Mississippi wind pool looking for reinsurance savings overseas

by Matthew Glans on January 31, 2012

The wind pool board of Mississippi Windstorm Underwriting Association, the state’s windstorm insurer of last resort, is in London this week to purchase reinsurance to back up its state run reinsurer. In an effort to keep the cost of reinsurance down, the wind pool board makes an annual trip to London and Bermuda to negotiate a lower rate, which directly affects the rates that policyholders in the wind pool pay.

From the Mississippi Press:

“Members of the state wind pool board are in London this week to seek low reinsurance rates, a key factor in the cost of policyholders’ premiums.

The Mississippi Windstorm Underwriting Association is the insurer of last resort for coastal property owners who are unable to obtain coverage in the open insurance market.

The association, which covers Jackson, Harrison, Hancock, George, Stone and Pearl River counties, insures about 46,000 coastal residences, with about $7.1 billion in coverage.

To help keep premiums down, the association sends its board members on trips each year to meet with the reinsurance market’s major players, who are concentrated in London and Bermuda.”

Few homeowners understand the important role that reinsurance plays in helping to protect their homes. Reinsurance, simply put is insurance for insurance companies and is an important instrument that insurance companies use to manage the risk of the policies they hold, ensuring that they are able to pay the claims they write in the event of a catastrophe.

The wind pool board has seen success in keeping its reinsurance costs down in recent years.

From the Mississippi Press:

For the 2011 storm season, the wind pool purchased $815 million in reinsurance for $69 million. In 2010, the board paid the same amount for $750 million in reinsurance.

“Last year we were able to purchase more reinsurance than the year before for the same money,” Cumbest [a wind pool board reinsurance committee member and owner of Cumbest Realty in Jackson County] said. “Pricing will be very important this year. We will make our best effort to provide the information they need in order to get the best pricing and coverage possible.”

Reinsurers consider the number of worldwide catastrophes — tsunamis, volcanoes, hurricanes, earthquakes, etc. — when quoting rates.

Global catastrophe losses in 2011 are estimated to exceed $108 billion, Cumbest said.

“While these are huge losses, not all of them were insured in the international market, and most of the losses occurred outside of the U. S.,” he said. “The equity markets and other investment markets continue to provide historically low returns on capital invested. As a result, substantial capital remains available for investment in risk-based capital, the money that backs up the obligation of reinsurance contracts.”

The choice by the board of the Mississippi wind pool to utilize private reinsurance in their risk management strategy is a sound one. In other states, insurance regulators have chosen to rely too heavily on state-funded catastrophe funds, leaving their policyholders and taxpayers at risk of heavy losses in the event of a major storm.

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