State Farm General can move ahead with a proposal to raise California homeowners rates on an emergency interim basis, following years of financial stresses that depleted its surplus and billions of dollars in losses from the Los Angeles wildfires

Administrative Law Judge Karl Seligman recommended approval of an interim rate hike for the state’s largest insurer on Monday. A statement from the California Department of Insurance followed on Tuesday, announcing that Commissioner Ricardo Lara adopted the judge’s order.

Terms of the interim rate agreement allow State Farm General, a California affiliate of the nation’s largest mutual insurer, to increase rates 17 percent in the non-tenant HO-3 line. The insurer can also increase rates by 15 percent for renter/condo policies and 38 percent for rental dwelling policies. The carrier also agrees not to initiate any new block non-renewal programs through the end of 2025.

In addition, the agreement stipulates that the parent company, State Farm Mutual Automobile Insurance Company. will make a $400 million capital infusion into State Farm General.

The interim rates remain temporary and are subject to a full hearing process.

Consumer Watchdog, which has opposed State Farm’s rate hike requests, said the decision that would make consumers pay now and allow State Farm to wait months before having to justify the hike is “a great disappointment for consumers.”

“Voter-approved Proposition 103 says a rate hike shouldn’t come before the rate justification, but that’s what happened here,” the statement continues. “We urge the Commissioner to reject the proposed decision so State Farm policyholders, many of whom are struggling to get their claims paid by the company after the Los Angeles fires, aren’t overcharged,” said Carmen Balber, executive director of Consumer Watchdog.”

Lara’s office issued the following statement through a California Department of Insurance spokesperson: “Californians deserve a process grounded in fairness, transparency, and integrity—not politics or posturing. That is why I requested an independent review of the evidence by an administrative law judge, who presented a proposed decision. I ordered this hearing to ensure that the parties have the opportunity to present their arguments before a neutral arbiter. I am balancing all the facts. Protecting all State Farm customers and the integrity of our insurance market is an urgent matter.”

State Farm issued a statement in response to a request for comment, prior to Lara’s statement: “We thank the Administrative Law Judge for his careful consideration of this important matter. We look forward to the Commissioner’s final decision.”

Later in the day, however, State Farm updated its website page of ongoing California updates with the news that Standard & Poor’s downgraded the financial strength and issuer credit ratings of State Farm General by one notch to A+ from AA.

“We remain deeply concerned about the financial position of State Farm General, as it is difficult to match price to risk in California,” the website says. “S&P’s lowering of its FSR on State Farm General to ‘A+’ rating and continuing the ‘CreditWatch-Negative’ reinforces the need for urgency,” the website adds, referring to the need for immediate rate relief.

Related article: Too Late? S&P Downgrades State Farm General

In February, State Farm General made an initial emergency rate request for a 22 percent jump in homeowners rates, which was provisionally OK’d in March by Lara. At the time, Lara made the hike dependent on the company justifying the rate increase with data during a public hearing.

The request was then dropped to 17 percent after an early April hearing during which lawyers for the company, the California Department of Insurance and Consumer Watchdog presented arguments to determine the fate of State Farm’s request.

Related articles: “Is State Farm General a Sinking Ship? California Emergency Rate Request Dropped to 17%“; “Is State Farm General Too Big to Fail? Calif. Rate Hearing Concludes“

State Farm has blamed some of its troubles on the L.A wildfires, which destroyed more than 11,500 properties. As of yesterday, the carrier had reported paying out $3.5 billion for the January wildfires.

The fallout from the wildfires touched many large carriers and has made the marketplace in California tougher, with availability and high rates already a growing concern. According to the California Department of Insurance, 37,749 claims have been filed related to the fires and $12.1 billion has been paid out.

The losses have factored into bottom lines and even the state’s carrier of last resort. Lara in February approved a controversial California FAIR Plan request for a $1 billion assessment on admitted market insurers to cover claims from the wildfires.

At the time of the initial request, State Farm said residential property insurance price increases were needed to align cost and risk, and enable State Farm to rebuild capital. Over the last nine years, the lack of alignment has meant that for every $1 collected in premium, the carrier has spent $1.26, resulting in more $5 billion in cumulative underwriting losses, according to State Farm.

Related article: LA Fire-Related Capital Hit Prompts State Farm Emergency Rate Request

Adding to State Farm’s troubles, the company is also part of two lawsuits filed in Los Angeles that allege major home insurance companies colluded to limit coverage in California communities at high risk for wildfires and force homeowners onto the FAIR Plan.

Insurers, including State Farm and 24 other companies that hold 75 percent of California’s home insurance market, were part of an “illegal scheme” in violation of California’s antitrust and unfair competition laws, according to one of the lawsuits filed in April.

A version of this article was originally published by Insurance Journal. Reporter Don Jergler is the West Coast editor of Insurance Journal.