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Reinsurance companies set up shop

Seven new companies are being formed to sell much-sought-after catastrophe reinsurance coverage to companies that sell homeowners policies, the Reinsurance Association of America says.

Insurance experts estimate the newly formed reinsurance companies have pulled in at least $1.5-billion in capital capable of underwriting $4-billion in losses, the Florida Times-Union reported Thursday.

"It is a significant amount. This is good news," said Brad Kading, vice president of the Washington-based reinsurance association.

Property and casualty companies have cited the evaporating reinsurance market to justify requests to state regulators for rate increases and policy cancellations to cover hurricane risks in Florida.

Insurers buy reinsurance to spread their losses in the event of a major catastrophe. For example, a $500-million loss would cost a company $400-million if it bought $100-million worth of reinsurance.

Now investors are coming back into the market.

"It tells you they think they can make a killing," said Robert Hunter, president of the National Consumer Insurance Organization in Washington.

"It does bode well for consumers," said Claude Lilly, a Florida State University insurance professor. "As insurers come back into Florida, prices will stabilize and coverage will become available once again."