the course of nine years is borderline fraudulent.
When they realized they had a problem eight years ago the thing to do was: Stop writing insurance.
And seven years ago, and six years ago and...
They teach you that in the junior actuary class.
From State Farm, February 3:
State Farm General Insurance Company: Update on California
What you should know:
State Farm General asks the California Department of Insurance to immediately approve interim rate increases, including 22% average for homeowners.
State Farm has served the customers of California for nearly 100 years and our intention is to continue serving them for many more. State Farm helps people recover from the unexpected. That is what we are doing in the wake of the wildfires. As of February 1st, State Farm General (Fire only) has received more than 8,700 claims and has already paid more than $1 billion to customers. State Farm General will ultimately pay out significantly more, as collectively these fires will be the costliest disasters in the history of State Farm General.
The costs of the January 2025 wildfires will further deplete capital from State Farm General. Capital is necessary so an insurance company can pay for any future claims for the risks it insures. Last year, one rating agency downgraded State Farm General’s financial strength rating due to its capital position. With further capital deterioration as a result of the wildfires, additional downgrades could follow. If that were to happen, customers with a mortgage might not be able to use State Farm General insurance on the collateral backing for their mortgage.
State Farm General asked the California Department of Insurance today to immediately approve interim rate increases to help avert a dire situation for the more than 2.8 million policies issued by State Farm General, including 1 million State Farm General homeowners customers, and the insurance market in the state of California. State Farm General has had an outstanding filed rate increase pending since June 2024. Pending CDI approval, rate changes will be effective upon renewal on or after May 1, 2025.
Insurance will cost more for customers in California going forward because the risk is greater in California. Immediate emergency interim approval of additional rate is essential to more closely align cost and risk and enable State Farm General to rebuild capital. We must appropriately match price to risk. That is foundational to how insurance works. Higher risks should pay more for insurance than lower risks. Over the last 9 years, the lack of alignment between price and risk means that for every $1.00 collected in premium, State Farm General paid $1.26, resulting in over $5 billion in cumulative underwriting losses.
State Farm General has made difficult decisions to attempt to responsibly limit overexposure in high-risk areas, while allowing for targeted growth in lower risk areas of the state. In May 2023, State Farm General made the difficult decision to stop writing any new policies. In a detailed letter to the CDI in March 2024, State Farm General said, “The swift capital depletion of State Farm General is an alarm signaling the grave need for rapid and transformational action, including the critical need for rapid review and approval of currently pending and future rate filings.”....
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