The Florida Senate Banking and Insurance Committee showed that the state Legislature is determined to improve the way hurricane risk is priced, managed, insured, reinsured and transferred within the state today by voting 11 to 1 to pass Bill SPB 7018 which contains a number of measures to reform the Florida insurance market, downsize Florida Citizens and enable easier access to reinsurance and risk transfer.
As we wrote in this article regarding the bill yesterday, it contains a measure to create a risk pooling facility which would seek to enable smaller, primary domestic insurers to access the capital markets through pooling of risks and issuances of instruments such as catastrophe bonds, insurance-linked securities and other securitizations.
The facility, if created, would be called the Florida Catastrophe Risk Capital Access Facility and would perform a role of aggregating catastrophe risks from smaller insurers, parceling it into portfolios that could be structured into risk transfer instruments such as cat bonds and then facilitating the actual transactions.
One Senator said that while the bill may prove painful for some as it will increase homeowners insurance rates, it also calls for risk based, actuarial pricing, continued de-population of Citizens and more easy access to reinsurance, it will be worth it in the long run by reducing Florida’s exposure to the major storms.
The proposal needed 7 votes in order to pass the Committee stage and move on to the next stage in the Legislature. Those in favour see it as reducing the risk to residents in the state, enabling insurers to compete on a level playing field and facilitating more easy access to sources of risk capital, including both traditional reinsurance and the capital markets.
The bill passed the Committee 11 to 1 yesterday, which was a moment of rare agreement on what has been a particularly difficult issue to get through the Legislature historically. The next steps are for it to come before the Senate and the House before it can be signed into law by Florida’s governor, so this has a long way to go still.
The creation of a risk pooling and cat bond issuing facility has the potential to greatly increase the amount of Florida hurricane risk transferred to the capital markets and so has potential ramifications for the ILS sector. However it also provides an opportunity which investors seeking to deploy capital into the ILS and cat bond space would be very pleased to see get approved.