Doug Simpson has a nice summary of the liabilities of the gulf states’ wind pools (which are residual markets for people living in high risk areas).
He makes an interesting point …
Except for approximately $600 million in reinsurance and less than $100 million in cash on hand, virtually all of the money to pay those windstorm claims will come not from the surplus of individual insurers, but from pro-rata assessments spread over the coming decades against all the property insurers in those states. That load will be added to the rate base, so that all the property owners in those states will be paying for the Katrina wind pool losses for decades. In the interim, the necessary cash flow ($4,250 million loss minus $700 million cash and reinsurance equals $3,550 million) will come from municipal bond issuance unless government relief is implemented.
So, even if the Mississippi AG wins his case, the damages will be paid in part by the local property-owners and tax-payers. I say in part, because a ruling against the industry will likely cause a tremendous loss of capacity as surplus will be removed from the industry. No one will volunteer to cover an “expropriation risk” without a substantial risk premium.