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Allstate expects $1.1 billion loss from California fires

Agustin Paullier/AFP/Getty Images

Agustin Paullier/AFP/Getty Images

New York (CNN) — Allstate Insurance says it will pay out $1.1 billion in claims caused by the wildfires that swept through Southern California in January.

While the expected payout is significant, Allstate said Wednesday it was able to limit its losses partly by pulling back from the California market. Many insurers, including Allstate, have been canceling homeowners’ policies in many areas of California due to growing threat of wildfires — leaving many homeowners with more expensive and often limited alternatives, or with no insurance coverage at all.

Allstate’s liability is a small fraction of the total insurance claims from the California fires in January: They are expected to come from 16,600 properties and forecast to cost the industry between $35 billion to $45 billion, according to CoreLogic, a research firm that tracks the costs of catastrophes like fires and hurricanes.

The company announced the claims figure alongside its fourth-quarter earnings report late Wednesday, though the fires occurred in the first quarter and were not part of those financial results. Allstate recorded $2.1 billion in profit for the fourth quarter, which was up 34% from a year earlier and brought adjusted profit for 2024 to $4.9 billion. That growth came despite catastrophe claims losses of $315 million related to Hurricane Milton in the fourth quarter, and re-estimates for the cost of Hurricane Helene in September.

California homeowners facing rate hikes

Homeowners throughout California will likely see their homeowners insurance premiums climb in the wake of the fire.

Earlier this week State Farm, California’s largest insurance provider, requested an emergency interim rate hike averaging 22% for homeowners citing a “dire” financial situation from the fires. State Farm has received more than 8,700 claims and paid over $1 billion to customers, a number that the company knows will rise, it said in a filing with state insurance regulators.

In addition, insurers can now use costs associated with the fires as justification for rate increase requests.

For example, the California FAIR plan — the state-created insurer of last resort for homeowners unable to get fire insurance from traditional insurers — is expected to have claims far in excess of its assets. To pay those claims, it will be able to levy an assessment on the state’s other insurers. Insurers will now be able to factor in the cost of that California FAIR assessment when seeking rate increases

They also will be able to use the cost of reinsurance, a form of coverage they purchase to backstop their losses, as part of the rate calculations in the state. In the past, the amount insurers paid for reinsurance did not go into rate calculations.

Author: Chris Isidore, CNN

Source: CNN:::

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