By Noor Zainab Hussain

State Farm said it would stop selling new insurance policies to homeowners in California, exacerbating troubles for thousands in the wildfire-prone state, who are already feeling the heat with coverage getting costlier or harder to come by.

State Farm General Insurance Company - State Farm's provider of homeowners insurance in California - said on Friday that it made this decision due to "historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market."

The insurer said it was necessary to take these actions now to improve the company's financial strength.

Homeowners who have lost their home cover can purchase a policy from the California FAIR Plan, a high-risk, privately run insurance pool established under California state law.

Global insurers are facing a challenging 2023 as reinsurers hike rates on key business lines by as much as 200% from Jan. 1. The reinsurers blame sharp losses from the war in Ukraine and from natural catastrophes such as Hurricane Ian in Florida.

Additionally, climate change has added to problems. Global insured losses from catastrophes were anticipated to reach at least $15 billion in the first quarter alone, insurance broker Aon Plc said in a report.

State Farm said it would stop accepting new applications in the state effective May 27, adding that the decision will not impact personal auto insurance.

California's first major blaze of the 2023 season, measuring 100 acres or more, occurred in late April, which signalled the potential for extreme wildfire activity this summer and fall.

Experts have warned that bountiful rainfall during the winter prompted heavy growth of grass and scrub that will dry out by summer, leaving a larger, thicker fuel bed for wildfires.

State Farm's move does not bode well for homeowners in the state. The company is the biggest provider of homeowners' insurance in California, as measured in 2022 direct premiums written, according to data on the Insurance Information Institute's website.

Among those pulling back from home insurance in California in recent years are some household names such as Liberty Mutual, Reuters reported.

Liberty Mutual did not immediately respond to a request for comment.

In California, nonrenewals of homeowners' insurance policies initiated by insurers in 2021 rose nearly 30% to 241,662 from a year earlier, data from the state's Department of Insurance showed.

FAIR Plan policies made up about 3% of the overall residential insurance policies in California as at the end of 2021, the data showed.

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by Megan Davies and Matthew Lewis)