Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice November, 2010 Download at: Robert P.

Residual Market Property Plans: From Markets of Last Resort to

Markets of First Choice

November, 2010Download at: www.iii.org/presentations

Robert P. Hartwig, Ph.D., CPCU, President & EconomistClaire Wilkinson, Vice President – Global Issues

Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org

2

U.S. Residual Market Exposure to Loss($ Billions)

Source: PIPSO; Insurance Information Institute (I.I.I.).

$281.8

$430.5$372.3

$54.7

$150.0

$292.0$244.2$221.3

$419.5

$656.7$696.4

$771.9$703.0

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

($ Billions)

In the 20-year period between 1990 and 2009, total exposure to loss in the residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7

billion in 1990 to $703.0 billion in 2009.

Hurricane Andrew

4 Florida Hurricanes

Katrina, Rita and Wilma

U.S. Residual Market: Total Policies In-Force (1990-2009) (000)

Source: PIPSO; Insurance Information Institute

931.6

1,785.0

1,458.1

1,196.5

1,741.7

2,479.4

1,319.7

2,621.32,780.6

1,642.3

2,840.4

2,209.32,203.9

0

500

1,000

1,500

2,000

2,500

3,000

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(000)

Hurricane Andrew



In the 20-year period between 1990 and 2009, the total number of policies in-force in the residual market (FAIR & Beach/Windstorm) Plans has more than

doubled.

U.S. FAIR Plans: Total Policies In-Force(1990-2009) (000)


781.2951.7 958.6 885.6

1,576.2

2,561.4

2,281.22,130.5

1,112.4

1,505.0

2,526.4

2,045.52,046.2

0

500

1,000

1,500

2,000

2,500

3,000

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(000)

Hurricane Andrew



In the 20-year period between 1990 and 2009, the total number of policies in-force in the nation’s FAIR Plans tripled.

U.S. FAIR Plans Exposure to Loss(Billions of Dollars)


$614.9$612.7

$684.8

$601.9

$387.8$400.4

$345.9

$269.6

$140.7$113.3

$170.1

$96.5

$40.2

$0

$100

$200

$300

$400

$500

$600

$700

$800

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total exposure to loss in the residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7bn in 1990 to $703.0 billion in 2009.

In the 20-year period between 1990 and 2009, total exposure to loss in the FAIR Plans has surged by a massive 1,430 percent from $40.2 billion in 1990 to

$614.9 billion in 2009.

U.S. Beach and Windstorm Plans Exposure to Loss (Billions of Dollars)


$88.1$83.7

$85.5

$54.9

$31.7$30.0$26.4

$22.4

$103.5$108.0

$111.8

$53.5

$14.5

$0

$20

$40

$60

$80

$100

$120

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

In 2002 Florida combined its Windstorm and Joint Underwriting Association to create Florida Citizens, so Florida data shifted to the FAIR plans from this date.

In the 20-year period between 1990 and 2009, total exposure to loss in

the Beach and Windstorm plans

ballooned by more than 500 percent, from $14.5 billion in 1990 to $88.1

billion in 2009.

FAIR Plan Operating Gains/Losses 1990-2009 (Millions of Dollars)

Source: PIPSO; Insurance Information Institute.

$719.5$532.7

$1,861.0

$3,579.4

-$1,860.3-$1,508.6

$510.2$529.9

$21.4$11.4$81.1

-$51.9

-$3,000

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

The FAIR plans’ aggregate operating loss between 1995 and 2005 ballooned by 3584 percent.

In the course of the last four years (2006-2009) the FAIR plans have

reported an aggregate operating gain, after successive operating losses in

2005 and 2004.

1.21%

1.71%

11.49%

3.05%

4.61%

6.52%

8.01%

13.01%

3.74%

3.79%

0% 2% 4% 6% 8% 10% 12% 14%

Texas (TWIA)

Rhode Island

Louisiana

Massachusetts

Florida

2002 2009

FAIR/Beach Plan Earned Premium as % of Overall Property Market (Top 5 states) 2002 vs. 2009

N/A


333.7

283.1

427.1

104.6

662.9

136.2

1,388.1

254.5

1,136.6

229.1

1,725.8

410.7

2,746.5

3,831.4

4,178.4

12,465.912,703.4

501.0

247.8

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

New York

Louisiana

Connecticut

Mississippi

Alabama

Rhode Island

Massachusetts

Maine

New Jersey

Hawaii

South Carolina

Delaware

Maryland

New Hampshire

Virginia

Georgia

North Carolina

Texas

Florida

Population Growth Projections for Hurricane Exposed States (2000 to 2030) (000)

The U.S. as a whole is expected to have a population increase of 82.1 million, or 29.2 percent during the same period.

