Residual Market Property Plans:
From Markets of Last Resort to
Markets of First Choice
November, 2010
Download at: www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Claire Wilkinson, Vice President – Global Issues
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  bobh@iii.org  www.iii.org
U.S. Residual Market Exposure to Loss
($ Billions)
($ Billions)
$900
Katrina,
Rita and
Wilma
$800
$700
4 Florida
Hurricanes
$500
Hurricane
Andrew
$372.3
$221.3
$200
$430.5 $419.5
$292.0
$281.8
$300
$100
$703.0
$696.4
$656.7
$600
$400
$771.9
$244.2
$150.0
$54.7
$0
1990
1995
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
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.
Source: PIPSO; Insurance Information Institute (I.I.I.).
2
U.S. Residual Market: Total Policies In-Force
(1990-2009) (000)
(000)
Katrina, Rita
and Wilma
3,000
4 Florida
Hurricanes
2,780.6
2,500
2,840.4
2,621.3
2,479.4
2,209.3
2,203.9
2,000
Hurricane
Andrew
1,500
1,785.0
1,458.1
1,319.7
1,741.7
1,642.3
1,196.5
1,000 931.6
500
0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
In the 20-year period between 1990 and 2009, the total number of policies inforce in the residual market (FAIR & Beach/Windstorm) Plans has more than
doubled.
Source: PIPSO; Insurance Information Institute
U.S. FAIR Plans: Total Policies In-Force
(1990-2009) (000)
(000)
Katrina, Rita
and Wilma
3,000
2,561.4
2,526.4
2,281.2
2,130.5
2,046.2
2,045.5
4 Florida
Hurricanes
2,500
2,000
1,500
1,000
Hurricane
Andrew
781.2
1,576.2
1,505.0
1,112.4
958.6
951.7
885.6
500
0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
In the 20-year period between 1990 and 2009, the total number of policies inforce in the nation’s FAIR Plans tripled.
Source: PIPSO; Insurance Information Institute
U.S. FAIR Plans Exposure to Loss
(Billions of Dollars)
$800
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.
$684.8
$700
$601.9
$614.9
$612.7
$600
$500
$400.4
$387.8
$345.9
$400
$269.6
$300
$170.1
$140.7
$113.3
$96.5
$200
$100
$40.2
$0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 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.
Source: PIPSO; Insurance Information Institute
U.S. Beach and Windstorm Plans Exposure to
Loss (Billions of Dollars)
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,
$111.8
$108.0
total exposure to loss in
$103.5
the Beach and
Windstorm plans
ballooned by more than
500 percent, from $14.5
billion in 1990 to $88.1
billion in 2009.
$120
$100
$80
$60
$88.1
$83.7
$54.9
$53.5
$40
$22.4
$20
$85.5
$26.4
$30.0 $31.7
$14.5
$0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: PIPSO; Insurance Information Institute
FAIR Plan Operating Gains/Losses 1990-2009
(Millions of Dollars)
$4,000
$3,000
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.
$3,579.4
$1,861.0
$2,000
$1,000
$529.9$510.2
$81.1 $11.4 $21.4
$532.7
$719.5
$0
-$1,000
-$2,000
-$51.9
The FAIR plans’ aggregate
operating loss between 1995 and
2005 ballooned by 3584 percent.
-$1,508.6
-$1,860.3
-$3,000
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: PIPSO; Insurance Information Institute.
FAIR/Beach Plan Earned Premium as % of Overall
Property Market (Top 5 states) 2002 vs. 2009
2002
2009
13.01%
Florida
11.49%
8.01%
Massachusetts
3.79%
6.52%
Louisiana
3.74%
4.61%
Rhode Island
1.71%
3.05%
Texas (TWIA)
1.21%
N/A
0%
2%
4%
Source: PIPSO; Insurance Information Institute
6%
8%
10%
12%
14%
Population Growth Projections for Hurricane
Exposed States (2000 to 2030) (000)
Florida
12,703.4
12,465.9
Texas
4,178.4
3,831.4
2,746.5
North Carolina
Georgia
Virginia
By 2030, Florida is expecting a
population increase of 12.7 million,
closely followed by Texas with an
expected increase of 12.5 million.
410.7
New Hampshire
1,725.8
Maryland
229.1
1,136.6
254.5
1,388.1
Delaware
South Carolina
Hawaii
New Jersey
136.2
662.9
104.6
427.1
247.8
283.1
333.7
501.0
Maine
Massachusetts
Rhode Island
Alabama
Mississippi
Connecticut
Louisiana
New York
0
2,000
The U.S. as a whole is expected to have a population increase
of 82.1 million, or 29.2 percent during the same period.
