Aftermath of Los Angeles Wildfires: A Wake-Up Call for Property & Casualty Insurers and Regulators

After the devastating wildfires in Southern California in January 2025, most of the heavily affected insurers have disclosed their preliminary losses, including reinsurance recoveries and FAIR Plan assessment losses. This commentary discusses the aftermath of the wildfires and highlights the regulatory and risk burdens that the insurance industry continues to face.

Key Highlights:
-- The record-breaking wildfire losses have added further concerns to the already challenging California insurance market, with roughly $12 billion of claims already paid out as of March 5, 2025.
-- Following the provisional approval on State Farm's emergency rate increase request, insurers are expected to file for more rate hikes in California, as they try to close the risk-to-pricing gap.
-- California's FAIR Plan has been growing in recent years, leaving the industry more vulnerable to assessment risks, especially with the thin surplus balance following the 2025 LA wildfires.

"The large wildfire losses are manageable for most national players but will add to the concerns on their capital allocation and profitability in the California insurance market, which has been particularly challenging for insurers in recent years," said Steve Liu, Assistant Vice President Global Insurance and Pension Ratings. "While the state has taken steps to improve the insurance market conditions, the burdens of strict regulatory environment and high insurance risk remain heavy and may require more dramatic changes to make the insurance market sustainable."