The California Wildfires: An industry-defining event

‍Executive Summary

The insurance industry is going through a once-in-a-generation change following the 2025 Californian wildfires. It was the most expensive U.S. wildfire event in history, with a cost to the global insurance industry of around $40 billion. Both local and global insurers and reinsurers suffered major financial losses.

Bigger insurers with a more diverse footprint have been able to recover faster and still report an overall profit. Several insurers have pulled out of the home insurance market in California last year with more planning to stop renewals from June 2025

Many homeowners with nowhere to get insured are being pushed toward the state's subsidised FAIR Plan at considerable cost to the state, and with sub-optimal cover. Insurance costs are expected to remain elevated as the risk of further natural disasters is expected to persist.

In our latest article, Optalitix provides an analysis of the financial impact of the fires, as well as analysing what the future holds.

California wildfires – how have insurers fared?

The recent California wildfires created substantial financial losses for the market and insurers individually. The fires, exacerbated by prolonged droughts and intense Santa Ana winds, have devastated communities and posed significant challenges to both primary insurers and reinsurers.​ Here is a summary of how some of the major insurers have fared, highlighting how local insurers suffered significantly greater losses than reinsurers(including those in the London Market) who have reduced their reinsurance coverage and increased reinsurance cost.

Travelers, Allstate and State Farm – expected losses: >US$3.8 billion

Travelers expects it will lose around $1.7 billion from the wildfires, with Allstate anticipating losses of over $1 billion and a similar number to State Farm. These numbers future add to a picture of a significant widespread impact of the disaster on the insurance sector.

Lloyd's of London - expected losses: US$ 2.3 billion

Lloyd's of London has reported anticipated losses of approximately $2.3 billion due to the January wildfires. These losses will be distributed among syndicates providing insurance cover in California. The figure contributes to an increase in Lloyd's combined ratio, which rose to 86.9% in 2024 from 84% in 2023. At the same time, Lloyd’s underwriting profit declined to £5.3 billion from £5.9 billion in the previous year. Despite the impact, Lloyd's does not view the fires as a "capital event" (i.e. an event that cuts into the solvency capital held), however, with natural disasters persisting, insurance costs are expected to remain elevated. ​

Swiss Re – expected losses: <US$700 million

Swiss Re estimated its own losses from the wildfires to be below $700 million whilst observing that, at a cost to the global insurance industry of around $40 billion, they are the most expensive U.S. fires in history. The company reaffirmed its financial targets and reported a fourth-quarter net income of $1.1 billion.

Hiscox – expected losses: US$170 million

Hiscox has estimated a $170 million loss due to the wildfires. The company's reinsurance division is expected to absorb $ 150 million of this loss, with its Lloyd's and retail units each taking on $ 10 million. Despite these numbers, Hiscox reported a record pre-tax profit of$685.4 million for 2024 and announced plans to return $175 million to shareholders through stock buybacks and dividends.

Lancashire Holdings – expected losses: US$ 145 million to US$165 million

Lancashire Holdings, has projected net losses of between$145 million and $165 million from the fires. These figures are preliminary and subject to change, but Lancashire has stated that it ‘…remains extremely well-capitalised to achieve its strategic ambitions.’ The company's shares dropped 5.8%to 585.00 following its latest financial announcement.

Future impact on homeowners

All of California’s homeowners will be negatively impacted in future by the severity of the claims, and the reduction in insurance availability.

Insurers pulling out of California

Several insurers, such as State Farm and Allstate, had ceased issuing new home insurance policies in California, even before the January fires.

State Farm's decision, effective from 27 May 2023, was attributed to "historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurancemarket." Similarly, Allstate had halted new home insurance policy sales in the state in 2022.

More recently, a number of other insurers have also withdrawn cover, including The Hartford (in early 2024), Tokio Marine (April 2024), and Nationwide Private Client, which has said it will stop renewing policies in June 2025.

This withdrawal is not just due to the risk of future disasters. It is also driven by restrictions on insurers in how they price risk(e.g. with restrictions on pricing for locations at greater risk of a natural catastrophe) as well as escalating claims costs.

State-backed insurance cover is inadequate and more expensive

Many homeowners, increasingly struggling for coverage, are being pushed toward the state's FAIR Plan, which typically offers less comprehensive coverage at higher premiums. As of December 2024, the plan’s exposure was $529 billion, a 15.5% increase from September 2024 and a 217% increase since September 2021, creating additional financial and political challenges that have to be urgently addressed by local insurance regulators.

FAIR Plan’s financial pressures are only likely add to stories about how effective the coverage is for homeowners. For instance, in northwestern Altadena, one story told of two neighbours who lost their homes and faced very different rebuilding experiences due to disparities in insurance coverage.One, insured by a private company, received comprehensive support, while the other, relying on the FAIR Plan after being dropped by a private insurer: ‘… paid nearly 60% more in premiums, for less than half the coverage.’  

Conclusion

The California wildfires are asking serious questions of the insurance industry’s ability to provide cover to disaster-prone areas. Insurers are withdrawing from California due to escalating losses, pushing more homeowners onto the overburdened state-backed insurers, FAIR plan, which is struggling financially and provides insufficient protection for policyholders.

Reinsurance costs have risen sharply, driving premium hikes. Without market reforms that re-balance risk-based pricing with sufficient consumer protections, California risks a coverage vacuum, leaving homeowners increasingly vulnerable.

The impact on homeowners is significant and creates risks for property owners who struggle to buy insurance cover as well as the banks providing mortgages. An urgent solution to this problem is vital, and requires input from politicians, insurers and other stakeholders in the property market. The alternative is too scary to contemplate.

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