Source: U.S. Census Bureau, accessed at http://www.census.gov/population/projections/PressTab1.xls

By 2030, Florida is expecting a population increase of 12.7 million, closely followed by Texas with an expected increase of 12.5 million.

33%

35%

38%

46%

47%

48%

52%

54%

63%

75%

0% 10% 20% 30% 40% 50% 60% 70% 80%

South Carolina

Georgia

Delaware

New Hampshire

California

Virginia

Texas

Washington

Alaska

Florida

Leading States in Coastal Population Growth, 1980-2003

Source: U.S. Census Bureau and NOAA

Between 1980 and 2003, total coastal population grew by 33 million people, or 28 percent.

Florida – at 75% – had the greatest percent population

change.

$14.9

$54.1

$51.8

$60.6

$85.6

$92.5

$132.8

$146.9

$158.8

$191.9

$224.4

$479.9

$635.5

$772.8

$895.1

$2,378.9$2,458.6

$55.7

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

Maryland

Rhode Island

Mississippi

New Hampshire

Delaware

Georgia

Alabama

North Carolina

Maine

Virginia

S. Carolina

Louisiana

Connecticut

New Jersey

Massachusetts

Texas

New York

Florida

Total Value of Insured Coastal Exposure In 2007($ Billions)

Source: AIR Worldwide

1.0%

5.0%

9.0%

12.0%

13.0%

23.0%

26.0%

28.0%

29.0%

34.0%

35.0%

36.0%

54.0%

59.0%

62.0%

64.0%79.0%

11.0%

0% 20% 40% 60% 80% 100%

Maryland

Georgia

NC

Virginia

Alabama

Mississippi

NH

Texas

S. Carolina

Rhode Island

New Jersey

Louisiana

Delaware

Massachusetts

Maine

New York

Connecticut

Florida

Insured Coastal Exposure As a % Of Statewide Insured Exposure In 2007


Value of Insured Residential Coastal Exposure In 2007 ($ Billions)

$660.4$388.3

$373.0

$319.5$250.8

$96.9

$90.1$81.1$78.4

$72.6$46.5$38.1

$36.7$31.9$30.8

$25.7$7.2

$1,238.6

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400

Florida

New York

Texas

Massachusetts

New Jersey

Connecticut

Louisiana

S. Carolina

Maine

North Carolina

Virginia

Alabama

Georgia

Delaware

Rhode Island

New Hampshire

Mississippi

Maryland


Value Of Insured Commercial Coastal Exposure 2007 ($ Billions)

$1,220.0$506.8

$399.8$316.0

$229.1$127.5

$101.8

$86.2$65.9$54.4$47.5

$46.0$26.1$24.9$23.8

$22.2$7.7

$1,718.6

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000

New York

Florida

Texas

Massachusetts

New Jersey

Connecticut

Louisiana

S. Carolina

Virginia

Maine

North Carolina

Georgia

Alabama

Mississippi

New Hampshire

Delaware

Rhode Island

Maryland


22%30% 31%

28%

33% 32%

0%

10%

20%

30%

40%

50%

60%

70%

Coastal Counties Interior Counties Noncoastal States

Somewhat Unfair Very unfair

Public Attitude Monitor 2006: Unfairness of Policyholder Subsidies

Growth in residual market mechanisms may be due in part to implicit support of residents of coastal communities.

Coastal States

Source: Insurance Research Council

29%25%

30%

22% 34%31%

0%

10%

20%

30%

40%

50%

60%

70%

Coastal Counties Interior Counties Noncoastal States

Somewhat Unfair Very unfair

Public Attitude Monitor 2006: Unfairness of Taxpayer Subsidies

Some 59% of those living in interior counties and 61% in noncoastal states think taxpayer-subsidized insurance is unfair, compared to just 51% of those living in coastal counties.

Coastal States

Source: Insurance Research Council

FAIR Plan Operating Gains/Losses 1990-2009 (Millions of Dollars)

Source: PIPSO; Insurance Information Institute.

$719.5$532.7

$1,861.0

$3,579.4

-$1,860.3-$1,508.6

$510.2$529.9

$21.4$11.4$81.1

-$51.9

-$3,000

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

The FAIR plans’ aggregate operating loss between 1995 and 2005 ballooned by 3584 percent.

In the course of the last four years (2006-2009) the FAIR plans have

reported an aggregate operating gain, after successive operating losses in

2005 and 2004.

Residual Market Plan Estimated Deficits 2004/2005 (Millions of Dollars)

* MWUA est. deficit for 2005 comprises $545m in assessments plus $50m in Federal Aid.Source: Insurance Information Institute

-$516

-$1,425

-$1,770

-$954

-$595 *

-$2,000

-$1,800

-$1,600

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

Florida HurricaneCatastrophe Fund

(FHCF) Florida Citizens Louisiana Citizens

MississippiWindstorm

UnderwritingAssociation (MWUA)

2004 2005

The impact of Hurricane Katrina pushed all of the residual market property plans

in the affected states into deficits for 2005, following an already record

hurricane loss year in 2004.

