State Farm General requested a 22% emergency rate hike in California on Monday, Feb. 3 to cover losses from the Los Angeles County wildfires and stop its “financial deterioration,” the company wrote in a letter filed with the state’s insurance commission.
The property insurer, the state’s largest and a subsidiary State Farm Mutual Automobile Insurance Co., said it has received more than 8,700 claims from the Jan. 7 fires in Pacific Palisades and Altadena areas. The company said it has paid more than $1 billion to customers.
The company is seeing signs of rapid deterioration of its capital structure, according to the letter sent to Insurance Commissioner Ricardo Lara by Dan Krause, State Farm’s president and chief executive officer.
Krause wants Lara to take “emergency action” to help protect California’s fragile insurance market by immediately approving interim rate increases on its filings, with rates to become effective May 1. Besides the average 22% rate increase in homeowners’ insurance policies, State Farm requested a 15% hike for renters, 15% for condo owners and 38% for rental dwellings.
“We know we will ultimately pay out more, as those fires will collectively be the costliest in the history of the company,” wrote Krause. The rate increases are needed to help avert a dire situation for more than 2.8 million policies issued by State Farm, including 1 million homeowners, the letter states.
Wildfire costs will further downgrade the company’s debt ratings from Wall Street credit agencies, which are expected if the rate increases aren’t approved, the letter further states.
Insurance Department spokesman Gabriel Sanchez said Monday that State Farm’s latest rate filing raises “serious questions” about the insurer’s financial condition.
“State Farm General continues to collect insurance premiums paid by Californians and pay out claims to its existing customers,” Sanchez said in a statement. “There is no law or regulation that…
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