Florida Cat Fund Reform - RAA backs Florida Cat Fund proposal

The Reinsurance Association of America (RAA) has backed a proposal by a senior government officer in...

The Reinsurance Association of America (RAA) has backed a proposal by a senior government officer in Florida to give the governor and Floridian cabinet the right to set reinsurance coverages and the pricing of the catastrophe fund's optional coverages. The proposal by chief financial officer Alex Sink follows a decision, supported by the Florida state governor Charlie Crist, to create a further $12bn in optional reinsurance coverage via the Florida Catastrophe Fund. It brought the total amount available to $28bn. Ms Sink's office said that at the time, some officials had been pushing to have a top limit of $50bn or $60bn.

If the new proposals are adopted, the structure of the fund would remain the same but the cabinet, rather than the legislator, would have the power to alter pricing throughout the year in accordance with the market.

The RAA welcomed the new proposal and its president, Franklin Nutter, said: "We believe CFO Sink's proposal makes a great deal of sense. 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."

Mr Nutter added: "The private reinsurance market can do that without the huge post-hurricane assessment/taxes inherent in the current law. We will cooperate fully with Ms Sink as she moves forward with her excellent proposal."

Ms Sink said: "If we want to reduce the potential for future assessments, we need to reform the Hurricane Catastrophe Fund to allow us to be more nimble and respond to the volatile financial and insurance markets." Ms Sink presented her proposal at the Florida cabinet meeting on 16 October. If the legislature approves the changes, the reformed Cat fund could begin evaluating financial and insurance market conditions and will recommend to the governor and cabinet the level and pricing of Cat Fund optional coverages for the 2008 hurricane season. The Florida cabinet would make a final decision by 15 February 2008.

A spokeswoman for Ms Sink said: "We've had general feedback that the reinsurance industry wants to come back into Florida, not withdraw. We've had a couple of good years that helps, but we hope to encourage more of the industry into the market.

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