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Key’s News: Don’t blame reinsurers for insurance problems

Wednesday, July 27, 2011

Don’t blame reinsurers for insurance problems

As someone who has been working in the industry for over 20 years, I noticed the recent guest column “Human nature to blame for rising rates? Really!” contained a few factual errors that I believe should be brought to readers’ attention.

To suggest that “many reinsurance companies are wholly owned by, or closely tied to, domestic companies” and that this relationship correlates to the 2005 profit is misleading. It is also unfortunate that it was printed to further a rebuttal to Mr. Brown’s letter to the editor, “Storms, not insurance, at blame for rate crisis.”

The truth of the matter is most reinsurers are not affiliated with their insurance company clients. There are a few Florida domestic homeowners insurers with affiliated reinsurance arrangements, but those transactions are subject to state regulatory scrutiny and the IRS’s transfer pricing regime, which prevents companies from paying an above-market price without suffering tax consequences.

Furthermore, it is important to note that even “offshore reinsurers” not affiliated with insurance company clients undergo regulation in their own domiciliary country.

Reinsurance and reinsurers are not to blame for Florida’s insurance problems. Florida has over $2 trillion of property potentially exposed to hurricanes. Reinsurance helps insurers manage their expected losses and write more business. In addition, when a hurricane strikes, reinsurance payments provide a much-needed economic stimulus.

Reinsurance is not mandatory; it is just one of the options insurers have to fund their potential losses. The fact that reinsurance is cost-effective is proven by the fact that insurers buy it voluntarily.

Dennis Burke

Reinsurance Association

of America

Washington, D.C.

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