4,000
6,000
8,000
10,000 12,000 14,000 16,000
Source: U.S. Census Bureau, accessed at http://www.census.gov/population/projections/PressTab1.xls
Leading States in Coastal Population Growth,
1980-2003
75%
Florida
63%
Alaska
Washington
54%
Texas
52%
Virginia
48%
47%
California
Between 1980 and 2003, total
coastal population grew by 33
million people, or 28 percent.
Florida – at 75% – had the
greatest percent population
change.
46%
New Hampshire
Delaware
38%
Georgia
35%
South Carolina
33%
0%
10%
20%
Source: U.S. Census Bureau and NOAA
30%
40%
50%
60%
70%
80%
Total Value of Insured Coastal Exposure In 2007
($ Billions)
Florida
$2,458.6
$2,378.9
New York
$895.1
Texas
$772.8
Massachusetts
$635.5
New Jersey
$479.9
Connecticut
$224.4
Louisiana
$191.9
S. Carolina
Virginia
$158.8
Maine
$146.9
North Carolina
$132.8
Alabama
$92.5
Georgia
$85.6
Delaware
$60.6
New Hampshire
$55.7
Mississippi
$51.8
Rhode Island
$54.1
Maryland
$14.9
$0
Source: AIR Worldwide
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Insured Coastal Exposure As a % Of Statewide
Insured Exposure In 2007
Florida
79.0%
64.0%
Connecticut
62.0%
New York
59.0%
Maine
54.0%
Massachusetts
36.0%
Delaware
35.0%
Louisiana
34.0%
New Jersey
29.0%
Rhode Island
28.0%
S. Carolina
26.0%
Texas
23.0%
NH
13.0%
Mississippi
12.0%
Alabama
11.0%
Virginia
9.0%
NC
5.0%
Georgia
Maryland
1.0%
0%
Source: AIR Worldwide
20%
40%
60%
80%
100%
Value of Insured Residential Coastal Exposure
In 2007 ($ Billions)
$1,238.6
Florida
$660.4
New York
$388.3
$373.0
$319.5
$250.8
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Maine
North Carolina
Virginia
Alabama
Georgia
Delaware
Rhode Island
New Hampshire
Mississippi
Maryland
$96.9
$90.1
$81.1
$78.4
$72.6
$46.5
$38.1
$36.7
$31.9
$30.8
$25.7
$7.2
$0
Source: AIR Worldwide
$200
$400
$600
$800
$1,000
$1,200
$1,400
Value Of Insured Commercial Coastal Exposure
2007 ($ Billions)
$1,718.6
New York
$1,220.0
Florida
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Georgia
Alabama
Mississippi
New Hampshire
Delaware
Rhode Island
Maryland
$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
$0
Source: AIR Worldwide
$200
$400
$600
$800
$1,000 $1,200 $1,400 $1,600 $1,800 $2,000
Public Attitude Monitor 2006: Unfairness of
Policyholder Subsidies
70%
Growth in residual market mechanisms may be due in part
to implicit support of residents of coastal communities.
60%
50%
33%
32%
30%
31%
Interior Counties
Noncoastal States
40%
28%
30%
20%
10%
22%
0%
Coastal Counties
Somewhat Unfair
Coastal States
Source: Insurance Research Council
Very unfair
Public Attitude Monitor 2006: Unfairness of
Taxpayer Subsidies
70%
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.
60%
50%
31%
40%
34%
22%
30%
20%
29%
25%
10%
30%
0%
Coastal Counties
Interior Counties
Noncoastal States
Somewhat Unfair
Coastal States
Source: Insurance Research Council
Very unfair
FAIR Plan Operating Gains/Losses 1990-2009
(Millions of Dollars)
$4,000
$3,000
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.
$3,579.4
$1,861.0
$2,000
$1,000
$529.9$510.2
$81.1 $11.4 $21.4
$532.7
$719.5
$0
-$1,000
-$2,000
-$51.9
The FAIR plans’ aggregate
operating loss between 1995 and
2005 ballooned by 3584 percent.
-$1,508.6
-$1,860.3
-$3,000
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: PIPSO; Insurance Information Institute.
