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US FAIR plans turn to Bermuda for additional cover

Representatives of Citizens Property Insurance Company (CPIC) met underwriters in Bermuda late last month to assess how much limit Florida's state-backed insurer can buy with its $125mn budget for 2011.

Meanwhile, further demand for private reinsurance from so called residual insurers or FAIR plans has come via the North Carolina Joint Underwriting Association (NCJUA), which is understood to be looking to buy up to an additional $900mn limit at the top end of its cat programme.

CPIC - by far the biggest residual insurer in the US - is looking to buy cover that would attach at a 1-in-33-year return period, according to senior underwriting sources.

The return period, equivalent to a $6.7bn loss to Citizens, is the point at which the insurer would have to assess Floridian policyholders post event.

It is thought the budget could secure $400mn-$500mn of protection for CPIC's so-called High Risk Account.

As previously reported, CPIC did not buy reinsurance cover from the private market or the Temporary Increase in Coverage Limits layer of the Florida Hurricane Catastrophe Fund in 2010.

But the vehicle, which accounted for 66 percent of total US FAIR plan exposures of $685bn based on 2009 figures, may now have greater motivation to buy private reinsurance as a result of proposed reforms under Florida's new state legislative regime.

If legislation passes that raises the cap for how much Citizens can raise rates year-on-year from 10 percent to 25 percent, a reinsurance purchase could be used as justification for passing on increased costs to policyholders.

At the current 10 percent cap, the increase is more than matched by loss costs that have mounted from attritional sink-hole claims in the state. In contrast to CPIC, the NCJUA and its sister residual insurer the North Carolina Insurance Underwriting Association have been major buyers of private reinsurance in recent years.

Last year they combined to buy $2.3bn of cover, including the cat bonds Johnston Re and Parkton Re.

For the 1 May renewing Guy Carpenter-placed programme, the residual insurer is understood to be seeking up to $900mn in additional top-end coverage.

Further demand may yet come from the Texas Windstorm Insurance Association (TWIA), which is due in Bermuda with broker Guy Carpenter this month to look at a return to buying private reinsurance.

TWIA is currently under the administrative oversight of the Texas insurance commissioner. It non-renewed its $1.5bn private reinsurance programme after taking significant losses in the 2008 hurricane season.

The residual insurer has come under great scrutiny over its management and claims practices since Hurricane Ike amid a dramatic escalation in litigation related to the event.

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