Florida insurance regulators last week pitched a contingency plan to help property insurers weather any turmoil in the market caused by a ratings agency’s plan to downgrade the financial status of 17 insurers.
Last month, Ohio-based Demotech indicated that it would downgrade the property insurers’ ratings in the troubled Florida market, prompting Florida officials to issue searing responses against Demotech. The ratings agency on July 25 delayed its decision on finalizing the downgrades, but Demotech just lowered United Property & Casualty Group’s rating from an “A” to an “M,” while both Weston Insurance and FedNat Insurance Co. lost their “A” ratings.
The prospect of 17 downgrades sent shockwaves through the Florida insurance market because Fannie Mae and Freddie Mac, the home mortgage companies created by Congress, require property insurance policies on their mortgages to meet certain financial rating requirements.
The plan announced last week by the Florida Office of Insurance Regulation (OIR) would establish a reinsurance arrangement for private insurers through the state-run Citizens Property Insurance Co. Fannie Mae and Freddie Mac allow an exception to their financial ratings mandates if an insurer is covered by a reinsurer that assumes all of the company’s liability for covered losses.
“This innovative arrangement satisfies requirements set by the secondary mortgage market,” Insurance Commissioner David Altmaier said in a prepared statement. “In the event we need to implement this temporary solution, consumers will not need to seek coverage elsewhere, agents will not need to move policies, and lenders can have confidence that these insurers continue to meet the mortgage qualifications.”
Kyle Ulrich, president of the Florida Association of Insurance Agents, said OIR’s reinsurance plan is a positive step to create more certainty in the Florida market.
“If all of the 17 companies referenced in Demotech’s original communication were downgraded, it amounted to more than 2 million policyholders in the state of Florida who would have been insured with companies that were not satisfactory to Fannie and Freddie, which would have meant that independent agents would have had to move that business,” Ulrich told the Florida Record.
With the state in the middle of hurricane season, Florida would have seen more turmoil in the property insurance market if more downgrades had been announced, he said.
“Demotech’s decisions had the potential of leading to carriers being insolvent when currently they’re not,” Ulrich said.