California E&S Insurance

LA Wildfires Push California Insurance Market to Its Limit https://www.bloomberg.com/graphics/2025-los-angeles-wildfires-insurance/ If you live in California, you’re always bracing for the Big One. This week it arrived in the form of uncontrollable flames. Liability experts equipped with climate models had been uneasily eyeing such a scenario, realizing in recent years that wildfire now had similar system-crashing potential as a major earthquake to upend lives and destabilize California’s $10 trillion residential property market. A group convened to examine worst-case scenarios determined that three specific areas in the state were particularly vulnerable and capable of causing far-reaching fallout. One was Pacific Palisades, the Los Angeles neighborhood reduced to ashes this week by one of at least five fires burning across the city. “Pacific Palisades really jumps out, even in the context of high-risk areas in California,” said Michael Wara, a senior researcher and wildfire expert at Stanford University. He was a member of the expert group five years ago working to envision nightmare liabilities for state utility companies. “It’s like the bullseye in terms of one of the locations where the insurance industry can lose the most money in 24 hours.” Risk models identified the Palisades — along with Silicon Valley’s Los Altos Hills and the Moraga and Orinda area east of San Francisco — because of problematic commonalities: the highest value homes, difficult topography for fighting blazes, and increased susceptibility to the kind of windy, dry weather conducive to fires. The escalating exodus of private insurers has left the state-backed insurer of last resort, the California FAIR Plan, in a precarious position. In fact, even as State Farm, California’s biggest insurer, cut nearly 70% of its policies in a ZIP code central to Pacific Palisades last year, FAIR grew by 85 % in that same area. Now FAIR could be on the hook for billions. Last September, it estimated its own exposure in the larger Pacific Palisades area at nearly $6 billion. However, according to its most recent public accounting in the spring of last year, it has only $200 million in surplus cash reserves and $2.5 billion in reinsurance (that is insurance that insurers get to cover for worst-case scenarios) to cover that amount. A spokesman for FAIR declined to confirm numbers but said the plan “has reinsurance and that the amount changes each year based on availability and pricing of reinsurance products.”

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