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The Re-insurance market & US costal cities

Apparently, residents of New Orleans are starting to have difficulty finding insurance for their homes.  What had until about two years ago been limited to California (forest fires) and Florida (Hurricanes) is now spreading to Louisiana.

A friend at Lloyds told me recently what is happening.  The first to face real problems was California and its decision 15 years ago to no longer clear-cut near powerlines.  This, with the high heat and extreme drought, has caused billions in damages.  It took a while for the full impact of the shift away from clear-cutting to impact the insurance market, but it has been three years now since claims exceeded premiums.  Therefore, the syndicate's appetite for California has been very limited.

Maybe American politicians want to downplay the importance of global warming, but it's the bread and butter of the insurance industry.  Their objective is to assess their financial risks.  The truth is that Florida has been a terrible risk for a long time, and primary insurers absorbed the cost of the higher re-insurance premium for a while until it all became too much, and they quit the state.  In the US if you are an insurance company you either provide complete coverage of nothing (life insurance products are different).  So, for several years their other businesses covered the shortfall.  As of the end of 2022, all national insurance companies had left the state.

The impact on housing has been brutal, for while some can go naked without insurance, the US housing market is driven by debt, and thereby mortgages and lenders require that insurance be in place.  It will not get better...

In New Orleans, the phenomenon is the same but has been slower.  The state (unlike Florida) does provide hurricane coverage, but it's expensive.  About 3x or 4x more expensive than the national brands because it has concentration risks -- 100% of its insured coverage is for the area around New Orleans.  It's not so much an insurance but a superfund...

The high concentration of risk, flooding or hurricane winds on the coast, have a 100% probability of happening.  Therefore the "fund" has to be sufficient to meet that potential obligation.   

Note:  look no one in the re-insurance market cares about your politics or your point of view. The only determinant is maximizing the delta between payouts and premiums.   Re-insurer syndicates will use ALL the tools at their disposal.   The convergence of weather, erosion, and litigiousness makes Florida a horrible market.   Re-insurers were surprised by the impact of not clearing powerlines of vegetation, high heat, dry weather resulted in massive bushfires.   Again, their only objective is to mitigate losses, and weather analysis is taken into account.   No one cares about your politics, no one! 

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