A ratings company said it plans to downgrade the financial status of 17 Florida insurance companies, sending shockwaves around the struggling industry and putting millions of homeowners in danger of violating the terms of their mortgages.
The insurer ratings firm Demotech has sent letters to the insurers announcing that it intends to lower their stability ratings from “A,” or exceptional, to “S” (substantial) or “M” (moderate), according to Florida Insurance Commissioner David Altmaier. In a July 21 letter to Demotech President Joseph Petrelli, Altmaier called Ohio-based Demotech’s actions unprecedented, with potential negative effects on millions of the state’s homeowners.
“This is an example of inconsistent, monopolistic power of a select rating agency and is trying to exert coercive influence over Floridians and policymakers in an effort to thwart public policy according to its own opinions,” Altmaier said in the letter, which accuses Demotech of inconsistencies and discrepancies in ratings methodology and decision-making.
The Florida Association of Insurance Agents (FAIA), in a statement emailed to the Florida Record, called the situation “another chapter in Demotech’s tumultuous saga of rating Florida’s domestic insurance market.” The Federal Home Loan Mortgage Corp. (Freddie Mac), which dominates the secondary mortgage market, accepts Demotech’s “A” rating as a default standard for insurers operating in Florida, according to FAIA.
“Like many others in the industry and government, agents are again anxious about how this latest Demotech chapter will unfold and what will happen to millions of Florida policyholders who could soon find themselves in default of their mortgage requirements,” the FAIA’s statement says. “At this moment we don’t have a reliable indicator to predict the outcome.”
In response to a request for comment, Petrelli pointed to a July 1 Florida Office of Insurance Regulation (FOIR) report that identified 27 Florida insurers as being in need of additional monitoring. One firm failed to file a quarterly or annual statement, 10 filed notices with intentions of not renewing more than 10,000 residential insurance properties and 14 were identified as having requested rate increases of more than 15%, the report says.
“Demotech is calling balls and strikes today as we have since 1989,” Petrelli said in an email to the Record. “We communicate with carriers at least quarterly, often monthly.”
The state’s chief financial officer, Jimmy Patronis, this week sent letters to Freddie Mac and the Federal Housing Finance Agency calling Demotech a “rogue ratings agency” and urging them not to rely on Demotech’s ratings downgrades, which Patronis said would create financial uncertainties for millions of Florida residents.
Demotech critics have also accused the company of threatening downgrades unless the state Legislature enacted reforms designed to stabilize the troubled property insurance market. Insurance reforms were passed by state lawmakers this year, Altmaier said in his letter to Demotech. But the ratings firm seemed to expect instantaneous, unrealistic results and sharply reduced litigated claims activity, the insurance commissioner said.