I would say the purchase of reinsurance looks quite prudent in hindsight.
And makes State Farm's pitch for a 22% rate hike harder to justify.
From the re/insurance, cat bond, ILS mavens at Artemis, February 26:
US primary insurance giant State Farm has said that its direct losses from the Los Angeles, California wildfires are currently estimated at $7.6 billion, but after significant reinsurance recoveries only $212 million is expected to be retained.
State Farm has about the largest exposure to the LA wildfires and its loss has always been anticipated to be in the billions.
In its latest update, the company explained that its State Farm General Insurance Company entity has already paid out $1.75 billion for around 9,500 insurance claims filed as a result of the January wildfires in California.
The insurers current estimate of direct losses from the Los Angeles fires is now roughly $7.6 billion, which includes both reported and not reported claims.
Retained losses for State Farm General Insurance Company are expected to be $212 million after reinsurance, and its share of FAIR Plan losses is expected to be $400 million.
The company explained that these estimates are expected to reduce State Farm General Insurance Company’s surplus by approximately $400 million.
The reinsurance runs via State Farm Mutual Automobile Insurance Company (SFM), which serves as the primary reinsurer for State Farm General Insurance Company, so exactly how much of the loss ends up in the private reinsurance market is impossible to say at this stage.
State Farm also said that a rate increase it had requested right after the wildfires is not to pay for the costs of the fires, that will be born by surplus and its reinsurance.
However, State Farm continues to say that the rate increase is needed to ensure maximum availability of homeowners insurance in California.
Recall that, State Farm’s loss from these fires could have been higher had it not begun to pull-back from some of the affected areas in recent years.
The insurer explained the challenges it faces, “SFG insures high concentrations of risk in California that could generate financial losses multiple times larger than the company’s current surplus. A smaller capital base will further constrain SFG’s ability to provide ongoing coverage....
....MUCH MORE
Recently:
February 12 - California's High-Risk Property Insurance Plan Assesses Commercial Insurers $1 Billion To Keep From Going Broke
February 12 - Insurance: State Farm Asks California For 22% Emergency Rate Hike, Doesn't Seem Very Good At This Property/Casualty Business
February 25 - California Wildfires: "State Farm vs California showdown: Here are the huge stakes"