Residual Market Plan Estimated Deficits
2004/2005 (Millions of Dollars)
2004
Florida Hurricane
Catastrophe Fund
(FHCF)
2005
Florida Citizens
Louisiana Citizens
Mississippi
Windstorm
Underwriting
Association (MWUA)
$0
-$200
-$400
-$600
-$516
-$595 *
-$800
-$1,000
-$954
-$1,200
-$1,400
-$1,600
-$1,800
-$1,425
-$1,770
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.
-$2,000
* MWUA est. deficit for 2005 comprises $545m in assessments plus $50m in Federal Aid.
Source: Insurance Information Institute
Florida Citizens Exposure to Loss ($ Billions)
$600
$485.1
$500
$421.9
$408.8
$406.0
$400
$300
$200
$195.5
$206.7
$210.6
2003
2004
2005
$154.6
$100
$0
2002
2006
2007
2008
Since its creation in 2002, total exposure to loss in Florida Citizens has
increased by 163 percent, from $154.6 billion to $406 billion in 2009.
Source: PIPSO; Insurance Information Institute (I.I.I.).
2009
Total Value of Insured Coastal Exposure In 2007
($ Billions)
Florida
$2,458.6
$2,378.9
New York
$895.1
Texas
$772.8
Massachusetts
$635.5
New Jersey
$479.9
Connecticut
$224.4
Louisiana
$191.9
S. Carolina
Virginia
$158.8
Maine
$146.9
North Carolina
$132.8
Alabama
$92.5
Georgia
$85.6
Delaware
$60.6
New Hampshire
$55.7
Mississippi
$51.8
Rhode Island
$54.1
Maryland
Louisiana had $224.4 billion in insured
coastal property exposure in 2007, 7th
highest of any hurricane-exposed state.
$14.9
$0
Source: AIR Worldwide
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$6,000
$6,687.0
$6,253.1
$7,000
$5,369.5
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.
$8,000
$5,643.0
Mississippi Windstorm Plan: Exposure to
Loss (Millions of Dollars)
$5,000
$1,873.0
$1,631.8
$1,344.3
$848.6
$864.9
$917.9
$1,000
$352.9
$2,000
$637.1
$3,000
$1,121.7
$4,000
$0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: PIPSO; Insurance Information Institute
Texas Windstorm Insurance Association (TWIA):
Exposure to Loss (Building & Contents Only) ($ Billions)
$80
$70
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.
$64.4
$67.6
$58.6 $58.6
$60
$50
$38.3
$40
$30
$20
$12.1 $13.2
$16.0
$18.8 $20.8
$23.3
$10
$0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: TWIA, Texas Department of Insurance, Southwestern Insurance Information Services (SIIS)
Sep
302010
Texas Windstorm Insurance Association (TWIA)
Total Exposure to Loss (Millions of Dollars)
By September 30, 2010, TWIA’s total
exposure had surged to $74.1 billion.
$80,000
$70,000
$67,576.6
$60,000
$50,000
$40,000
$30,000
$20,000
$6,534.8
$10,000
$0
Building & Contents
Source: TWIA at 09/30/10, Texas Department of Insurance
ALE/Business Income
Texas Windstorm Insurance Association (TWIA)
New Financial Structure
New TWIA financing
structure made available
up to $2.5 billion to fund
losses via three postevent bonding layers.
The new structure
eliminated the unlimited
assessment on TWIA
member insurers and
does not call for TWIA to
purchase reinsurance.
Source: Southwestern Insurance Information Institute (SIIS)
50,000
98,770
88,036
88,456
85,368
49,628
100,000
77,632
150,000
116,385
200,000
155,640
222,825
231,659
234,582
217,056
250,000
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.
192,944
Massachusetts FAIR Plan Policy Count
(1990-2009)
0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: PIPSO; Insurance Information Institute
Massachusetts FAIR Plan Exposure to Loss
(Billions of Dollars)
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.
$90
$80
$70
$60
$79.5
$81.5 $79.4
$68.6
$54.0
$50
$39.2
$40
$26.7
$30
$15.3 $16.7
$20
$10
$20.5
$8.3 $10.3
$4.1
$0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: PIPSO; Insurance Information Institute
Massachusetts FAIR Plan Operating Gain or Loss
2000-2009 (Millions of Dollars)
$160
$140
$120
$141.7
In three of the last 10 years, the MA
FAIR Plan has incurred an
operating deficit.
$93.2
$100
$80
$58.12
$60
$47.0
$32.94
$40
$20
$9.46
$1.96
$0
-$6.20
-$20
-$3.38
-$14.27
-$40
2000
2001
2002
2003
Source: PIPSO; Insurance Information Institute
2004
2005
2006
2007
2008
2009