Months before the Los Angeles wildfires sparked, State Farm’s California arm was already in trouble, it told state regulators.

Its policyholder surplus — the cash it has on hand to pay out claims — had dropped from more than $4 billion in 2016 down to just $1.3 billion as of the end of 2023. It reported a net loss of $880 million in 2023. Company leaders, and regulators in its parent company’s home state of Illinois, were worried that California’s largest home insurer could be on the road toward insolvency.

Then last week's wildfires consumed thousands of expensive homes in neighborhoods where State Farm insured up to 30% of the total number of residential policies. Conservative estimates have put the insured losses from the fires, for all carriers, at around $20 billion.

On its face, the math seems concerning. Experts say between the company’s reserves and its own insurance, known as reinsurance, State Farm General — the name for the California subsidiary of the national insurer — should have enough to make sure all of its customers are made whole. But there’s an open question of how the event could impact the insurer’s future actions, given that it already hasn’t offered new policies in California for over a year and is in the process of non-renewing tens of thousands of customers statewide.