Wednesday 10.31.12 In association with:


TODAY PCIAA


Research, analysis + opinion on international insurance + reinsurance


Government opens up to private sector  tighten budgets, they have become more open to using private sector risk management solutions. This could mean opportunities for reinsurers, says Frank Nutter at the RAA.


A


shift in philosophy at both a federal and state level in the US could open the door to


more opportunities for reinsurers, as government becomes more open to the use of private sector risk management solutions. That is the view of Frank Nutter, president of


the Reinsurance Association of America (RAA), speaking at this year’s annual PCI conference in Dana Point, California. Currently, several solu- tions and schemes are being considered that in- volve passing risks previously dealt with by gov- ernment bodies back to private sector reinsurers. This would be a good thing, according to Nutter. The growth of reinsurance in the US has stag-


nated in recent years, with insurers retaining more risks on their balance sheets. Shifting these risks from the public sector to the private sector would represent a boost for the industry and help it grow. “We see government at all levels in the US deal-


  they are more open to using private sector solutions. There is a shift of emphasis and the reinsurance in- dustry should take the opportunity to move back  The industry’s ability to better model and un-


derstand certain risks, combined with its current strong capitalisation, means it should embrace these opportunities, says Nutter. “For a long time we played defence as an industry. We were the pro-


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there is nothing to stop them testing the market  He notes that the NFIP has substantial debts of


around $18 billion stemming from past claims, espe- cially the aftermath of Hurricane Katrina. As such, the body must either raise rates or consider alternative solutions. “My feeling is that the reinsurance industry  and is in a very robust position now. It could help in  He cites another example of a different kind.


Frank Nutter, president of the Reinsurance Association of America


   Nutter says the National Flood Insurance Pro-


gram (NFIP) managed by the Federal Insurance and Mitigation Administration (FIMA) is a case in   of its renewal, which was lobbied for successfully by the RAA, is that FIMA must evaluate the ex- tent to which the programme might be able to lay- off risk into the private reinsurance sector. Nutter says he has met with FIMA several


times in recent months and that the organisation is open to a number of possibilities. It has until 


The California Earthquake Authority (CEA) already buys reinsurance in the private sector but the organ- isation has a problem in that penetration rates are low for this form of coverage. He says that only nine percent of homeowners in earthquake-prone areas buy earthquake coverage through the CEA. A fur- ther three percent buy through the private sector, but penetration rates remain woefully low overall. Part of the problem, Nutter says, is that mort-


gage lenders do not make earthquake coverage a compulsory requirement. In fact, this represents a - tor. A high proportion of these loans are ultimately passed onto the Federal National Mortgage Asso- ciation (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), both taken over by the Federal government in 2008 following  (continued overleaf)


Wednesday October 31 2012 | INTELLIGENT INSURER —PCIAA TODAY | 1


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