CA SF Demands 22% Rate Hike
- Thread starter somarco
- Start date
- 2,486
Good News, according to Cal Matters "California's largest insurer should know within a couple of weeks whether it can raise premiums on its nearly 3 million policies in the state after making its case in a face-to-face meeting with Insurance Commissioner Ricardo Lara today."
- this would make the turn around time frame in Mid March. The original request date, according to the SF site is " June 2024".
My math could be fuzzy here - but I believe that that is a Nine Month [potential] Turn Around for an Emergency Request. 9 MONTHS! Source.
This is the largest home insurer in the state and some would say they are on life support.
The really good news is that they talked for "nearly an hour and a half" and members included RL, "State Farm" and of Course "Consumer Watchdog". Additionally according to Newsweek the DOI "also pushed for assurances that State Farm would expand coverage in California if allowed to raise rates."
- this would make the turn around time frame in Mid March. The original request date, according to the SF site is " June 2024".
My math could be fuzzy here - but I believe that that is a Nine Month [potential] Turn Around for an Emergency Request. 9 MONTHS! Source.
This is the largest home insurer in the state and some would say they are on life support.
The really good news is that they talked for "nearly an hour and a half" and members included RL, "State Farm" and of Course "Consumer Watchdog". Additionally according to Newsweek the DOI "also pushed for assurances that State Farm would expand coverage in California if allowed to raise rates."
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If you don't Follow Curtis Goldsborough on linked in you are making a mistake. He brings the CA situation to life in Very Fun ways! I highly recommend it.
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Great Synopsis here from PIAWest
State Farm wants an emergency rate hike that averages 22%. California Insurance Commissioner Ricardo Lara said no. He did, however, say yes to a request by Mercury General for a 12% starting this month, and to Safeco's request for a 7.2% hike.
Upset, State Farm pushed for, and received, a face-to-face meeting with Lara.
Mark Schwamberger — the CFO of State Farm General — told Lara and other leaders in the California Department of Insurance that his company's financial stability has been weakened by the $7.6 billion in claims from the Los Angeles area wildfires. So far, State Farm has paid Los Angeles area victims $1.76 billion.
"The ability, prospectively, to continue to stay behind our policies as we enter fire season, it's in jeopardy, sir," Schwarmberger told Lara. "And it's a very serious situation."
Without that emergency increase approval, Schwarmberger said State Farm will have to limit its exposure to wildfire losses and initiate "significant non-renewals."
Last year State Farm dropped 72,000 policies in California and quit writing homeowners policies in the state. And Schwarmberger said even if the increase is granted, State Farm might not go back to writing homeowners policies in California.
The threat has exasperated Lara. "I want to see some guarantee that they're going to come, that they're going to commit to engage," Lara said. "I didn't get that."
The game of chicken between Lara and State Farm has homeowners in California on edge. If the company cancels more policies, homeowners in high risk areas are going to be in a world of hurt when it comes to finding insurance.
Most will be pushed to the state's insurer of last resort, the FAIR Plan. It's already stressed from the numbers who've been forced there in the last few years.
Lara said he'll get back to State Farm and Schwarmberger, and give them an answer, in a couple of weeks.
Source link: Insurance Business America — [EXTERNAL LINK] - State Farm threatens to drop more policies if California's Lara rejects rate hike
State Farm wants an emergency rate hike that averages 22%. California Insurance Commissioner Ricardo Lara said no. He did, however, say yes to a request by Mercury General for a 12% starting this month, and to Safeco's request for a 7.2% hike.
Upset, State Farm pushed for, and received, a face-to-face meeting with Lara.
Mark Schwamberger — the CFO of State Farm General — told Lara and other leaders in the California Department of Insurance that his company's financial stability has been weakened by the $7.6 billion in claims from the Los Angeles area wildfires. So far, State Farm has paid Los Angeles area victims $1.76 billion.
"The ability, prospectively, to continue to stay behind our policies as we enter fire season, it's in jeopardy, sir," Schwarmberger told Lara. "And it's a very serious situation."
Without that emergency increase approval, Schwarmberger said State Farm will have to limit its exposure to wildfire losses and initiate "significant non-renewals."
Last year State Farm dropped 72,000 policies in California and quit writing homeowners policies in the state. And Schwarmberger said even if the increase is granted, State Farm might not go back to writing homeowners policies in California.
The threat has exasperated Lara. "I want to see some guarantee that they're going to come, that they're going to commit to engage," Lara said. "I didn't get that."
The game of chicken between Lara and State Farm has homeowners in California on edge. If the company cancels more policies, homeowners in high risk areas are going to be in a world of hurt when it comes to finding insurance.
Most will be pushed to the state's insurer of last resort, the FAIR Plan. It's already stressed from the numbers who've been forced there in the last few years.
Lara said he'll get back to State Farm and Schwarmberger, and give them an answer, in a couple of weeks.
