CAT fund

— 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?