3 Insurance Stocks to Sell After LA's Wildfires

The financial damage inflicted on Los Angeles after January's massive wildfires has put homeowners on the brink and placed insurance companies in jeopardy.

According to CoreLogic, total fire-related insured losses stand in the $35-to-$45 billion range, and the wildfires still haven't been fully contained. Plus, the damage figures don't account for spreading blazes in San Diego over the past week, adding to the total property damage and loss.

Here’s what this means for insurance stocks.

"The destruction caused by these fires is anticipated to be the most expensive in the state's history with effects on the insurance industry that will persist into the future," says Tom Larsen, senior director of CoreLogic Insurance Solutions This event highlights the paramount challenge for homeowners and the insurers that support them – the increasing density of homes and properties near the wildlife-urban-interface."

Insurance companies have some built-in protection against substantial financial losses from the LA fires, but it's not nearly enough to avoid an economic tsunami, insurance experts say.

"Insurers heavily exposed to California rely primarily on reinsurance agreements to limit their risk," says Michael Benoit, a licensed insurance broker and founder of San Diego-based California Contractor Bond & Insurance Services. "Reinsurance helps these companies distribute their major claim costs so they can manage losses better during big disasters."

Under their reinsurance programs, Farmers and Allstate protect themselves from large losses by sharing 90% of claims above specific thresholds. "Basically, the system protects insurers from financial collapse during severe wildfire seasons," Benoit says.

However, reinsurance comes with rising costs.

"The expenses of reinsurance protection have risen by double digits each year because wildfire hazards become more severe," Benoit notes. "Insurers lower risk exposure by imposing stricter underwriting standards that decrease policy benefits and demand higher out-of-pocket payments from clients living in dangerous areas. While these measures reduce direct exposure, they often leave homeowners vulnerable, which could affect customer retention in the long run."

Insurance Stocks To Sell or Avoid For Now

Insurance stocks with the highest exposure are those tied to Farmers Insurance Group, State Farm, Allstate, and Mercury General, among others.

"That's because these companies have their largest property policy operations in California," Benoit says. "These big insurance companies have operated in Southern California for many years and generate a lot of business from places that often experience wildfires."

Right now, that strategy has backfired.

"Companies with this level of regional dependency face significant challenges during events like the billion-dollar LA wildfire loss," Benoit says. "Their exposure to record claims erodes profitability quickly because they lack the geographic diversification necessary to offset the losses. Insurers with a more balanced portfolio, such as Travelers or Hartford, can spread the impact across less affected regions, creating a cushion that companies focused primarily on California often don't have."

Given that problematic background, investors worried about portfolio risk may want to consider shedding or paring down the insurance portion of their stock portfolios.

If so, these sector companies may lead that "sell" list.

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Mercury General (MCY). This LA-based insurer's stock price has plummeted by 24.65% year to date as of January 24, and its exposure to the wildfires is by far the biggest reason.

"Mercury General holds a 6.1% share of the homeowners insurance market in that region, with nearly 80% of its premiums last year coming from the state, which leaves it particularly vulnerable during extreme wildfire seasons," Benoit says.

The primary saving grace for MCY going forward is that rising property insurance valuations will eventually resupply cash reserves, but that scenario may be too distant for shell-shocked investors.

Allstate (ALL). While Allstate has done a job of mitigating California wildfire risk by curbing new home insurance policies in the state, it's a good example of a sector company that can't afford any more bad news – but that's exactly what's happened.

On January 13, the state of Texas sued Allstate subsidiary Arity over alleged illegal consumer mobile phone tracking without user consent.  That practice runs against Texas' comprehensive data privacy law as the state attorney general's office charges Allstate with using that consumer data to justify raising insurance rates (Allstate has denied the charges).

That double-dose of bad news could be enough to give shareholders pause for a stock that's already down 4.25% on a year-to-date basis.

Cincinnati Financial (CINF). This Fairfield, Ohio-based insurance company has historically done plenty of business in California, although, like some of its peers, it has stopped writing homeowner insurance policies in the state.

That policy has limited CINF's wildfire losses, contributing to keeping share losses down to only 5% in 2025. Still, the company has enough current LA homeowner policies in higher-valued homes that could lead to significant financial losses. That's one reason why Bank of America (BofA) recently pegged the company's earnings-per-share decline at 20% in 2025.

The Takeaway on Insurance Company Stocks and the California Fires

Prudence is always well-advised, and investors should talk over any insurance company-related portfolio moves with a trusted financial advisor. Still, a candid insurance stock talk is a conversation worth having.

"Right now, I’d lean toward holding or even buying cautiously for select insurers with strong fundamentals and robust risk management strategies," says Eamonn Turley, CEO of UK-based Multi Quote Time, an insurance company cost comparison platform. "While short-term losses due to wildfire claims are inevitable for companies like Allstate and Chubb, these events often lead to premium increases and stricter underwriting practices in high-risk areas, which can improve profitability in the long term."

However, for insurers without clear reinsurance strategies or excessive exposure to Southern California properties, Turley says he's "more inclined to sell or avoid altogether until the dust settles."

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