Source link: Insurance Business America — [EXTERNAL LINK] - State Farm threatens to drop more policies if California's Lara rejects rate hike
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California's largest property insurer, State Farm General, has warned that it will not resume writing new policies in the state, even if regulators approve its proposed 22% rate increase. The statement, delivered in a letter to Ricardo Lara, the state's insurance commissioner, underscores the growing crisis in California's homeowners insurance market as insurers retreat in response to rising wildfire-related losses and regulatory constraints.
State Farm's position follows months of escalating tensions between the insurer and the California Department of Insurance (CDI). In a recent meeting convened by Lara, company executives, state officials, and consumer advocates discussed the impact of Proposition 103, a 1988 law that limits rate hikes and mandates public hearings for increases above 7%.
State Farm's position follows months of escalating tensions between the insurer and the California Department of Insurance (CDI). In a recent meeting convened by Lara, company executives, state officials, and consumer advocates discussed the impact of Proposition 103, a 1988 law that limits rate hikes and mandates public hearings for increases above 7%.
State Farm tells Lara that it "doesn't make sense" to issue new policies in California
Lara blames Reagan-era regulations as California homeowners get fewer options
www.insurancebusinessmag.com
tikibarrister
Guru
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I think I'm supposed to feel sad for Californians…but I don't.
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Interesting last article.
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And here is the very best financial/actuarial review that I have yet seen on the situation. The folks at the NY Times / LA Times etc should ask these guys to write their insurance articles as it relates to State Farm. I have no connection to these but the folks at Perr Knight deserve some credit. [Google - this is the best in depth article on the State Farm General California Insurance Crisis situation - with actual details.]
State Farm Sounds the Alarm in California
Over the last eight months, State Farm General has pleaded its case to the California Department of Insurance ("the Department") for higher rates while the company's financial position continued to deteriorate during this timeframe. The Los Angeles wildfires in January of this year provided the company further support for the needed rate increase. It also led the company to describe its financial position as a potential dire situation.
Our actuarial consulting experts weigh in on what's happening with State Farm General, and what it means for California's homeowners insurance market.
...
While the commissioner cannot approve the rate filings prior to the results of the rate hearings, State Farm General has requested an interim emergency rate increase
....
Rather than expeditiously approving the requested interim rate increase, which the commissioner's own Department recommended, the commissioner thought it would be more prudent to obtain additional information from State Farm... [he] ordered a meeting between State Farm, the Department, and Consumer Watchdog, which took place on February 26. "
....
It's important to note the difference between State Farm General ("SF General") and State Farm Mutual ("SF Mutual"). They are two separate companies operating financially independently of each other. SF General is a stock company owned by SF Mutual that was formed specifically to write California businesses, primarily homeowners and commercial multi-peril. In contrast, State Farm's auto business in California is written through SF Mutual rather than through SF General.
....
SF General....triggered a regulatory Company Action Level Event last year after failing to meet the NAIC's Risk-Based Capital ratio requirements. AM Best subsequently downgraded the Financial Strength Rating for SF General to a B in March 2024. These events happened prior to the wildfires, which put further stress on SF General's financial position. Recently, S&P Global placed its 'AA' rating for SF General on credit watch with negative implications.
Currently, SF General has estimated their wildfire losses to be $7.6 billion2. Most of the losses will be covered by reinsurance, which is primarily provided by their parent company, SF Mutual, at a rate that is below the market rate,....
After reinsurance, SF General has estimated their retained losses to be approximately $212 million1.
...
On top of the wildfire losses, SF General mentioned it "will be required to book its share of FAIR Plan losses on its financial statements, regardless of whether an assessment is issued. SF General's participation rate for dwelling losses (commercial losses are treated separately) is expected to be around 16%."
...
SF General reported their surplus to be $1.04 billion1 as of year-end 2024, which is a substantial drop from its value of $4.08 billion3 in 2016. Additionally, SF General's initial estimate of the reduction in surplus due to the wildfires is $400 million1, which would leave it with approximately $600 million in surplus and an in-force book of business that is inadequately priced based on its rate filings.
As of December 31, 2024, SF General's authorized control level risk-based capital (where the state commissioner may place the insurer under regulatory control) was $691 million. Given SF General's latest estimate of its surplus, the company has experienced an authorized control level event and will, at the very least, need to provide its domiciliary state (Illinois) with corrective actions the insurer is taking to improve its financial position. The domiciliary state also has the authority to take regulatory control of the company.
In SF General's pending rate filing3, it states the following: "There are no plans for State Farm General to seek financial support from State Farm Mutual,"...
One would think this delivers enough value for SF Mutual to provide financial assistance to SF General, but this does not factor in the difficulty of maintaining price adequacy in California and potential future underwriting losses due to inadequate rates. Right now, at the current rate and surplus level, SF General represents a risky investment for SF Mutual, which may produce negative returns for the parent company. Over the last two years, SF General has had a combined net underwriting loss of $1.655 billion, excluding the Los Angeles wildfires.
Dire situations require immediate action. The interim rate increases provide some help. Ultimately, State Farm General must reduce their market share in California property, which will take several years. If AM Best further downgraded the company, and/or banks stopped accepting them as an insurer on home loans, this would expedite the decrease in the company's market share – far from an ideal solution. Only time will tell what path SF General takes.
