Sink's Florida Cat Fund Change Gets Reinsurer Support

Florida Chief Financial Officer Alex Sink's proposal that she said could reduce the potential for future Hurricane Catastrophe Fund assessments on Florida policyholders was endorsed today by the Reinsurance Association of America.

RAA President Franklin W. Nutter issued a statement saying the proposal would better safeguard Florida's financial risk.

Under Ms. Sink's proposal, announced yesterday, the governor and his cabinet would be given the ability to set both the reinsurance levels and pricing of the cat fund's optional coverages, giving greater flexibility and accountability to the management of Florida's reinsurance fund.

She said if the plan is approved by the legislature before the end of the month, the reformed cat fund would begin evaluating financial and insurance market conditions and recommend to Gov. Charlie Crist and his cabinet the level and pricing of cat fund optional coverages for the 2008 hurricane season.

The cabinet would make a final decision by Feb. 15, 2008, in advance of the time when a majority of private insurers negotiate their private reinsurance contracts.

"We believe CFO Sink's proposal makes a great deal of sense," said Mr. Nutter. "The private reinsurance market has both the capacity and the appetite to accept Florida's catastrophe risk and is able to spread that risk around the world, rather than concentrating the risk in Florida, as is currently the case."

Ms Sink's proposal followed insurance industry criticism of the legislature's creation of an additional $12 billion in optional reinsurance coverage available to primary insurers through Florida's cat fund at a discounted rate.

The savings to insurers were to be passed on to consumers in the form of rate relief, but the impact on rates has been below expectations.

According to RAA, the change also resulted in Floridians taking on more risk of future assessments from the cat fund.

Ms. Sink's proposal, RAA said, would give the governor and his cabinet the ability to set both the amount and pricing of the cat fund's optional reinsurance coverages, providing for greater flexibility and accountability to the management of Florida's reinsurance fund.

RAA said it would also promote increased competition in, and assumption of risk by, the private insurance market.

In reacting favorably to the proposal, Mr. Nutter said that "the private reinsurance market can do that without the huge post-hurricane assessment/taxes inherent in the current law. We will cooperate fully with CFO Sink as she moves forward with her excellent proposal."

Ms. Sink has said she would present her proposal at Tuesday's Florida cabinet meeting, and will urge legislative leaders to implement the proposal during the upcoming special legislative session.