Insurance industry groups are opposing a proposal in the Louisiana House of Representatives that would establish a state-backed catastrophe reinsurance fund aimed at stabilizing the property insurance market.
Under House Bill 672, bonds issued by the State Bond Commission would finance the program, with proceeds deposited into a fund within the state treasury. In exchange for participating, primary carriers would be required to write additional home insurance policies in higher-risk areas at reduced premiums.
The program is intended to give property insurers an alternative method to secure reinsurance by enabling broader risk transfer to a wider group of investors.
However, the Reinsurance Association of America (RAA) said the state-run fund would concentrate risk and likely fail to generate sufficient carrier participation to be sustainable.
Jeremy Eisemann, vice president for state government affairs and assistant general counsel for the RAA, said that the global private reinsurance market’s strength lies in its ability to distribute diversified risks across a worldwide network, mitigating the impact of any single loss event.
Eisemann noted that Louisiana’s proposed program would not benefit from such diversification.
“If there is a hurricane, as this bill specifically alludes to, then all of the risks get impacted all at the same time,” Eisemann said in a report from AM Best. “It is an adverse effect versus a global, private reinsurance market where there are uncorrelated risks, and the impact is much less.”
Louisiana's reinsurance landscape has undergone notable changes in recent years, driven by a series of natural disasters and subsequent legislative reforms aimed at stabilizing the insurance market.
In response to the challenges posed by hurricanes and other catastrophic events, the state has sought to enhance its reinsurance capacity. Notably, Louisiana Citizens Property Insurance Corporation, the state's insurer of last resort, issued a $225 million catastrophe bond (Bayou Re 2024-1) to secure reinsurance coverage against named storm losses.
In his statement, Eisemann cited the $1 billion assessment following wildfires in Los Angeles earlier this year as an example of the risks involved with concentrating exposure, referring to the California Fair Plan’s experience.
Although HB 672 refers to catastrophe bonds, Eisemann said the instruments are revenue bonds that function more like loans, with participating primary carriers ultimately responsible for repayment.
Eisemann said that requirements for carriers to write business in higher-risk areas at discounted rates, combined with the repayment obligations, would make the program unattractive. He added that the private market's current strength further reduces the need for such a mechanism.
There is no shortage of availability or financial capacity in the private market, Eisemann said, adding that the market is willing to write business.
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