A Bermuda re/insurance industry group has written to a US House of Representatives committee to oppose a bill that proposes a federal catastrophe reinsurance fund.

The Association of Bermuda Insurers and Reinsurers (ABIR) said the proposal would mean people in states at low risk of natural catastrophes would be carrying the risk of those living in areas prone to hurricanes and earthquakes.

ABIR president and exective director Bradley Kading spelled out the Bermuda industry viewpoint in a letter addressed to Representative Barney Frank, chairman of the House Committee on Financial Services and Rep. Spencer Bachus, the ranking minority member.

The bill, known as HR 2555 seeks to establish a Federal Natural Catastrophe Reinsurance Fund in the US Treasury, to be funded by amounts received from the sale of reinsurance coverage contracts, amounts appropriated for liability for claims payment, and earnings on investments.

"The effect of HR 2555 would be to force US taxpayers countrywide to subsidise the insurance costs of state catastrophe funds in those states most exposed to hurricanes and earthquakes," Mr. Kading wrote. He also noted that 17 of the 23 ABIR members "have US subsidiary insurance companies which employ nearly 16,000 people in the United States," and that coverage, including catastrophe risks written in the US, is reinsured in Bermuda.

Mr. Kading stressed the reliability of the private sector to handle this type of coverage, as evidenced by the payouts made over the years following natural catastrophes, and the fact that "the reinsurance industry has stepped forward and raised capital to provide the increased supply of private sector reinsurance needed by our US customers. US capital providers have expressed their confidence by providing capital to reinsurance companies and by directly assuming catastrophic risk through securitisation instruments", a sector which is expected to continue growing.

Citing the National Flood Insurance Program (NFIP) as an example, ABIR believes "it is not sound public policy for the US Congress to subsidise catastrophic insurance rates. The likely consequence of such action is to increase coastal development and put more people and property in harm's way thus increasing exponentially the future risk and debt facing the federal government".

The best way to bring down insurance premiums was to "bring down the cost of hurricane and earthquake claims", Mr. Kading said. "The scientific way to do this is to focus on 'storm proofing' and earthquake hazard mitigation efforts," as many insurers have also stressed. ABIR said it supports pending hazard mitigation legislation.