California FAIR Plan runs tight vs funding tower, assessments ever-likely
California’s insurer of last resort for fire coverage, the California FAIR Plan, may smell smoke in its very own financial statements, with insufficient funds on hand to cover its own retentions for multiple events even as policy uptake continues unabated.
FAIR Plan member carriers could easily face steep assessments should the state suffer another year of wildfire events, FAIR Plan president Victoria Roach suggested for legislators from the California Assembly’s committee on insurance during a hearing. She cited surplus at $200 million and cash on hand at “somewhere neighbourhood $700 million”.
Those sums stack up poorly versus the single event retention in the FAIR Plan’s funding tower at $900 million, so with a string of just several smaller events “we could easily be in assessment territory,” Roach told legislators.
The FAIR Plan relies comparatively heavily on member carrier assessments and member co-reinsurance as “there is not as much reinsurance for wildfire risk available,” Roach said.
But reinsurance has grown in the $4.8 billion tower to $2.5 billion in the current structure, up from $1.7 billion in the preceding annual structure. “We’ve never had that much reinsurance before,” she said, citing a roughly 1:100 year claims paying potential in the tower.
Growth in policies and exposures continues largely in line with the FAIR Plan’s recent 27% per annum run-rate, but could yet beat forecasts, she said.
“Our projection for this fiscal year, which ends in September 2024, was 404,000 policies and I’m pretty sure we are going to go beyond that,” she said.
As of December 2023, the FAIR Plan’s total exposure is $311.64 billion, reflecting a 27% year-over-year increase since 2019. Policy counts increased 29% y/y in 2023 and more than doubled since 2019.
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