Florida property insurance legislation signed into law yesterday will drive more than $1 billion in premiums from the property-catastrophe reinsurance market--along with a quarter of reinsurers' profits, an analyst predicted.

Assessing the impact of the catastrophe insurance bill passed by Florida legislators, V.J. Dowling, managing partner of Dowling & Partners Securities in Hartford, Conn., not only shared sobering numbers with investors in reinsurance companies but suggested that the Florida plan is a "backhanded attempt" at national catastrophe fund legislation.

Mr. Dowling made his comments during a special global teleconference hosted by New York-based Guy Carpenter on Wednesday.

David Priebe, head of the specialty practice group of Guy Carpenter, led off the discussion by highlighting key provisions of the bill signed by Republican Gov. Charlie Crist yesterday. For reinsurers, a notable provision, he said, roughly doubles Florida's Hurricane Catastrophe Trust Fund coverage.

The coverage, which was previously for 90 percent of $18 billion of industry hurricane losses in excess of $6 billion, has expanded to a new maximum structure of 90 percent of $37 billion in excess of $3 billion, Mr. Priebe said.

Simplifying the math, Mr. Dowling said the aggregate limit covered by the fund has soared from $16 billion to $33 billion. He noted, however, that not all of the difference between the two figures represents aggregate limits taken out of the reinsurance market since Citizens Property Insurance Company, the state's insurer of last resort, does not buy any reinsurance. State Farm also does not purchase third-party reinsurance, he said.

Estimating, then, that only $8 billion in limits will actually be moved out of the reinsurance market and into the Cat Fund, at prevailing rates-on-line (premium-to-limit ratios) in the 15-to-20 percent range, that still means a whopping amount of premium will be removed from reinsurers' revenue streams, Mr. Dowling said.

By his calculations, the $10-to-$12 billion property-catastrophe reinsurance marketplace will collectively lose $1.2-to-$1.6 billion in premiums--or perhaps even as much as $2 billion.

The reduced profit impact will be even worse, he said, noting that reinsurers' expected profits from Florida are higher than from any other market in the world. "It is not inconceivable to talk about 25-30 percent of the expected profitability of the worldwide property-cat market that has just been eliminated," he said.

Going on to deliver some choice words about Florida and its political environment, Mr. Dowling said, "The insurance industry has...lost faith in Florida [where] the political risk of operating has intensified."

"It is effectively the [insect trap] Roach Motel. You can get in, but you cannot get out," he said.

"One could argue that what may be happening is a backhanded attempt at a national reinsurance cat program," he said later. "For the rest of the country, one might think of this as taxation without representation," he added, speculating that in the wake of a large Florida event, the federal government will step in to clean up the mess that Florida lawmakers didn't anticipate.

As for the reinsurance market, Mr. Dowling noted that pricing, which would have been under downward pressure absent the Florida law, is now under more intense pressure. The pricing "fat in peak zones will be less than it was starting in April and moving through June," he said.

Mr. Dowling also speculated that some nationwide primary companies could cancel existing national reinsurance programs in favor of Florida-only covers with high level protection.

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Cat Reinsurers' Profits Cut By Fla. Law: Analyst

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