Severe weather catastrophes are surging, and payouts to the tune of billions of dollars inspired the Reinsurance Association of America to urge Congress to have federal agencies consider climate risk in project reviews, and offer tax incentives to help homeowners prepare for severe hurricanes, floods, droughts and fires, according to Bloomberg.Franklin Nutter, president of the association, which represents reinsurers including giants such as Swiss Re Ltd and Munich Re, said in testimony to the Senate Environment and Public Works committee yesterday: “The industry is at great financial peril if it does not understand global and regional climate impacts, variability and developing scientific assessment of a changing climate.”The US insurance industry agency’s assessment is “at odds with Republicans who have expressed doubt about global warming,” according to the business wire news service.Mr Nutter explained the affect of these weather events is exacerbated by the growth in population and building in coastal and rural areas.Bloomberg reported that the group was the one industry voice among a panel of experts discussing global warming at the hearing, and that Republicans questioned whether global warming is happening, if man-made emissions of greenhouse gases is causing weather changes and if the costs of trying to address carbon emissions is worth it.Meanwhile, in a related story, in Florida, — ground zero for severe weather events — the state’s insurance regulator was responding to questions about why lower reinsurance costs have not translated into reduced homeowners rates.Reinsurance is a major issue in the state, where just two storms could devastate the Florida insurance system, which has a large public component. State representatives were in Bermuda in June speaking to the Bermuda market, and Rep Kevin Rader said then: “Private reinsurance must take over the reinsurance. We want you to be in. We want Bermuda and Bermuda companies to be active and supply Florida companies with capital and investments.”He noted Bermuda reinsurers already cover 40 to 50 percent of the residential marketplace.Insurance Journal reported yesterday that insurance commissioner Kevin McCarty described the role reinsurance costs play in the homeowners market in response to chief financial officer Jeff Atwater, who had questioned why there has not been a corresponding drop in homeowners’ premiums as prices for reinsurance has come down.“If insurance companies can justifiably raise rates on Florida families because the reinsurance market drives the cost up, they can certainly lower the cost for Florida families when reinsurance prices fall,” Mr Atwater had argued in a letter to Mr McCarty last week, Insurance Journal said.The publication explained: “Florida has no firm rule that insurers must follow when calculating their reinsurance needs. It is up to each individual insurer to decide how much reinsurance to purchase, an amount that can vary from insurer to insurer, based on its hurricane exposure, available capital, and other factors.“For example, lower reinsurance costs may give an insurer the ability to purchase additional coverage, thus improving its financial position when it comes to its catastrophic exposure.Financial rating firms such as AM Best may also require an insurer to purchase a certain level of coverage to secure or retain a financial rating. Several Florida property insurance companies are being required by their rating agency to buy more reinsurance than they initially planned to purchase.Mr McCarty stated: “This is likely to keep rates up and move addition premium and exposure to reinsurers.”He also said that even if an insurer sees a reinsurance cost reduction, it may have a minor effect on policyholders’ premiums.“It is important to remember reinsurance costs make up only a portion of the total homeowners premiums and a reduction in reinsurance costs does not translate into a one-to-one reduction in premium,” wrote Mr McCarty.Another major reason that reduced reinsurance costs may not be felt by consumers is the amount of time it takes for those costs to be incorporated in policies. The majority of property reinsurance contracts in Florida are timed to begin with the start of the hurricane season on June 1 and expire on May 31 of the following year. Once those contracts are finalised, insurers must conduct an actuarial review to see if any rate changes are warranted on a statewide or territorial area, a process that Mr McCarty said is “time-consuming”.Insurance Journal said: “Once that process is complete most insurers seek prior regulatory approval of the rates. Any changes must be filed with the Office of Insurance Regulation at least 90 days before their effective date. State law then requires insurers to give policyholders notice of the new rates at least 45 days before their renewal date.”New technical developmentsAlso making severe weather news yesterday, Eqecat announced it has released the newest version of its catastrophe risk modelling platform RQE. It stated that peril updates available on Risk Quantification & Engineering (RQE) version 14 are a new North Atlantic Hurricane Model.The hurricane model’s windfield calculation time has been reduced from 15 minutes to five minutes, its probabilistic database has been recalibrated with National Hurricane Centre data for 2012, and the model is now certified by the Florida Commission on Hurricane Loss Projection Methodology.Financial risk upgrades to RQE’s latest version enable the modelling of insurance conditions based on the season, and allow for analysis of complex reinsurance arrangements including many lines of business. A new Portfolio Aggregator functionality predicts both treaty recoveries and loss net of treaty in order to model complex reinsurance structures such as umbrella covers.It replaces version 14, the last version of RQE, released in January 2013, replaced Eqecat’s WORLDCATenterprise system.