P&C Insurance Daily

California’s surplus lines market is entering a transformative phase as admitted carriers pull back from homeowners insurance, with the Los Angeles wildfires of 2025 accelerating this trend. The state’s surplus lines sector has grown from writing 6% to 20% of the commercial insurance market since 2014, marking a decisive turning point in the property insurance landscape.

CSAA will begin rate increases for nearly 482,000 homeowners starting in March, while Mercury Insurance will implement rate hikes in July for more than 650,000 homeowners. These increases reflect ongoing pressures from wildfire exposures and reinsurance costs that continue to strain the California market.

Insurance Commissioner Ricardo Lara issued a mandatory one-year moratorium preventing homeowners’ insurance cancellations and non-renewals for over 147,000 policyholders affected by the Gifford Fire in Kern, Santa Barbara, San Luis Obispo, and Ventura counties. Under the Sustainable Insurance Strategy, six major carriers including Farmers, Mercury, CSAA, and USAA have committed to staying and growing in wildfire-affected areas.

Regulatory changes now allow insurers to use forward-looking catastrophe models and pass reinsurance costs into premiums, potentially enabling more carriers to return if they can price risk accurately. An extremely wet November in Southern California is likely to reinforce flood and mudslide risk models, particularly affecting high-value neighborhoods exposed to both wildfire and water damage exposures.

The California FAIR Plan increased its catastrophe bond funding target by 75% to $350 million through a second Golden Bear Re issuance, strengthening its financial position as the insurer of last resort. This expansion reflects the growing need for additional capital as more homeowners migrate to the FAIR Plan due to admitted carrier pullbacks and limited coverage options in the state.