All eyes turn to offshore insurers
Monday, 18 September 2006

Property and casualty insurance rates in Florida have reached levels where ''regular folk'' like Grogan, a native Floridian who lives in suburban Indialantic, can't pay their premiums, businesses that can't find coverage are in technical default on loans and real-estate deals are stalling.

Insurers place the blame on their own coverage - the layers of catastrophe protection they buy from risk-brokers of Bermuda, Munich and London. Of the $56 billion in insured losses from Hurricanes Katrina, Wilma and Rita, those re-insurers wound up paying half of it.

But in a bid to recover, they have raised rates so high they have sent a shockwave through Florida as devastating as any storm.

Among proposals on his desk is a novel idea for Florida to set up a hurricane exchange where the world's capital markets buy and sell storm risks.

The exchange promises fresh capital to rejuvenate Florida's insurance market, hyping competition that brings down prices.
 
To offset the record losses of 2004-05, the cost of re-insurance in Gulf Coast states doubled at the start of 2006.

But in Florida, many re-insurers refused to write, if at all, until July. By then, prices had jumped even higher than they did after Hurricane Andrew.

The increases were made all the worse by new demands that insurers carry twice as much coverage. Furthermore, computer models were changed from 100-year trends to five-year forecasts, increasing Florida's storm risk by 40 percent.

The dramatic result is that a year after Katrina, according to a survey by the Benfield brokerage, Bermuda's re-insurers report a record $4.5 billion profit for the first half of 2006.

Florida political leaders have decided they have had enough.

Bush also is contemplating some not-so-exotic propositions, such as raiding state coffers to give homeowners cash and stiffening building codes.

The re-insurance industry finds little to like about government-run competition.

If Florida could raise the millions of dollars to offer what Bush dubs ''synthetic re-insurance,'' that will only somewhat lower home-insurance rates. The bigger but more sustainable impact comes in the long haul, if the state raises enough capital to finance more insurance policies in Florida. Republican ideology is that competition will then drive down rates.


Edwina Baniqued