When the 2008 legislative session ends, it might be considered the year that legislators discovered the definition of reinsurance and the impact it has on insurers' abilities to write business. That may be the number one lesson that came out of the hearings of the Senate Select Committee on Property Insurance Accountability, which while refraining from making formal recommendations to the legislature, none-the-less put the role of placed reinsurance squarely in the middle of any future property reform debates.

The focus on reinsurance is also reflected in Chief Financial Officer Alex Sink's proposal to roll back the market's reliance on the Florida Hurricane Catastrophe Fund by $3 billion, a proposal that recognizes that last year's move to expand the fund by $12 billion could lead to large policyholder assessments. It also raised the question of whether it is even feasible for the fund to raise that kind of money in the capital markets.

These factors were part of the reason that legislators last year enacted a provision changing the collateral requirements placed on reinsurers. Under the previous law, any U.S. or non-U.S. reinsurer that entered into an agreement to cover a portion of an insurer's risk had to post collateral equal to 100 percent of the risk. The law was designed to ensure that a carrier's financial solvency and claim-paying ability would not be jeopardized in the event a reinsurer failed to meet its financial obligations to a carrier. Legislators and regulators concluded that the collateral requirement served as a barrier or disincentive for reinsurers looking to do business in the state. This led to a question of whether it was necessary for reinsurers to meet the 100-percent collateral requirement if they had high financial ratings and substantial holdings.