State Farm General, California's largest home insurer, estimated Tuesday that it will cost $7.6 billion to settle its Los Angeles-area fire claims, but it said reinsurance will lower its losses to about $612 million.
The company disclosed it has already paid $1.75 billion to cover about 9,500 claims and will be able to handle all of its fire-related expenses because the majority of losses will be absorbed by its parent company, State Farm Mutual Automobile Insurance Co., which also provides it with reinsurance.
That reinsurance will lower the losses State Farm General must absorb to $212 million. But the company also expects to be assessed about $400 million to help bail out the California Fair Plan, an insurer of last resort backed by licensed state carriers, which is facing some $4 billion in fire-related losses.
Although State Farm General's direct losses are far larger than other California insurers have announced, reflecting its leading market share, its net losses are in line with -- if not smaller than -- what some other insurers have disclosed.
Read more: Insurance commissioner rejects State Farm's request for 22% emergency rate hike
Los Angeles-based Farmers Insurance, the state's No. 2 home insurer, said last week that it expects to lose at least $600 million from the Los Angeles-area fires, though that figures does not include any FAIR Plan assessment.
Mercury Insurance, also based in Los Angeles, said its gross losses could total as much as $2 billion but could net under $200 million after reinsurance and possible recoveries from Southern California Edison, if the utility is found liable for having sparked the Eaton fire.
Even so, S&P Global on Tuesday afternoon announced that it had put State Farm General's AA financial rating on a negative watch, citing its "weak underwriting performance over the past five years" and "potential earnings pressure in 2025, largely from the recent California wildfires."
State Farm General released its loss figures one day before a meeting with state Insurance Commissioner Ricardo Lara, following its request for an emergency rate hike of 22% in its home insurance rates.
State Farm General said S&P's rating's watch "reinforces the need for urgency" in getting its emergency rate increase.
The company has said it needs the premium revenue as it awaits a decision on a proposed rate hike it filed in June, when the company asked for a 30% rate increase for its homeowner polices as well as 36% for condo owners and 52% for renters.