Louisiana Ups Private Reinsurance Buy, Mulls Second Cat Bond

Ready to take advantage of “opportunistic” reinsurance capital, Louisiana’s coastal windstorm pool plans a double-digit increase in its reinsurance spend and will test the waters for another catastrophe bond, says Steve Cottrell, chief financial officer of Louisiana Citizens Property Insurance Corp.

The windstorm pool will increase its catastrophe reinsurance budget by approximately 10 percent over its 2012-2013 plan which totaled $68 million, Cottrell says, adding that the increase will push its total catastrophe reinsurance at the spend at the June 1 renewal to around $75 million.

The plan was approved by Louisiana Citizen’s board on Thursday of last week. The fund uses Aon Benfield as its broker.

Whether Louisiana will make a sophomore effort in the the capital markets through a catastrophe bond as part of its renewal has yet to be determined. “We hearing that rates are likely to be down because of an influx of capital into the market,” Cottrell explains.“That may, or may not, factor into layering another cat bond purchase.”

In 2012 Louisiana Citizens sponsored its first catastrophe bond, dubbed Pelican Re. The deal provides $125 million of indemnity triggered protection for a three year period against hurricane losses in Louisiana on an occurrence basis.

Staff at Louisiana have already discussed reinsurance needs with their broker, and board approval means that will begin active talks with reinsurance providers and catastrophe bond investors.

“Our goal to get to is one-and-hundred year coverage,” Cottrell says, adding that the insurer will go with the most cost efficient program. “I don’t find that cat bond process much more onerous than reinsurance. If that’s a better program, thats what we will do. We have to test the market first.”

Like many publicly backed coastal insurers of last resort, Louisiana Citizens has struggled with high claims that have pushed finances to the brink. In fact, also approved at the Thursday meeting was $100 million bonds to cover a cash shortfall of $70 million.

Cotrtell adds that while Louisiana Citizens has struggled financial, it remains a solid reinsurance buyer. “We are trying do the best we can we money that we have,” he says.

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