No matter what happens, SF General's homeowners market share will be decreasing in California. Although it is similar to SF Mutual's homeowners market share in other states, the California regulatory environment, combined with the state's exposure to wildfires and the lack of diversification across other lines of business, requires substantially more surplus for SF General to continue insuring approximately 20% of the homeowners market.
....
Over the next year, the homeowners market will likely continue to have availability issues with many insurers sitting on the sidelines waiting to see the impact of the changes implemented by the Department. As of September 2024, the FAIR Plan reported annual growth in policies in-force and premium of 28.9% and 58.6%, respectively. ....."
End Quotes on the article
Not sure if this was written before or After Lara's "provisional rate increase" approval."
State Farm Sounds the Alarm in California
Over the last eight months, State Farm General has pleaded its case to the California Department of Insurance ("the Department") for higher rates while the company's financial position continued to deteriorate during this timeframe. The Los Angeles wildfires in January of this year provided the company further support for the needed rate increase. It also led the company to describe its financial position as a potential dire situation.
Our actuarial consulting experts weigh in on what's happening with State Farm General, and what it means for California's homeowners insurance market.
...
While the commissioner cannot approve the rate filings prior to the results of the rate hearings, State Farm General has requested an interim emergency rate increase
....
Rather than expeditiously approving the requested interim rate increase, which the commissioner's own Department recommended, the commissioner thought it would be more prudent to obtain additional information from State Farm... [he] ordered a meeting between State Farm, the Department, and Consumer Watchdog, which took place on February 26. "
....
It's important to note the difference between State Farm General ("SF General") and State Farm Mutual ("SF Mutual"). They are two separate companies operating financially independently of each other. SF General is a stock company owned by SF Mutual that was formed specifically to write California businesses, primarily homeowners and commercial multi-peril. In contrast, State Farm's auto business in California is written through SF Mutual rather than through SF General.
....
SF General....triggered a regulatory Company Action Level Event last year after failing to meet the NAIC's Risk-Based Capital ratio requirements. AM Best subsequently downgraded the Financial Strength Rating for SF General to a B in March 2024. These events happened prior to the wildfires, which put further stress on SF General's financial position. Recently, S&P Global placed its 'AA' rating for SF General on credit watch with negative implications.
Currently, SF General has estimated their wildfire losses to be $7.6 billion2. Most of the losses will be covered by reinsurance, which is primarily provided by their parent company, SF Mutual, at a rate that is below the market rate,....
After reinsurance, SF General has estimated their retained losses to be approximately $212 million1.
...
On top of the wildfire losses, SF General mentioned it "will be required to book its share of FAIR Plan losses on its financial statements, regardless of whether an assessment is issued. SF General's participation rate for dwelling losses (commercial losses are treated separately) is expected to be around 16%."
...
SF General reported their surplus to be $1.04 billion1 as of year-end 2024, which is a substantial drop from its value of $4.08 billion3 in 2016. Additionally, SF General's initial estimate of the reduction in surplus due to the wildfires is $400 million1, which would leave it with approximately $600 million in surplus and an in-force book of business that is inadequately priced based on its rate filings.
As of December 31, 2024, SF General's authorized control level risk-based capital (where the state commissioner may place the insurer under regulatory control) was $691 million. Given SF General's latest estimate of its surplus, the company has experienced an authorized control level event and will, at the very least, need to provide its domiciliary state (Illinois) with corrective actions the insurer is taking to improve its financial position. The domiciliary state also has the authority to take regulatory control of the company.
In SF General's pending rate filing3, it states the following: "There are no plans for State Farm General to seek financial support from State Farm Mutual,"...
One would think this delivers enough value for SF Mutual to provide financial assistance to SF General, but this does not factor in the difficulty of maintaining price adequacy in California and potential future underwriting losses due to inadequate rates. Right now, at the current rate and surplus level, SF General represents a risky investment for SF Mutual, which may produce negative returns for the parent company. Over the last two years, SF General has had a combined net underwriting loss of $1.655 billion, excluding the Los Angeles wildfires.
Dire situations require immediate action. The interim rate increases provide some help. Ultimately, State Farm General must reduce their market share in California property, which will take several years. If AM Best further downgraded the company, and/or banks stopped accepting them as an insurer on home loans, this would expedite the decrease in the company's market share – far from an ideal solution. Only time will tell what path SF General takes.
No matter what happens, SF General's homeowners market share will be decreasing in California. Although it is similar to SF Mutual's homeowners market share in other states, the California regulatory environment, combined with the state's exposure to wildfires and the lack of diversification across other lines of business, requires substantially more surplus for SF General to continue insuring approximately 20% of the homeowners market.
....
Over the next year, the homeowners market will likely continue to have availability issues with many insurers sitting on the sidelines waiting to see the impact of the changes implemented by the Department. As of September 2024, the FAIR Plan reported annual growth in policies in-force and premium of 28.9% and 58.6%, respectively. ....."
End Quotes on the article
Not sure if this was written before or After Lara's "provisional rate increase" approval."
