Meaning of CAT fund | Babel Free

Definitions

1. Clipped compound of catastrophe fund: a state-run fund that reimburses an involved party (usually an insurer, sometimes a policyholder) when unexpectedly large losses threaten to bankrupt that party.
2. Alternative spelling of CAT fund.
   alt-of, alternative

Examples

“Mr. McCollum. Let me ask you about Florida's participation in any of the programs contemplated: H.R. 219, as it now stands, or possibly modified, as Secretary Summers indicated he desired, by a certain excess-of-loss contract opportunity. How would the State of Florida finance any purchase of whatever premiums and whatever protection was purchased, be it directly into the fund that is contemplated by H.R. 219 or through an excess-of-loss contract? How would you finance that purchase? Would the cost of that be passed on? Would the CAT fund itself retain the cost to absorb it? Would the insurers be required to line item to the public in buying a policy, X amount of this cost is now passed on to you, and here is the extra price for that insurance premium? How would it be financed? Mr. Dowdell. Congressman, there's any manner of ways it could be financed. What I can say for certain is the way the bill is structured, it gives us flexibility. There is no question in my mind that the coverage afforded by the CAT fund can be coordinated readily with the reinsurance program and its ability to purchase reinsurance, which is described in this legislation. Legislation, I suspect, would provide for the cost of that layer of reinsurance to be built into premiums and included in the premiums paid by policyholders; that is how we currently recoup the CAT fund premiums and the other residual market premium payments. Mr. McCollum. So that would be included in the premiums that policyholders pay, "policyholders" in this case being individual homeowners, as opposed to the insurance companies; is that correct? Mr. Dowdell. That is correct. Mr. McCollum. Would Florida be prepared to bid on an auction if an auction market were created, be that for the CAT fund directly or into the H.R. 219 system; or be that on excess-of-loss contracts, if they were a mechanism? Mr. Dowdell. Congressman, I know that the auction mechanism that was originally proposed last year, we had some serious reservations with that; and I know there have been some modifications to that in this bill. I really couldn't say at this point. We have only had the bill a short period of time. We haven't had a chance to analyze that. I don't think we would have a need to—basically, I think, with the reinsurance program that is there, that would just provide a layer of coverage above what the CAT fund is already providing, and between the availability those funds and the CAT funds, we would be able to handle virtually any event. Mr. McCollum. Mr. Knowles, in California your system works differently than Florida's system, quite a bit. Does that make you more or less comfortable with the precise version in H.R. 219, or does it meet your needs too because it is tailored that way?”

“In many parts of the State of Florida, there is no private sector when it comes to windstorm insurance. I can assure you that you would not be hearing positive things about what we are doing from Mr. Feeney if there were, but there is not. It is now up to us. What we have in the State of Florida is a CAT fund, it is called, and many States—I think some eight States—have such a fund, and what Ms. Brown-Waite and I have developed is a program of reinsurance. It is a program that backs up the State CAT funds, that is paid into by the insurance companies upon the collection of their premiums. This is not a tax that we are going to be spreading all across the country. The whole theory of insurance is to take a known risk and spread it across as wide an area as you possibly can. That is what insurance is, but what has happened here-and I can tell you, in my own State of Florida, that there is not one square inch of Florida that has not been devastated by some hurricane over the last 2 years. […] we have an insurance program in the State of Florida, which has been made reference to already, called Citizens Insurance, which sets up reserves and is paid into. To give you an example of the economic hardships that so many of my constituents are having, for a house which is actually under the average house in my district of $250,000, the premium is $5,000, and the deductible is not affordable for many of the people that I represent. If we can have a reinsurance program on the national level—and there is no reinsurance program that is affordable at all in the private sector, but if you can have that, then the reserves that would have to be way up here for any one State, being backed up by a reinsurance program, this reserve can come down and make sure that this is affordable.”

“In the past, the CAT bond market has been criticized for lack of investor interest. However, that assessment is now outdated—recent data suggest broad market interest in CAT bonds among institutional investors. Figure A9.8 shows the percentage of new issue volume by investor type in 1999 and 2007. In 1999, insurers and reinsurers were very prominent on both the supply and demand sides of the market and were among the leading investors in the bonds, accounting for 55 percent of the market. If insurers and reinsurers are on both sides of the market, the market cannot be said to have attracted very much new capital into the financing of catastrophic risk. However, by 2007, insurers and reinsurers accounted for only 7 percent of demand, suggesting that substantial external capital has been attracted to the market. Dedicated CAT funds accounted for 55 percent of the market in 2007, and money managers and hedge funds accounted for 36 percent. The declining spreads and increasingly broad market interest in the bonds suggest that the bonds are attractive to investors and are playing an increasingly important role relative to conventional reinsurance.”

CEFR level