Two Bermuda insurance and reinsurance companies have suggested ways in which they intend to find new business to offset expected lost premiums worth around $50 million to $60 million from a legislation change affecting the Florida market.

A move by Florida legislators to double the size of the State-sponsored catastrophe insurance fund and the Citizens Property Insurance Corporation in order to give residents lower insurance premiums in the hurricane-vulnerable region, will result in a loss of $1.5 billion to $2 billion in catastrophe insurance and reinsurance to the world market.

That is in the region of 15 percent of the global catastrophe market.

With that in mind two Bermuda-based reinsurance companies have suggested ways they intend to find new business to offset the losses.

Both Everest Re and Endurance Specialty Holdings have released healthy fourth-quarter and full-year results and during public conference calls their executives have spoken of the challenges posed after the signing of the new legislation in Florida by Governor Charlie Crist that is seen as effectively squeezing international insurers and re-insurers out of the catastrophe excess of loss market in the State.

The Florida-sponsored insurance fund and corporation will be able to offer lower rates and have lower overheads than the international operators. Some have questioned the wisdom of Florida’s move, particularly if it is hit by a damaging year of losses that its state funds will not be able to absorb. Everest expects to lose $50 million of catastophe premiums in Florida this year. Tom Gallagher, president and chief operating officer of Everest, said: “Florida was a big part of the ‘CAT’ world. It was throwing off some very healthy rate on lines. Two billion dollars was big chunk of the world-wide CAT premium. There is no simple way to get another exposure from Florida to offset that.”

Everest CEO Joe Taranto, described the situation as a “new curve ball”.

Commenting on the new Florida legislation, he said: “By doubling the amount of reinsurance coverage, the state is prepared to provide up to $36 million worth of coverage. The state will be largely replacing the professional reinsurance market.

“Most Florida reinsurance CAT contracts are renewed in June or July. Last year, Everest wrote about $50 million of Florida excess of loss CAT business. I would expect that most of that business will not be renewed.”

Mr. Taranto expects there to be a knock-on effect for retro business and national account CAT business. He also believes that Citizens will become a formidable competitor in the Florida homeowner market as it will “likely have the lowest rates as it is not required to buy reinsurance, pay income taxes or make a profit”.

He noted: “How this will shake out in the short and long term is unclear and will depend on evolving issues, certainly including future hurricanes.”

What impact the expansion of Citizens into the commercial market will have remains to be seen, Mr. Taranto said. Everest wrote about $20 million worth of commercial insurance in Florida in the second half of 2006 and hopes to see good opportunities for 2007.

But Mr. Taranto, who is also Everest chairman, remains unimpressed by the Florida legislative moves. He said: “Much has been said about this irresponsible legislation. Mr. V.J. Dowling (managing partner of Dowling & Partners) has stated Florida is playing Russian roulette and I agree.

“Clearly, they don’t have $36 million to pay out if needed or a clear plan as to how to get it.

“Having said that, done is done. They will be the re-insurer and largest insurer through Citizens in 2007.”

And he added: “Moving away from Florida CAT, I’m happy to note reinsurance has not been legislated away and replaced by structures with an inability to pay in other product line in other states and other countries.”

Mr. Taranto does not expect to see a growth in premiums in 2007. However, Everest is looking to hold on to $200 million pro-rata business for Florida home owners through its clients in the state.

Beyond Florida the company has significant business in New York and California. In 2006 in New York that amounted to something “south of $100 million” and in California around $200 million.

During last year Endurance Re generated $60 million in catastrophe premiums from Florida. It too is looking at how it might off-set the expected loss of those premiums to the State-sponsored insurance fund.

David Cash, chief underwriting officer, expects some of that to be made up by “ramping up” on the commercial insurance side and by going to Florida and working with private insurers there to work new opportunities.

“There will be opportunities for re-insurers who have a strong ‘on-shore’ presence in Florida to make progress. It’s clear there will be an impact on the ‘Bermuda plays’ but if you roll up your sleeves and go and work with some of the companies there I think there will be opportunities as well,” said Mr. Cash.

The loss of CAT exposure insurance to the Florida state does open the way for insurers to re-deploy capital.

Mr. Cash said: “When Florida hit the radar screen the question being asked was if this move to essentially remove premium from the reinsurance market was going to not only reduce the revenue the insurers saw, but also put pressure on the rest of their book as well?

“We think we have ways to replace that revenue.”

Kenneth LeStrange, Endurance Re chairman and CEO, agreed there could be a re-deployment of capital towards commercial insurance directly and other types of “personal side” reinsurance.

Endurance’s “peak” exposure in Florida could diminish against its exposure in California.

Mr. Cash said: “I would expect to see some shrinkage in our Florida peak. There is a potential for California to become more visible to us. I am starting this year with the presumption that we will be able to re-deploy close to the amount of capital as last year against wind-exposed risks.

“We may do that with combined wind and earthquake risks, which would give us a second choice. If we do that then it’s possible California moves up in the running.”

Endurance Re is also looking to expand into the “less catastrophe exposed” side of the market.

Reinsurers seek alternatives