A report on the North Carolina Beach Fund, the state's property insurer of last resort, says a worst-case storm season could create a more than $6 billion deficit if the plan remains underfunded.

The report from the consulting firm Milliman, sponsored by the Property Casualty Insurers Association of America, said that taking into account the fund's current surplus and reinsurance coverage, in the case of a storm season with a 1-in-10-year loss scenario, the fund would run a deficit of $343 million on losses of $879 million. In a worst-case scenario, a 1-in-250-year storm season, the fund would suffer a deficit of $6.2 billion.

The plan currently insures almost $70 billion worth of coastal property, PCI said, based on Milliman's report. The plan currently has capacity to pay $1.5 billion worth of claims only after approximately $600 million in assessments to property insurers.

The report said that under the current situation the major concern is that "a major storm could result in assessments which may significantly impact the financial condition of some insurers."

Liability in the plan's exposure continues to increase, and without change, the threat to the industry as a whole is also increasing.

The current situation could lead some insurers to withdraw from the state, decreasing both competition and accessibility, Milliman said.

In an interview with National Underwriter, Nancy P. Watkins, principal with Milliman and author of the report, said the report does not advocate any position and is intended only to provide information to a state legislative panel that is examining the program and allow them to pursue "a path of interest to them" to resolve problems with the fund.

Bob Herlong, regional manager for Property Casualty Insurers Association of America (PCI) in North Carolina, said the report is aimed "to bring a level of awareness and make recommendations that will allow the panel to go forward" and find resolutions to the problem.

"PCI sees an urgent problem to be solved here and they are working with the legislature and other representatives to come up with a solution that is acceptable to the people and the state," said Ms. Watkins, who planned to present the report to the state panel looking into the fund today.

The report said that should the fund run into a deficit, it would ultimately fall on the backs of the state's taxpayers to pay for it.

If Beach Fund policyholders foot the bill for the assessments by themselves, in the worst-case storm season scenario, they could receive a one-time policy bill as high as $30,388 or annual assessments over a 10-year period as high as $3,278.

An assessment on all personal lines and commercial property insurers in the state would mean an assessment of 19.4 percent over 10 years for the worst-case scenario storm season, according to Milliman.

PCI called on the state to make meaningful, long-term reforms to the current system to strengthen the Beach Plan's financial capacity and find strategies to bring insurers back to the coastal market and enhance competition.

Special Reports /

PCI Report Says N.C. Beach Plan Could Run $6B Deficit

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