NU Online News Service, Oct. 14, 3:50 p.m.EDT

Guy Carpenter & Company LLC said it is opening an officespecifically dedicated to the "increasingly complex needs ofFlorida-based companies" and the unique Florida marketplace.

The reinsurance broker concluded the office, located in Tampa,Fla., is needed to handle the "biggest catastrophe market in theworld," Kevin Stokes, executive vice president, told NU OnlineNews Service.

Mr. Stokes will lead the new Florida unit, which beganoperations in August.

"We thought the more boots we could have on the ground here, thebetter we could serve our Florida clients," Mr. Stokes said.

Throughout the last decade, national insurers have reducedexposure in Florida. In the meantime, 45-50 domestic carriers haveentered the market to pick up the slack. These carriers relyheavily on reinsurance, Mr. Stokes said.

Though reinsurance rates have declined, the cost to insurers"remains a significant component in ratemaking," Mr. Stokessaid.

Regulators have acknowledged reinsurance costs as one of ahandful of cost-drivers for the state's property insurers. The costhas been cited in multiple rate filings recently.

Legislation passed in the state two years ago is designed toeventually eliminate what was a $12 billion optional, temporarylayer of the Florida Hurricane Catastrophe Fund (FHCF). Insurerswere required to purchase the cheaper reinsurance from the fund,with the idea that premiums would decrease for policyholders. Thatdid not pan out, and now the layer will be reduced $2 billion eachyear for six years and the price of the coverage will increase.

Mr. Stokes said that currently the price of reinsurance from theoptional layer is close to that offered by the private market,prompting insurers to switch.

The FHCF estimates about $6.4 billion of risk was returned tothe private reinsurance market in 2009.

This year Florida regulators are not requiring companies tocarry catastrophe reinsurance for any specific probable maximumloss, such as the traditional 1-in-100 year level. The Office ofInsurance Regulation (OIR) said it is instead looking to ensurecompanies can withstand multiple storms.

While some companies may still need reinsurance at the 1-in-100year level due to their exposure, Mr. Stokes said others are"recognizing it is important to buy sideways protection. We've seena trend on that."

Florida is also the only state to allow a foreign reinsurer topost reduced collateral as long as it is highly rated andfinancially sound. The move has attracted Hannover Re and itsBermuda subsidiary, as well as XL Re Ltd.

The theory is that more capital to the market will result inmore competition and better prices for the marketplace. Whetherthat happens, and when, remains to be seen, Mr. Stokes said.