The Federal Insurance Office is being told the government shouldsupport the private reinsurance market and think long and hardbefore creating any government backstop that would displace thecurrent system.

The feedback comes from the FIO's request for input on aforthcoming study of the breadth and scope of the globalreinsurance market, and the critical role such markets play insupporting insurance in the United States.

Eli Lehrer, president of industry think-tank R Street Institute,says any federal reinsurance mechanism that would displace privatereinsurance “would have the effect of concentrating risk within theborders of the United States, rather than dispersing it through theglobal reinsurance market.”

“Governments are intrinsically ill-suited to providing propertyreinsurance,” Lehrer further argues in his letter.

In another letter, the Coalition for Competitive Insurance Rates(CCIR) also voices strong opposition to a provision of the Obamaadministration's proposed 2013 budget that would deny a taxdeduction for certain reinsurance premiums paid to foreign-basedaffiliates by domestic insurers.

Writing on behalf of the CCIR, Dan Kugler, board liaison to theRisk Management Society (RIMS) external affairs committee, said theadministration's suggestion is “a harmful and discriminatoryproposal.”

Legislation supporting a similar proposal has been introduced inthe House and Senate.

Ironically, the deadline for input comes as Hurricane Isaacvisits Florida—an observation all three commentators to the requestfor input cite in their opinions.

The FIO is believed to be looking into the issue under pressurefrom Florida legislators.

Several years ago, Democratic Sen. Bill Nelson and formerRepublican Sen. Mel Martinez, both from Florida, asked TreasurySecretary Timothy Geithner to provide a federal guarantee shouldFlorida need to raise money in the private market to provide enoughmoney for the state reinsurance programs to pay claims in the eventof a strong hurricane.

Geithner wrote back that he had no such authority, but Nelsonand Martinez co-sponsored legislation that would accomplish that.The bill was never acted on.

Lehrer also notes the solvency concerns currently plaguing thelargest government-run reinsurer in the United States, the FloridaHurricane Catastrophe Fund, whose financial advisors estimate itwould face a shortfall of more than $1.7 billion should it have toborrow money in the financial markets following a major storm tomake good on its obligations to Florida property insurers.

The Florida Chamber of Commerce tells the FIO that theFHCF, as well as Citizens Property Insurance Corporation, are primeexamples of why the federal government should stay out of thereinsurance business.

“While state's lawmakers have taken steps to right-size the FHCFand to reform Citizens and begin returning it back to its intendedrole as insurer of last-resort, more needs to be done,” the FloridaChamber says in its letter signed by David A. Hart, executive vicepresident.

“The Chamber believes that both entities are underfunded andinappropriately structured, relying on post-event assessments frompolicyholders statewide to meet their current obligations,” Hartadds.

The Chamber letter also criticizes the Obama administration taxproposal.

“Moreover, given the FIO's role in international trade andregulatory agreements, we ask the FIO to consider the potentialcross-border impacts of unilateral punitive actions,” Hartsays.