First steps towards a tipping point in reinsurance?

This past Thursday, an interesting bill was passed by the Florida legislature. Described by Insurance Information Institute President Robert Hartwig as having "effectively socialized the insurance and reinsurance markets in the state", the bill is one that potentially could have negative consequences for Bermuda's reinsurance markets both in the near term and future.

News reports have describing it as an increase in the financial contribution to the state's Hurricane Catastrophe Fund, which would cause the state itself to take on the insurance risk of a catastrophe. What will this mean for our reinsurance industry and what kind of impacts could it have on Bermuda's economy? Is it possible it could create a trend?

Is Florida making a huge gamble by taking on it's own risks of disaster? If this coming summer becomes anything like the last, then the gamble could pay off, at least in the short term. If this coming summer is more like 2004, then the gamble could come at quite a loss. If the gamble doesn't go in their favor, it would be likely to see taxes rise to extraordinary levels to cover the costs.

What impact could this gamble have on Bermuda's insurance industry? Well, if this summer turns out to be a mild one, how likely is it that other states or even countries, may decide to make a similar move? Could such decisions create a trend that potentially could eliminate much of the profit found in reinsurance, effectively toppling Bermuda's prime industry.

Certainly this writer is no expert on reinsurance, however some questions do need to be asked. It may be unlikely for this one legal change to cause a trend, however, can we be certain that there won't ever be similar changes worldwide that could effectively wipe out Bermuda's economy in an instant? Perhaps this is something we should ever be wary of.

At least for now, you are left to your own devices to determine the odds for the future of Bermuda's reinsurance industry. One thing is certain, however. This writer won't be buying property in Florida anytime soon.