Insurance News

Residual market insurers under financial stress

Posted on: September 8, 2009

Some state-run residual market property insurance plans are under financial duress, according to white paper released by the New York-based Insurance Information Institute on Thursday.

The current economic downturn has made the situation worse, according to ?Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice,? written by Robert Hartwig, president of the insurance industry-supported III, and Claire Wilkinson, the III?s vp-global issues.

?State-run insurers are putting themselves at increased risk through greater dependence on bond markets even as credit markets struggle to recover from the current financial crisis,? they wrote.

Disruptions to credit markets will likely make it more difficult and more expensive for some of the plans to issue debt to pay for hurricane losses, according to the report.

In addition, legislation in some states expanding the exposure of the plans while curbing rates threaten state finances and ?leave taxpayers and policyholders facing the potential for increased assessments in the years to come.?

The study found that the size and exposure of the state plans have both grown considerably in recent years. According to the authors, total policies in force in the various plans grew to more than 2.6 million in 2008 from 931,550 in 1990. In addition, total loss exposure in the plans grew to $696.4 billion in 2008 from $54.7 billion in 1990.

Many of the plans ?have evolved from their traditional role as markets of last resort into much larger insurance providers, in some cases even becoming the largest property insurer in the state,? according to the authors.

But the report also found that several states have addressed some of the problems with the plans through legislation this year.

Copyright © 2009 Crain Communications, Inc

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