Taking advantage of new capital is key

The big issue for US reinsurers is being able to take advantage of the new capital that is available in expanding markets.

This is according to Brad Kading, president of the Association of Bermuda Insurers and Reinsurers (ABIR), who said that there are many residual markets along the US Gulf Coast where risk could be moved to the private sector.

“A number of states, particularly Florida and Louisiana, have done a very good job of encouraging private capital to be put to work, resulting in shrinking residual markets,” said Kading. “As a consequence, there has been a positive impact for consumers in the sense that they have a greater choice of companies, and are also free of assessments from eventual losses.

“Texas is also moving to shrink its residual markets,” he said.

He added however that in Massachusetts, the governor had signed legislation adding new coverages to its residual markets.

“This is not a good sign,” he said. “There’s plenty of appetite and interest in taking risk out of the Massachusetts Fair Access to Insurance Requirements (FAIR) Plan but the policymakers there don’t seem ready to embrace that.”

Kading explained that in California, the pertinent issue is getting additional consumer purchase of earthquake cover. “The Napa quake showed that less than 10 percent of California homeowners have earthquake insurance,” he said, “so the earthquake authority is working on regulation and legislation that would redesign its product offerings to create lower deductible products that would be more appealing for consumers.”

Kading went on to say that he believes this is what all policymakers should be doing: exploring ways to put this additional capital to work.

He explained that Florida is also creating opportunities for flood insurance to be written in the admitted market. “You could always write flood insurance in the surplus lines market in Florida; now they’re creating an option for a carrier to file for policies to be sold in the admitted market,” Kading said.

“We would always encourage the US National Flood Insurance Program to take its consultants’ recommendations and implement a way to transfer risk out of the flood programme to private reinsurers,” Kading concluded.

“We also hope that UK Flood Re will be operating next year, with risk being transferred from the flood programme into the reinsurance markets, for certain jurisdictions.”