Lots of people have been talking about the collapse of the auction-rate securities market, but related troubles in the catastrophe reinsurance market have gone largely overlooked. With credit markets gone AWOL, you won't be entirely surprised to hear that finding buyers for catastrophe-related bonds has become increasingly tough, at least at non-usurious yields.

It is a bigger subject, and I will return to it in future, but here is the latest revelation: Government is thinking of back-stopping the cat-re market by being the insurance provider of last resort. Lovely.

Taxpayers May Face Hurricane Tab
By ELIZABETH WILLIAMSON
May 31, 2008

As hurricane season begins, Democrats in Congress want to nationalize a chunk of the insurance business that covers major storm-damage claims.

The proposal -- backed by giant insurers Allstate Corp. and State Farm Mutual Automobile Insurance Co., as well as Florida lawmakers -- focuses on "reinsurance," the policies bought by insurers themselves to protect against catastrophic losses. The proposal envisions a taxpayer-financed reinsurance program covering all 50 states, which would essentially backstop the giant insurers in case of disaster.

The program could save homeowners roughly $500 apiece in annual premiums in Florida, according to an advocacy group backed by Allstate and State Farm, the largest writers of property insurance in the U.S.

[via WSJ]