Association of Bermuda Insurers and Reinsurers: Reinsurance industry is crucial to Florida’s tropical storm and hurricane coverage

Jan 3, 2012

The following article was published in the Fort Myers News-Press on January 3, 2012:

Guest Opinion:  Reinsurance Industry is crucial to Florida’s Tropical Storm and Hurricane Coverage

By Bradley Kading

As the media reports on insurance-related matters throughout Florida, especially with regard to the state-run Citizens Property Insurance Corporation and Florida Hurricane Catastrophe Fund, the term reinsurance is one that is frequently used but sometimes misconstrued.

As some of Florida’s elected leaders aim to reform both Citizens and the Cat Fund, it’s important for Floridians to understand how private reinsurers are willing and able to handle the hurricane-prone state’s catastrophic risk.

An optional choice for insurance companies, the reinsurance industry provides a growing, reliable source of capital to support national hurricane and earthquake risk. Working with the private insurance market, which aims to spread risk so that no single entity is saddled with a financial burden beyond its ability to pay, reinsurance enhances this principle because of our industry’s ability to spread risk throughout the world.

Throughout 2011, the world experienced its fair share of natural disasters, including earthquakes, hurricanes, tornadoes and floods. However, despite a record $100 billion plus in insured global property catastrophe losses for the year, the commitment of reinsurance markets to the United States remains stronger than ever, with ample capacity to meet the demands of national insurers.

Due to our ability to spread risk globally, neither this year’s losses nor the worst ever U.S. hurricane losses from 2005, which featured Hurricanes Katrina, Rita and Wilma, have dented the private reinsurance supply that supports U.S. property insurance markets. The reinsurance industry exists to properly manage such risk, ensuring there are adequate funds for recovery and rebuilding following a disaster.

There are various examples of our industry’s ability to fully meet our obligations including the tens of billions of dollars in losses paid out to Japan, New Zealand, Thailand, Australia and Europe this past year to the more than $22 billion Bermuda reinsurers paid to U.S. clients for the 2004 and 2005 hurricanes, including Katrina. Private reinsurance plays a vital role in the “clean-up” phase following a catastrophic disaster and helps to both boost and speed up economic recovery. Unlike the structure of the Cat Fund, the private reinsurance market is able to provide funds for recovery, sparing taxpayers of Florida from the “hurricane tax” debt assessments needed by Citizens and the Cat Fund.

This upcoming state legislative session Florida’s elected leaders will consider proposals to address the issues associated with both Citizens and the Cat Fund. While some private reinsurance has been purchased by the state in the past, the wisest public policy would include maximizing the private sector risk bearing in order to better protect all Floridians from the very real threat of a financial catastrophe.

When lawmakers make the decision to completely transfer the state’s risk, international reinsurance markets will be prepared to meet Florida’s needs and perform as the strong, reliable industry capable of handling the job we were created to do.

– Bradley Kading is president of the Association of Bermuda Insurers and Reinsurers.

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