State-run property insurers of last resort witnessed a record-high 3.31 million new in-place residential and commercial policies in 2011, marking a 17% increase over the previous record of 2.84 million during the prior year, according to a new Insurance Information Institute report.The report found the millions of property insurance policies in-force last year give insurers of last resort a combined exposure of $884.7 billion in 2011. That's up from 2010s $757.9 billion in exposure.
Florida's Citizens Property Insurance Corp. wrote more than half of the 3.31 million residual market policies that were in-force nationally as of year-end 2011, according to III's report. Residential and commercial property owners migrate to the residual market when they are unable to acquire an insurance policy in the standard market.
Should the state-run insurers face a dramatic loss and see their assets drop, the report said they could levy assessments against the states participating insurers; issue bonds or accessing capital markets.
State insurers of last resort across the country have faced a number of challenges in recent years.
The Texas Windstorm Insurance Association's level of exposure and insufficient financing mechanisms could leave the coastal insurer of last resort without adequate funding in the long run, according to a commissioned report. The report, prepared by Merlinos & Associates, recommends TWIA cut exposure and increase rates to protect long-term viability. The report found rates would need to be increased by an average of 44% to ensure fiscal health.
In Florida, which has faced some of the most challenging problems, lawmakers are working to come up with a way to put the state's last-resort insurer on stronger financial footing. Florida's Citizens Property Insurance Corp., the state-run homeowners insurer of last resort, has tapped the capital markets for $750 million in collateralized reinsurance coverage. The two-year catastrophe bond, issued by Everglades Re, is the first time Citizens has used a cat bond for coverage. The $750 million cat bond is the largest single-tranche wind risk catastrophe bond offering yet, Citizens said.
Last year, the Louisiana Citizens Property Insurance Corp. moved 10,000 personal lines policies to private insurance companies by the end of the year.
That move marked the fifth time since 2008, Citizens shifted policies to the private sector to help attract insurers to the state and to relieve the burden on the state-run com