A newly published AM Best report reveals the extent to which California homeowners policyholders have turned to the state's insurer of last resort and to the nonadmitted market for insurance in recent years.
Using FAIR Plan data from the Property Insurance Plans Service Office (PIPSO), the AM Best Commentary titled, "California Wildfires: Multiple Credit Negative Impacts for Insurers," reveals that the number of California FAIR Plan policies rose by 276 percent from 2018 through 2024 (based on fiscal years ending September 30). And the premium attributable to these policies jumped to $1.4 billion in 2024, up more than 15-times higher than the $87.2 million recorded for the California FAIR plan in 2018.
Since 2019, the California FAIR Plan policy count has increased by double-digits each year, including by 22.6 percent in 2023 and 45.0 percent in 2024.
For FAIR Plans countrywide, small, single-digit increases in 2019 and 2020 gave way to larger increases from 2021 through 2023, including a high of 30 percent in 2022. In fact, for the three fiscal years ended 2023, while AM Best didn't comment on it specifically, data in the AM Best report shows that countrywide FAIR plans experienced a higher jump in policy counts than California -- 80 percent for countrywide plans vs. 58 percent for California.
Over the entire five-year period for which AM Best studied FAIR Plan policies in and outside of California, the FAIR Plan policy counts in California grew nearly 160 percent while countrywide FAIR Plan policies just grew about 98 percent.
The number of California FAIR Plan policies continued to grow year-over- year through third-quarter 2024, the AM Best report notes. "Some of the leading homeowners insurers in the state had ceased to write or were writing fewer new policies, restricting writing high-value properties, or shifting to what they considered low wildfire-risk policies," the report says, noting some reasons behind the 45 percent jump in California FAIR Plan policies in 2024 -- the highest one-year jump shown anywhere in the report.
The corresponding 60.2 percent jump in California FAIR Plan premiums in 2024 was the highest jumps since 2019 and 2020, when year-to-year premium jumps were 93.4 percent and 82.9 percent, respectively.
A prior AM Best report published in October 2024 revealed that the California FAIR Plan Association had the second-largest policy count among such plans across the nation, with 320.6 million policies in 2023 falling well below Florida Citizens Property Insurance at roughly 1.5 billion (again based on PIPSO figures). California's 160 percent jump in FAIR Plan policies between 2018 and 2023 ranked as the fourth highest growth policy growth rate for state FAIR Plans during the same five year period, with small FAIR plans in Georgia and Louisiana, as well as the larger Florida plan, all growing more that 200 percent in that time frame. (Source: AM Best October 2024 report, "Policy Count in State-Sponsored Plans Doubles in Five Years Due to Pressures on Property Insurance")
AM Best's latest commentary report focused on potential impacts of the 2025 California wildfires on the FAIR plan and insurer credit ratings also presents underwriting profit and loss information for the California FAIR plan for the 2018-2023 years, showing that 2022 and 2023 were the only years with combined ratios below 100. In fact, these two years were well below 100, generating underwriting profits in excess of $200 million in both years. But those figures followed aggregate underwriting losses of $313 million from 2018-2021 when combined ratios ranged from 124.8 (in 2021) to 185.3 (in 2020).
More bad news lies ahead, AM Best analysts note.
"The large losses due to the wildfires are likely to lead to pricing increases in reinsurance for the FAIR Plan," said Christopher Graham, senior industry analyst, Industry Research and Analytics, AM Best, in a media statement about the report. "Any impact on the broader property-catastrophe reinsurance market remains to be seen, but pricing and terms of reinsurance for the California FAIR Plan will be critical to ensure the plan is adequately funded and able to properly support policyholders," he said.
Related articles: Property-Cat Reinsurance Rates Will Stop Dropping Post-Wildfires: Execs; Will California's FAIR Plan Have Enough Cash for Its Wildfire Claims?
The report reveals that the California FAIR Plan raised its reinsurance protection to $169 million in ceded premium in 2023, from just from $8 million in 2018. Berkshire Hathaway's National Indemnity assumed over half the reinsurance, $86.8 million. Other companies participating in the reinsurance plan and receiving more than $10 million of assumed premium were Allstate Insurance Co ($18.8 million), Odyssey Reinsurance Co. ($10.8 million) and Munich Reinsurance America, Inc.($10.1 million).
California Surplus Lines Market
With volatile underwriting results impacting admitted carriers in the California homeowners insurance market, driving them to seek higher rates and become more selective, excess and surplus lines insurers have been growing market share in the Golden State, the AM Best report says.
While direct written homeowners premiums written by E&S insurers was only 4 percent of all homeowners premiums in California in 2023, that 4 percent share compares to 0.4 percent a decade earlier in 2013. (Blue line on accompanying graph below).
"Although comparatively modest, the percentage of [California] homeowners insurance premium written by surplus lines insurers has increased by nearly 10 times over the last decade with premium surpassing the $2 billion mark for the first time in 2023," said David Blades, associate director, Industry Research and Analytics, AM Best. "This activity reflects a substantial amount of premium leaving the admitted market and finding coverage in the nonadmitted market."
Related article: Surplus Lines Premium Growth Slowed to 12% in 2024
Analyzed differently, California's proportion of surplus lines homeowners direct premiums across the nation rose to 23.5 percent in 2023, compared to just under 5 percent (4.6 percent) in 2013. (red line on the graph below).