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ORLANDO SENTINEL: Reinsurance optional for spreading the risk

Monday, April 30, 2012

Reinsurance optional for spreading the risk

As executive vice president of Florida’s largest insurance trade association, I wanted to clarify some of the points made in Scott Maxwell‘s recent column concerning homeowners insurance (“Why homeowner insurance rates are skyrocketing,” Orlando Sentinel, Sunday).

Reinsurance enables insurance companies to transfer severe risks to private markets worldwide, instead of concentrating it in Florida. Private reinsurance enables our companies to offer more affordable coverage here in the most hurricane-prone state.

Other than the mandated but unfunded and uncertain taxpayer reinsurance from the state-owned Florida Hurricane Catastrophe Fund, which concentrates risk in Florida, every insurance company has discretion whether to purchase third-party private reinsurance or to choose other options.

Reinsurance is simply one source of capital, and our members and other local insurers astutely seek the most efficient capital available. The executive quoted in the column is not required by law to purchase any amount of third-party reinsurance. Instead, his company could retain its risk; raise capital by selling stock or bonds; obtain loans; or access the capital markets for other financial products.

Florida Insurance Council members are committed to maintaining the tools and resources to honor our promises to policyholders, of which private reinsurance plays an important role. The fact that an insurer voluntarily elected to purchase private reinsurance and forego other options simply means the insurer determined reinsurance was the best choice for its company and policyholders.

Sam Miller Executive vice president, Florida Insurance Council

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