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.“Insurance will cost more for customers in California going forward because the risk is greater in California.

Over the last nine years, the lack of alignment between price and risk means that for every $1.00 collected in premium, SFG paid $1.26, resulting in over $5 billion in cumulative underwriting losses.” The company urged following an S&P rating action that saw its SFG unit’s ratings placed on CreditWatch with negative implications, “We remain deeply concerned about the financial position of State Farm General, as it is difficult to match price to risk in California.As we said in our emergency interim rate filing on Feb 3, we need immediate rate increases to help stabilize State Farm General’s financial condition and avoid a potential rating agency downgrade.” Recall that, but they do not cover wildfire risks for the company.State Farm has $2.25 billion of cat bond backed reinsurance in-force for other peak perils..

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.