Florida's new insurance reforms will make state carriers withlarge property catastrophe exposures there the most vulnerable tonegative rating actions, rating firm A.M. Best Co. said.

The Oldwick, N.J.-based firm said the impact of the reformmeasure on the reinsurance sector may be limited to an overallprice softening as the legislation encourages an exit from theFlorida market of reinsurers who must look for new places to deploycapital.

Under the new law, primary insurers can buy reinsurance from thestate's Hurricane Catastrophe Trust fund at a reducedcost--provided their savings on that expense are passed directly toconsumers.

Best said the legislative changes may have far-reachingconsequences in the Florida insurance market. The company said itwill be evaluating the exposure of companies to recoverables fromthe fund and the impact on companies' overall capitalization.

But that impact will for the most part remain in the primarysector, where insurance companies will face new rate restrictionsonce the so-called "factor" from the fund expansion has beendetermined.

Companies most exposed to negative rating pressure and ratingdowngrades will be those with large gross catastrophe exposure, andthus greater exposure to fund recoverables, Best said.

The reforms are expected to eliminate billions of dollars ofreinsurance premiums from the private reinsurance market, whichcould result in a considerable amount of capacity becomingavailable for redeployment, according to Best.

Best reported that as reinsurers seek to recapture lost revenue,the manner in which they react to the legislative curtailment ofthe Florida reinsurance market could accelerate rate softening innon-coastal property regions and result in increased competition incasualty lines.

Overall, the impact on a company's rating will be largelydependent on several factors; key among them is each organization'sunique ability to manage through the regulatory and marketchallenges that lie ahead while maintaining adequate pricing andfavorable risk-adjusted capitalization.

The Best report views the recent legislative changes asweakening the business profile of companies with a significantconcentration of Florida business.

In addition, the prospective capitalization of propertyinsurance writers is weakened, as they carry the burden ofpotentially unrecoverable reinsurance in the event of a majorcatastrophic event, Best said.