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Miami Herald: International reinsurers help us

Tuesday, June 07, 2011

The recent editorial, New property insurance law won’t help consumers: Despite your editorial’s unflattering innuendo with regard to the international reinsurance industry, it’s important for readers to understand that international reinsurers are strong financial backers of Florida’s insurance companies and are committed to the Florida market.

Not for profit companies can sell reinsurance on an assumption that it just needs to price for the average annual loss projected by a one in 100 year catastrophe model. The statistic cited means if you have 100 years you can accumulate enough money to pay the expected amount. What good does that do a consumer that needs a claim paid after this year’s hurricane? Reinsurers have to charge a price that means they will have sufficient capital to pay all the catastrophe claims they may be obligated to pay during any one year. This is financially sound, risk based and fair pricing.

A composite of Bermuda reinsurers compiled by an investor group shows that rates of return on equity (ROE) have ranged from 2003 to 2010 from -6.5 percent to 21 percent with a mid-point of 15 percent. The reinsurer’s average ROE’s aren’t that different from composites for financial companies. We earn a profit based on the risk we assume. By providing reinsurance for hurricanes and earthquakes around the world we get the benefit of diversification which allows us to write more reinsurance than we otherwise would be able to, with the primary beneficiaries being Floridians.

The media should stop turning the industry into the scapegoat and instead come to terms with what many policymakers, environmentalists, charities, business leaders and scholars have stated time and again — Florida has a hurricane problem, not an insurance problem.

Bradley L. Kading, President, Association of Bermuda Insurers and Reinsurers, Washington, DC

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