State wind pool board members travel to London

BILOXI, MS (WLOX) - Members of the state's wind pool board spent last week in London. That's because much of the world's reinsurance coverage is written in England by organizations like Lloyd's of London. The wind pool board wanted to make sure it could still get the best rates possible for its Mississippi clients.

One of the board members on the trip was Mark Cumbest.

"We don't want to build any false hope that rates are coming down. But we're just hoping it made the case that the rates, the reinsurance rates, maybe they will take a look at our situation and make it, and take that into consideration when it comes time to give us the quotes for the reinsurance, which would be sometime in March," Cumbest told WLOX News.

If you'd like to hear more about the wind pool board's trip to London, and how it could affect you, click on the red camera to the right and watch the complete interview Brad Kessie did with Mark Cumbest. You can also read the full news release from the Mississippi Windstorm Underwriting Association, below.

During the week of January 5, 2009, four members of the Board of Directors of the Mississippi Windstorm Underwriting Association met with London based reinsurers to facilitate the placement of the Wind Pool's reinsurance program for the 2009 hurricane season.

The Wind Pool provides a residual market for insurance for wind losses for Mississippi coastal residents who can not obtain coverage in the voluntary insurance market. Reinsurance is necessary for the Wind Pool to provide a source of funding in the event of a major hurricane and to prevent or lessen surcharges against all Mississippi policyholders that could result from excessive losses.

Much of the world's reinsurance is written in London and the London reinsurers participate heavily in the Wind Pool hurricane loss funding program. Because of the large monetary amounts at risk and the widespread nature of hurricane losses, reinsurance executives closely watch the management, goals and policies of companies they reinsure against loss. Confidence and close relationships help to maintain the availability of reinsurance layers and can help with preferred pricing.

The Mississippi Wind Pool board has worked hard to establish close relationships with leading reinsurers. Representatives of the Board of Directors have met with reinsurers in London for the past three years. At the invitation of the Wind Pool, reinsurance executives have visited the Mississippi Gulf Coast for the past two years.

During this year's sessions in London, the Board members met with underwriters and executives from over thirty reinsurers.

Board member Mark Cumbest from Pascagoula noted, "We have learned that these relationships are critical in placing our reinsurance program in a manner that can help hold down premium costs to policyholders."

While reinsurance pricing for the 2009 hurricane season has not been set, the Board Members were pleased that the reinsurers that have participated in past years were committed to reserving capacity for the Wind Pool's reinsurance program. Overall, pricing will be affected by the large losses from Hurricanes Ike and Gustav. While these storms did not severely affect Mississippi, the price of reinsurance is determined by global losses.

Cumbest also said that the meetings confirmed that the current world-wide economic crisis will impact reinsurance pricing. The actual cost of reinsurance for the Wind Pool program will not be known for several months.

More information on the Mississippi Windstorm Underwriting Association can be found at

Talking Points

1. Who attended the reinsurance meetings in London?

Chairman Chris Boone from Jackson State, Treasurer Tate Reeves, Lorrie Brouse from Nashville, Mark Cumbest from Pascagoula.

2. How does the price of reinsurance affect the premium cost for MWUA policyholders?

The cost of reinsurance is a primary driver of premium costs for MWUA policyholders.

3. Why does reinsurance pricing fluctuate?

The price of reinsurance is driven by the cost and availability of risk capital. This is capital that investors are willing to put at risk to back reinsurance treaties. The willingness of investors to contribute capital is similar to the willingness of investors to place funds in the stock markets.

As losses are in incurred, the appetite goes down. If he economy is uncertain, the appetite can go down. If there are few global catastrophes, the appetite can go up. There are many many factors that affect the rates.

And on top of all of this, there is the competition among reinsurers. MWUA wants to be a program that the reinsurers want to participate in.

4. What's going to happen this year on reinsurance rates?

It is too early to tell or even speculate.

5. If reinsurance rates for the Wind Pool go up, will premiums for MWUA policyholders go up?

It is impossible to say at this time. We do not know if reinsurance rates will go up and if so, how much. We do not know whether the Wind Pool will continue to grow. We also have to evaluate other resources and options available to the Wind Pool. After all of this and more factors are actually known, the actuaries have to do their work.

The Wind Pool Board is committed to try to keep policyholder premiums from rising. At the same time, the Wind Pool must remain able to pay losses when the next hurricane comes.

6. Why does MWUA even buy reinsurance?

When our policyholders incur large losses, the MWUA has to have the money to pay those losses. Reinsurance is a major source of that funding. If MWUA did not maintain reasonable amounts of reinsurance and even a small hurricane struck, policyholders throughout Mississippi would face surcharges on their polices to pay for the hurricane losses.

7. Will MWUA always have to buy reinsurance?

The goal is to build up reserves and lessen the dependency on reinsurance. As these reserves increase, the need for large amounts of reinsurance goes down. But you also have to calculate in the rapidly increasing number of policyholders in the Wind Pool and increasing building costs.

The MWUA has been trying to build reserves since that concept first became possible with the legislative restructuring of the MWUA in 2007. Quickly building reserves would also require large premium increases to generate the money.

The MWUA Board does not believe that these types of premium increases necessary to quickly build reserves are appropriate at this time.