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