Lawyers for State Farm General, the California Department of Insurance and Consumer Watchdog presented opening arguments in a hearing to determine the fate of State Farm’s request for an emergency homeowners rate increase yesterday.
The public hearing in Oakland, Calif., before Administrative Law Judge Karl-Fredric Seligman was originally set for parties to present arguments for and against a 22% rate hike. But last Friday, State Farm’s California homeowners insurer and CDI agreed that the figure for the interim increase could be lowered to 17%.
Importantly, that agreement not only brought the rate request down 5 percentage points but also stipulated that State Farm Mutual—the parent company—would make a $400 million capital infusion into State Farm General (via a surplus note) and that if a full hearing, scheduled for June, finds the 17% is not actuarially supported, then the company will repay policyholders with interest.
In late February, when executives from State Farm General and representatives of Consumer Watchdog informally met with California Insurance Commissioner Ricardo Lara, Lara pressed to get some assurance that State Farm Mutual would step in to shore up the financial condition of its California subsidiary, which executives presented as a dire one—falling close to regulatory action levels and prompting negative actions from rating agencies. He also asked State Farm General to consider pausing previously planned policy nonrenewals, a concession that an executive said wasn’t likely at the time although he did agree that making a commitment not to nonrenew any more customers was a possibility.
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That last commitment is set forth in the agreement documented by CDI and State Farm General late last week. “Additionally, the Parties stipulate and agree that Applicant [State Farm General] shall not initiate any new block nonrenewal program(s) in the lines represented by the Applications through year-end 2025,” the April 4 amended stipulation document says.
On March 14, Lara had provisionally approved State Farm’s request for an emergency 22% interim rate increase, only if the company could justify it with data in the public hearing scheduled to start yesterday. At the time, he called on State Farm to halt nonrenewals and pursue a $500 million capital infusion from its parent company to restore financial stability.
The first several hours of yesterday’s ALJ hearing, open to the public and available to view via livestream, were devoted to procedural matters including whether the 17% amended stipulation was filed on time, whether an actuary who does work for CDI could testify on behalf of State Farm General, and whether the discussion of State Farm General’s financial condition or it’s risk-based capital level should even be presented at a rate hearing.
“Rates must reflect actual risk and costs—not an effort to restore profits or maintain credit ratings,” Consumer Watchdog said in a statement, echoing arguments made by the consumer group’s attorneys William Pletcher and Ryan Mellino at the hearing. Consumer Watchdog is serving as the intervenor in accordance with provisions of Proposition 103.
During opening arguments, Katherine Wellington of the law firm Hogan Lovells U.S., representing State Farm General, noted that the January 2025 wildfires had made State Farm General’s financial condition even worse than it was when the company originally filed for rate increases last year, with surplus now down to $600 million versus $4 billion just a decade ago in 2015.
