In a report one year on from the Los Angeles area wildfires in 2025, which started on Jan. 7, Morningstar DBS Research issued a perspective that called the fires “a significant stress event” for California’s property/casualty insurance sector.
The industry remained resilient and the state’s insurance regulator ushered in “positive reforms,” such as allowances for rate increases, the state’s P/C sector remains vulnerable to another significant loss event, which is compounded as California FAIR Plan total exposure grows, the report from Morningstar shows.
Insurers have paid more than $22.4 billion on tens of thousands of claims from the Los Angles wildfires that broke out a year ago, according to the latest data from the California Department of Insurance.
According to the report, the U.S. P/C insurance sector recovered from the 2025 wildfire losses thanks to premium increases and low catastrophe losses for the remainder of the year.
State Farm General Insurance Co., the entity writing California property risk for State Farm, was particularly vulnerable and remains in a weaker position, the report shows.
State Farm, California’s largest homeowners insurer, got approval for a 17% rate increase following billions of dollars in losses from the L.A. wildfires and a pullback on writing new policies in the state. State Farm upped its rate request in May.
The wildfires, which destroyed 11,000 homes, put a spotlight on the state’s already existing homeowners insurance crisis. In another brewing battle over the impact of the fires, a few of the victims of wildfires have asked California Gov. Gavin Newsom to call for the resignation of California Insurance Commissioner Ricardo Lara over reforms Lara pushed that were designed to help ease the state’s homeowners insurance crisis.
According to the Morningstar report, regulators have enabled carriers to get premium increases quickly, and have made other reforms that includes letting insurers use more modeling catastrophe modeling, are “a move in the right direction to create a sustainable property insurance market,” but the reliance on the FAIR Plan is a risk for the industry.
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The fires precipitated moves by several insurers to curtail or halt offering homeowners insurance in the wildfire-prone state, and prompted the state’s insurance regulator to initiate several changes to regulations to fast-track rate requests and use better catastrophe modeling to encourage carriers to return.
“A year after the January 2025 L.A. area wildfires, the U.S. P&C insurance sector has generally remained resilient, with no failure among the leading insurers in the California property market,” stated Patrick Douville, Morningstar’s vice president global insurance and pension ratings. “However, State Farm General Insurance Company, which is a leading property insurer in California, has incurred $7.6 billion in catastrophe losses and remains in a relatively weak, although stable, financial position. California’s FAIR Plan received a $1 billion payment from the insurance industry in 2025, after it ran out of funds to cover approximately $4 billion in claims related to the L.A. wildfires. With the total exposure of the FAIR Plan growing fast and reaching $696 billion, the risk remains significant for the industry.”
Photo: A firefighter battles the Palisades Fire as it burns a structure in the Pacific Palisades neighborhood of Los Angeles, Jan. 7, 2025. (AP Photo/Ethan Swope,File)
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