Increased capacity proposed for the Florida Hurricane Catastrophe Fund cannot be expected to have much impact on reinsurance pricing, according to a banking firm's analysis.
Bank of America Securities reinsurance analyst Tamara Kravec said the current proposed addition of $14 billion to the FHCF could lead to some reductions for accounts that saw some of the most spectacular increases in 2006.
"Some volume written by the private market in 2005 may go into the cat fund, but we expect even with these changes, most reinsurers will be able to write as much business as they like," Ms. Kravec wrote.
In addition, the new cat fund capacity rates will be on par with the rates private insurers charged in 2006.
The Property And Casualty Insurance Reform Committee, set up by Gov. Jeb Bush in May, issued a series of proposals Friday that include adding the capacity to the FHCF for two years.
The proposal would add capacity for residential property both below the FHCF's current retention and above the top of the current limit. Additionally, it would provide about $6 billion of coverage for commercial risks.
Ms. Kravec said the proposal faces an uncertain future because of the increased risk the state will incur as a result.
Nonetheless, the fact that the private market cannot meet the demand for reinsurance would indicate a minimal impact on pricing.
"The additional cat fund capacity would not necessarily displace the private reinsurance market, but rather provide coverage the private market cannot currently provide," Ms. Kravec wrote.
In addition, other factors that came into play last year separate from capacity issues also increased pricing.
Revised catastrophe models producing higher loss estimates and increased capital requirements by ratings agencies are among such items that will continue to buttress industry pricing, she wrote.
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