The government of Thailand is looking to establish what would bethe largest excess-of-loss property-catastrophe treaty in theworld—a catastrophe fund equipped to cover losses of up to $16.2billion.

A briefing from insurance-rating agency A.M. Best Co. says theThai government is attempting to keep flood insurance available andaffordable in the wake of four months of flooding in 2011 that“delivered a shocking and unexpected blow to the global insuranceindustry in the form of an unmodeled event.”

The catastrophe fund is “expectedto be criticized because of Thailand's small reinsurance premiumbase, but it is a step in the right direction to restore confidencein the Thai market,” A.M. Best says.

Details of the fund will take some time to negotiate, asreinsurers could be asked to cover it. That could be a lot to askfor, as industry-wide losses from the flooding are now estimated tobe $15 billion, and it will be decades before reinsurers recoverlosses, according to A.M. Best. Many reinsurers are now skittish torenew flood policies in Thailand.

“Reinsurers will no longer spare Thailand from consideration asa risk for natural catastrophes,” the briefing states.

The market will undoubtedly change as a result of the disaster,the ratings agency says. Flood coverage was included in manyall-risk policies, and few policies required deductibles. In somecontracts, event limits aren't specified, and policy languagepertaining to Contingent Business Interruption claims will taketime to assess.

As the industry continues to truly grasp the impact ofthe floods, losses from the event could be seen throughout 2012,evidenced by insurers increasing fourth-quarter reserves for eventsearlier in 2011, A.M. Best predicts.