Florida Citizens Exposure to Loss ($ Billions)

Source: PIPSO; Insurance Information Institute (I.I.I.).

$154.6

$195.5 $206.7 $210.6

$408.8

$485.1

$421.9 $406.0

$0

$100

$200

$300

$400

$500

$600

2002 2003 2004 2005 2006 2007 2008 2009

Since its creation in 2002, total exposure to loss in Florida Citizens has increased by 163 percent, from $154.6 billion to $406 billion in 2009.

$14.9

$54.1

$51.8

$60.6

$85.6

$92.5

$132.8

$146.9

$158.8

$191.9

$224.4

$479.9

$635.5

$772.8

$895.1

$2,378.9$2,458.6

$55.7

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

Maryland

Rhode Island

Mississippi

New Hampshire

Delaware

Georgia

Alabama

North Carolina

Maine

Virginia

S. Carolina

Louisiana

Connecticut

New Jersey

Massachusetts

Texas

New York

Florida

Total Value of Insured Coastal Exposure In 2007($ Billions)


Louisiana had $224.4 billion in insured coastal property exposure in 2007, 7th

highest of any hurricane-exposed state.

Mississippi Windstorm Plan: Exposure to Loss (Millions of Dollars)


$6

,68

7.0

$6

,25

3.1

$5

,64

3.0

$5

,36

9.5

$1

,87

3.0

$1

,63

1.8

$1

,34

4.3

$1

,12

1.7

$8

48

.6

$8

64

.9

$9

17

.9

$6

37

.1

$3

52

.9

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total exposure to loss in the Mississippi Windstorm Underwriting Association (MWUA) has surged by 1,795 percent, from $352.9 million in

1990 to $6.7 billion in 2009.

Texas Windstorm Insurance Association (TWIA): Exposure to Loss (Building & Contents Only) ($ Billions)

Source: TWIA, Texas Department of Insurance, Southwestern Insurance Information Services (SIIS)

$67.6$64.4

$58.6$58.6

$38.3

$23.3$20.8$18.8

$16.0$13.2$12.1

$0

$10

$20

$30

$40

$50

$60

$70

$80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Sep30-

2010

TWIA’s exposure to loss for building & contents has surged by more than 400 percent in the last 10 years from $12.1 billion in 2000 to $67.6 billion in 2010.

Texas Windstorm Insurance Association (TWIA) Total Exposure to Loss (Millions of Dollars)

Source: TWIA at 09/30/10, Texas Department of Insurance

$6,534.8

$67,576.6

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Building & Contents ALE/Business Income

By September 30, 2010, TWIA’s total exposure had surged to $74.1 billion.

Texas Windstorm Insurance Association (TWIA) New Financial Structure

Source: Southwestern Insurance Information Institute (SIIS)

New TWIA financing structure made available up to $2.5 billion to fund

losses via three post-event bonding layers.

The new structure eliminated the unlimited

assessment on TWIA member insurers and

does not call for TWIA to purchase reinsurance.

Massachusetts FAIR Plan Policy Count (1990-2009)


49

,62

8 77

,63

2

88

,45

6

85

,36

8

88

,03

6

98

,77

0

11

6,3

85 1

55

,64

0

22

2,8

25

19

2,9

44

21

7,0

56

23

4,5

82

23

1,6

59

0

50,000

100,000

150,000

200,000

250,000

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

In the 20-year period between 1990 and 2010, the number of policies in

the MA FAIR plan has surged by nearly 350 percent from 49,628

policies in 1990 to 222,825 policies in 2009.

Massachusetts FAIR Plan Exposure to Loss (Billions of Dollars)


$79.4$81.5$79.5

$68.6

$54.0

$39.2

$26.7

$20.5$16.7$15.3

$10.3$8.3$4.1

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

In the 20-year period between 1990 and 2010, total exposure to loss in the MA FAIR plan has surged by 1,837 percent from $4.1 billion in

1990 to $79.4 billion in 2009.

Massachusetts FAIR Plan Operating Gain or Loss 2000-2009 (Millions of Dollars)


$47.0

$141.7

$93.2

$58.12

$32.94

$9.46

-$14.27-$3.38

$1.96

-$6.20

-$40

-$20

$0

$20

$40

$60

$80

$100

$120

$140

$160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

In three of the last 10 years, the MA FAIR Plan has incurred an

operating deficit.

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice November, 2010 Download at: Robert P.

Documents