Fred Karlinsky in the Palm Beach Post: 'Reinsurance is Worldwide'
May 28th, 2011
Above: Colodny, Fass, Talenfeld, Karlinsky & Abate Shareholder Fred Karlinsky
Colodny, Fass, Talenfeld, Karlinsky & Abate Shareholder Fred Karlinsky was quoted in a May 28, 2011 Palm Beach Post article on the effect of worldwide natural catastrophes on the Florida insurance market.
The article is reprinted below and can also be accessed by clicking here.
Florida Homeowners Help Pay for Insurers' Losses in Distant Disasters
By Laura Green
Hurricane-hardened Floridians feel a special brand of empathy when they see the images of tornado-ravaged homes across the Plains that look like they were dropped into a blender and spit out as wood chips.
What homeowners in the Sunshine State may not realize is that the cost from the recent spate of U.S. tornadoes, the Japanese earthquake and tsunami and the catastrophes in New Zealand and Australia could affect their own insurance bill.
As hurricane season kicks off this week, Florida insurance companies are furiously negotiating their own insurance rates with reinsurance companies, firms that insure the insurers. Some experts believe that Florida insurance companies are seeking to renew their policies at a time when the reinsurers are seeking to recoup unexpected losses.
"Historically, you may see an increase in rates based on what's happened," said Evan Bennett, director of the reinsurance consulting practice at accounting firm Blackman Kallick. "Rates get hard or soft depending on the events in the world."
Reinsurance broker Guy Carpenter estimates that so far in 2011, the reinsurance sector has suffered losses of double their natural catastrophe budgets.
Florida's market is uniquely vulnerable to catastrophes around the globe, such as the earthquake near Sendai, Japan - 7,100 miles away. Carriers here rely on reinsurance to help insulate them from bearing the full cost of insuring the riskiest zone in the world.
"What you have to realize is that reinsurance is worldwide. An event in Turkey, an event in the Middle East, all those could affect Florida reinsurance rates," said Fred E. Karlinsky, a Florida insurance lobbyist and an insurance regulation attorney at Colodny, Fass, Talenfeld, Karlinsky & Abate.
The reason is simple, said Jim Massie, a Tallahassee-based spokesman for the Reinsurance Association of America.
"No other area in the world exceeds the catastrophic risk potential which is in Florida," he said.
Between Florida's propensity for hurricanes and its property valued at $2.5 trillion, there's no other region with more potential for loss. And for the extra protection that insurance companies buy to protect themselves, homeowners pay dearly.
Roughly 30 cents to 50 cents of every dollar homeowners spend on their homeowners premium goes to satisfy reinsurance costs, Karlinsky said.
In a presentation last week, Lara Mowery, head of Guy Carpenter's Global Property Specialty, said the industry had suffered losses since September of close to $70 billion. To put that in perspective, in the 2004 and 2005 seasons, Hurricanes Katrina, Wilma, Charley, Ivan and Rita cost $111.5 billion. Katrina alone resulted in losses of $65 billion.
One important difference, however, is that the biggest losses since 2010 stemmed from events outside the United States.
Foreign catastrophes sometimes don't affect rates as much as domestic events because the insurance industry in other countries is not as heavily insured as American companies, Karlinsky said. That means reinsurers may not be on the hook for as much of the loss.
Stephen Mildenhall, of Aon Benfield, the world's largest reinsurance intermediary, takes the position that U.S. insurers shouldn't be expected to bear the costs of foreign losses. After Hurricane Katrina, rates did not spike overseas.
Although losses have been large, Mildenhall points out that many companies have seen their earnings suffer but have not taken significant hits to their capital.
Mildenhall "fully agreed" that reinsurers will try to negotiate rate increases. But during a presentation last week, Aon Benfield argued that rates here should remain flat or decrease by 5 percent.
Two of the nation's larger insurance companies negotiated flat pricing for June and July renewal, according to the presentation.
It's too soon to tell how other companies that operate in Florida will fare. The dance is still on.