LOUISIANA
Industry Opposes Louisiana Bill to Create State-Backed Reinsurance Program
BATON ROGUE, La. //BestWire// - The industry is opposing legislation in the Louisiana House of Representatives that would create a catastrophe reinsurance fund, backed by state-issued bonds, in hopes of stabilizing the state’s property insurance market.
The bonds would be issued by the State Bond Commission and money from their sale would go into a fund in the state treasury, according to the text of House Bill 672. In exchange for participating in the program, primary carriers would have to agree to write more home insurance in higher-risk areas at reduced premiums, HB 672 says.
The program would offer property carriers an alternative method to secure reinsurance by facilitating the transfer of risk across a wider range of investors. However, the Reinsurance Association of America says the state-created reinsurance program would concentrate risk in the market and fail to garner enough primary carrier interest to be sustainable.
The strength of the global private reinsurance market is its ability to spread diversified risks across a worldwide market, in turn reducing the impact from any single loss event, said Jeremy Eisemann, RAA vice president for state government affairs and assistant general counsel. Louisiana’s program would enjoy no such benefits due to risk concentration.
“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. “It is an adverse effect versus a global, private reinsurance market where there are uncorrelated risks, and the impact is much less.”
Diversification, he noted, is key to global reinsurance markets.
To understand the consequences of pooling similar risks in a geographic region, Eisemann pointed to the California Fair Plan and its $1 billion assessment following wildfires in Los Angeles earlier this year (BestWire, Feb. 11, 2025).
Although the bill uses the term catastrophe bond, Eisemann said the instruments are in fact revenue bonds but act more like loans. This is because provisions in HB 672 ultimately place repayment responsibilities on the primary carriers participating in the program.
Requirements to write in higher risk areas at discounted rates combined with the repayment obligations would make this program unattractive for primary carriers, Eisemann said. Further driving down the need for this type of program is the strength of the private market.
“There is not an issue of lack of availability or lack of financial capacity. The private market is there and willing to write business,” Eisemann said.
Because primary carriers are unlikely to see any savings and the program would be unlikely to achieve its stated goals, Eisemann said the legislation is unlikely to pass.
“What would serve the objective of this legislation is for carriers to do what they are currently doing, and that is working with the private reinsurance market and contracting with reinsurers that are providing this type of solution,” he said.
Although the RAA opposed the reinsurance program, Eisemann said the organization is throwing its weight behind measures to improve affordability and availability that are being suggested by Insurance Commissioner Tim Temple and Gov. Jeff Landry.
To this end, there is strong support for further tort reforms in Louisiana that are being offered by Landry and Temple. Eisemann said if the problem of runaway litigation costs can be reined in then insurance costs will also be pulled down.
“That is what should be the focus, not state-backed systems that are inefficient and will have no demand because the primary carriers know that there's no true savings,” Eisemann said, continuing: “This is not the answer to the problem.”
Attempts to gain comment from the bill’s primary sponsor, Democrat Rep. Edmond Jordan, were unsuccessful.
(By Steve Hallo, senior associate editor, BestWire: Steve.Hallo@ambest.com)