Ratings company Demotech on Monday told insurers that it would not take any downgrade action until further notice, providing at least some temporary relief from tumult in an already volatile industry.
Demotech had indicated in a July 19 letter to at least 17 property insurers that it would publish their Financial Stability Rating downgrades on July 26.
"Due to various circumstances, Demotech will not take any rating action including affirmation, downgrade or withdrawal until further notice," Demotech president Joe Petrelli wrote in an email to clients on July 25.
"While we are unable to provide a specific date for release, we are working to expedite the release of our ratings as soon as possible."
Insurers facing downgrade received notice from Demotech indicating their stability ratings would go from “A,” or exceptional, to “S” (substantial) or “M” (moderate).
Industry reaction was swift.
Florida Insurance Commissioner David Altmaier called 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 a letter to Petrelli, which accused his company 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 said. “At this moment we don’t have a reliable indicator to predict the outcome.”
Petrelli's July 25 email to insurers indicated that Demotech would withhold the release of all ratings-related information and any updates to its website until the company has completed all aspects of its rating process.
In response to a request for comment last week, 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.”