US Residual Markets, Part I

In rural areas, these establishments are important providers of some of the most property insurance that is vulnerable to wind and earthquakes. Nowadays, these establishments have developed and their purpose has expanded beyond their focus on cities. Over time, they ensured that insurance remained accessible in urban regions. These insurance establishments originated from the civil unrest in the 1960s. Florida Citizens Property Insurance Company (Florida Citizens) and Louisiana Citizens Property Insurance Corporation (Louisiana Citizens) are two insurance companies operated by the state. The segment of the US property insurance market that remains is made up of Fair Access to Insurance Requirements (FAIR) Plans, Beach and Windstorm Plans, and these two state-run insurance companies.

The total loss exposure in the FAIR Plans increased by 1,679 percent, from USD 715.3 billion to USD 40.2 billion, between the years 2011 and 1990.

From 2011 to 2013, the exposure of the residual markets in the United States has decreased from its highest point, experiencing a 30 percent decline. Louisiana Citizens, another insurer that was created by legislation to serve as a last resort option in Louisiana, has also been moving in the same direction of reducing risks by implementing depopulation strategies and making changes to premium rates. Florida Citizens has been increasing its utilization of reinsurance from the private sector, including catastrophe bonds, as a way to manage its exposure to hurricanes. Alongside its efforts to transfer insurance policies to private companies through its depopulation initiatives, Florida Citizens accounts for more than 50 percent of FAIR plan exposure, which has decreased by 38 percent since its peak in 2011 to reach USD 445.6 billion.

Guy Carpenter is connected to facilities in 10 out of the 14 states. The company has a specialized team consisting of professionals from different business segments (such as Analytics, Strategic Advisory, capital markets, and treaty broking) who specifically address the needs of residual market facilities in the United States. These residual market facilities, present in all 14 states and including those exposed to hurricane and earthquake risks, incorporate reinsurance as part of their risk financing programs. As the risk capital landscape has changed and expanded, and reinsurance pricing has decreased in the United States, several of the larger residual market facilities have been increasing their access to reinsurance.


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1. Insurance Information Institute: Residual Market Property Plans: From Markets of Last Resort to Markets of Primary Preference, September, 2014.