Fireman's Fund Won't Back Nat'l Cat Fund

New York--Rather than lobby for a national catastrophe reinsurance fund, insurers should better manage their own exposure concentration while pushing for the right to maintain disaster reserves and charge appropriate premiums in storm-prone areas, one leading carrier contends.

Fireman's Fund has "somewhere north of 6,000 claims, and counting" from Hurricane Katrina, noted its recently elected president, Joseph Beneducci. "But because we took a disciplined approach to diversifying our portfolio, Katrina itself was not catastrophic in terms of our exposure."

For that reason, Fireman's Fund does not back calls by Allstate for a federal catastrophe reinsurance fund to help spread future losses from natural disasters.

"We oppose it," Mr. Beneducci said during an exclusive interview with National Underwriter for a cover story in NU's March 6 edition. "To spread this exposure to others not in the storm path is not the best solution for the vast majority of customers. Instead, each company has to look at their exposure in each of these cat-prone areas and make sure they can handle the capacity at risk."

A more effective approach to ease the burden on individual carriers would be to alter accounting rules to allow for long-term catastrophe reserves, Fireman's Fund believes, along with discouraging state governments from artificially suppressing rates in disaster hot spots.

"The repair and restoration people we hire raise their prices after a disaster--not to price-gouge, but to reflect the higher demand and increased cost for labor and materials," noted the carrier's chief executive officer, Charles Kavitsky. "If they can raise prices appropriately, why can't insurers?"

Terrorism is a different story, however, "at least if you're talking about nuclear, chemical, biological and radiological attacks--events the industry just cannot handle," Mr. Beneducci said. "As bad as 9/11 was, insurers did absorb those losses and can still function, but an NCBR event could cripple the whole industry."

Speaking with NU from his company's New York office--two blocks from "Ground Zero," the World Trade Center site--he noted that "a dirty bomb" set off in New York might not only "make the area uninhabitable, but could also bring the financial markets down, undermining the ability to pay claims."

He said he hopes the industry focuses its lobbying efforts on replacing the federal reinsurance backstop in the Terrorism Risk Insurance Act--expiring at the end of 2007--with a long-term solution to relieve insurers of NCBR exposure.

"We have to have protection against those events that could literally cripple the whole industry," he said. "We need to respond before something happens that causes the industry's surplus to evaporate."