Two weeks ago the Florida House of Representatives’ Jobs and Entrepreneurship Committee unanimously passed a bill, requiring insurers, which participate in Florida’s Hurricane Catastrophe Fund (“Cat Fund”), to purchase reinsurance from the private market. The bill specifically seeks to eliminate last year’s $12 billion increase in Cat Fund coverage. Introduced by Florida State Representative Ron Reagan (R-Bradenton), chairman of the Florida House Insurance Committee, and supported by Chief Financial Officer Alex Sink, the bill could inject as much as $3 billion of limits back to the private reinsurance market.
The legislation is part of a bi-partisan effort by state legislators and Sink to shift more risk back to the private market, and thereby reduce the burden that a major hurricane might place on the Cat Fund. If enacted, the bill effectively would reverse part of the reforms, which Florida Governor Charlie Crist promoted in 2007. Crist had hoped that increasing the availability of state sponsored reinsurance by expanding the Cat Fund would significantly reduce premiums for Florida policyholders. Those savings have not materialized and, as reported here, here and here, Crist and the Florida Department of Insurance aggressively have been investigating why not.
Sink is particularly concerned that the 2007 increases to the Cat Fund substantially overexpose the state to loss from a major hurricane. Further, Sink argues that, given Florida’s current exposure, a major storm would result in Florida policyholders being required to pay substantial assessments in order to replenish the Cat Fund. Because the expansion of the Cat Fund did not yield decreased premiums as expected, Sink believes the attendant additional exposure is not beneficial for Florida or Florida’s policyholders.