Responding to questions from state Chief Financial Officer Alex Sink, Florida Office of Insurance Regulation Commissioner Kevin McCarty offered a presentation to the Cabinet on Tuesday on what his office has done about two financially unstable insurance companies.

Sink sent McCarty a letter April 23, asking about recent decisions from the OIR finding Northern Capital Insurance insolvent and starting the process of putting that company into receivership, as well as OIR’s monitoring of Magnolia Insurance Company’s precarious financial condition. Sink also had questions about an OIR memo ending some requirements for property insurance companies to have specific forms of catastrophic reinsurance -- an important issue with the 2010 hurricane season starting on June 1.

“Many of these actions by OIR appear to represent a fundamental shift in strategy with regard to the regulation of property insurance companies,” wrote Sink.

McCarty responded back to Sink in a letter April 29.

“All of the actions taken by the Office are intended to support and promote the private insurance marketplace in Florida while protecting policyholders,” he wrote.

He responded to Sink’s comments about changes in catastrophic reinsurance in the letter.

“In the past, the Office has focused on the large-storm scenario similar to Hurricane Andrew, and has included a 1-in-100 year mega-storm as one of its stress tests,” wrote McCarty.

McCarty said this standard was commonly accepted but it needed to be changed. “The Office has learned the use of this standard as a stress test has created unintended consequences,” wrote McCarty. “Specifically, it has given international reinsurers an advantage in the negotiation process, which has allowed them to charge exorbitant rates for the highest levels of insurance coverage.”