CEI Responds to Tower Hill Rating Downgrade

CEI Responds to Tower Hill Rating Downgrade

Over-Regulation Is Mostly to Blame
August 31, 2009

Tallahassee,
Florida, August 31, 2009—The Competitive Enterprise Institute, a free market
think tank, reacted to A.M. Best’s rating downgrade of Tower Hill Insurance
Companies and Tower Hills’ subsequent decision to withdraw from Best’s rating
process. The recent downgrade followed a decision by the Florida insurer to replace nearly worthless
CAT Fund coverage with reinsurance from the private market, which A.M. Best
found temporarily affected the company’s financial standing.

“Tower
Hill’s purchase of private reinsurance in addition to state-mandated CAT Fund
coverage protects its policyholders and ensures payment of claims in the
aftermath of a hurricane,” says Christian Cámara, director
of CEIs Florida Insurance
Project.  “Unfortunately, Florida’s
existing regulatory system discourages companies from doing this, as they have
to jump through onerous bureaucratic hoops to charge what they need to in order
to invest in this additional level of coverage.”

Cámara
calls for an insurance regulatory environment that allows insurers to freely
charge what they need to remain solvent. “We need a systems that encourages
more responsible diversification of risk through private reinsurance and less
reliance on risky, government-run mechanisms,” he says.

Eli Lehrer, Director of the Center
for Risk, Regulation and Markets at the Competitive Enterprise Institute, says
that the main issue is the Cat Fund. “This isn’t about whether or not A.M. Best
made the right decision. I don’t want to second guess them. The real problem
here is that the instability of the Cat Fund creates uncertainty in the market.
Florida would
be better off without it.”

CEI is a
non-profit, non-partisan public policy group dedicated to the principles of
free enterprise and limited government. For more information about CEI, please
visit our website at www.cei.org.