Posted On: July 2, 2009, 7:36 am CDT

Posted By: Ratemaker

As far why carriers are retreating from the coast even though reinsurance rates are "Stable:"

Stable doesn't necessarily mean low. The cost of reinsurance is taken as an expense and figured into the indicated rates for a product. Many carriers may find it easier to compete on a product with lower expenses.

Second, reinsurance contracts, ESPECIALLY catastrophe reinsurance, are not designed to fully insulate a company against the loss. Cat contracts have limits and coinsurance provisions, so the company still retains a good portion of the cat risk even with the catastrophe provision in place.

Finally, while an appropriate price including the reinsurance expense may be calculated, that doesn't necessarily mean it can be charged. Some states are worse than others (I'm looking at a certain peninsular state in the southeast) about this, but regulators can either deny needed rate increases or drag out the approval process indefinitely.