California moves to bolster FAIR Plan as exposures rise 6% in Q1 alone
California is mulling options to allow its insurer of last resort, the California FAIR Plan, to tap debt markets to build solvency in a bid to ward off admitted carrier fears of imminent assessments that could be required to keep the residual market programme afloat.
Legislation which would allow the FAIR Plan to issue such bonds is heading for committee Wednesday (April 25) and would take effect immediately as "an urgency statute" upon plenary approval and eventual signing.
A “looming fear of an assessment” is contributing to decisions by admitted market carriers to reduce or even swear off new business in the state, staff of the California Assembly's insurance committee said in its analysis of the legislation.
“An assessment could have a far-reaching impact on the already struggling admitted market,” authors wrote.
The FAIR Plan may be just an event or two from needing to lean on its carrier members for a rescue. Speaking to legislators mid-March, FAIR Plan President Victoria Roach cited surplus at $200 million and cash on hand at “somewhere neighbourhood $700 million,” a tight fit to the single event retention in the FAIR Plan’s funding tower at $900 million. On a string of smaller events “we could easily be in assessment territory,” Roach told legislators.
Exposures may be growing at an unsustainable rate. The FAIR Plan has been "ballooning in size to a point beyond what it was created to handle, which puts it at risk of an assessment if we see a catastrophic event such as a widespread wildfire," authors wrote.
FAIR Plan exposures rose to $329 billion at end-March 2024, authors claimed. That's up 6% or $18 billion in the first quarter alone against the end-2023 reading of $311 billion which FAIR has posted on its website. And it's an astronomical gain to the $50 billion which legislation reviewers list from 2018.
The FAIR Plan is receiving nearly 1000 applications a day, committee authors say of FAIR Plan declarations. If property values in applications were to match the current FAIR Plan book, that could represent $26 billion in potential new exposures per month.
Roach had cited a run rate in policy count growth at 27% per annum, but warned that her organization could yet beat that trend.
Current FAIR Plan assessment rules could syphon industry funds quite quickly following an event. authors note. Current rules give member carriers 30-days from approval by the state insurance commissioner.
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