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Insurance graders to downgrade 4 or more property insurers this week

Exiting capital and burdensome debt prompt the stability downgrade.

A state property insurance grading firm will be downgrading four or more insurance companies from their current exceptional rating by Friday.

That’s according to Joseph Petrelli, president of Demotech Inc., which reviews and rates 46 insurers that write approximately 66% of Florida’s homeowners’ insurance premium. 

“This week, we will begin to issue statements on many of the 46 Florida-focused carriers,” according to a news release. “The majority of the carriers will likely be affirmed. However, to avoid downgrades, some carriers may abandon the necessary refinements to their business models and sell their entities or be acquired. Others will be downgraded.”

Claims from Hurricane Michael and Hurricane Irma have drained some state insurers’ cash pools, forcing them to take on debt to stay afloat.

The highest Financial Stability Ratings (FSR) scores are A” for or A’ for unsurpassed. Exceptional ratings earn an A while Substantial S ratings follow ahead of Moderate M.

“Despite the potential for long-term favorable results from 2019’s legislation, the cumulative impact of the economics of the marketplace over the past several years has made it difficult for each of the carriers that Demotech reviews to sustain an FSR of A, Exceptional, in the near term, according to the release.

The release notes that investment capital appears to be exiting the Sunshine State, not entering it. And debt and high interest rates have become burdensome for some companies given their current operating losses.

“A number of carriers are unable to pursue their business model, cannot or will not attract capital, cannot or will not add debt, or have been unable or unwilling to find a suitor, according to the release. “These carriers may ask the State of Florida to permit them to voluntarily runoff outstanding claims. Policies with an unexpired term may or may not be sold to a third party. These carriers will be downgraded.

Demotech has notified the at-risk insurers. The ratings firm is giving the insurers an opportunity to discuss the downgrade with employees before making the ratings public.

“For the overwhelming majority of customers, I don’t think they will see an impact, Petrelli said. The transition will be seamless for the overwhelming majority.

The American Property Casualty Insurance Association’s (APCIA) vice president of state government relations, Logan McFaddin, responded Monday to the announcement. She blamed recent hurricanes and a crumbling legal environment.

“Even when an insurance company does everything possible to settle a claim efficiently, fairly, and in accordance with a policyholder’s contract, some plaintiffs’ attorneys are using questionable legal tactics to deliberately prevent a claim from being settled in order to file a lawsuit in the hopes of winning skyrocketing settlements.

The announcement comes on the eve of the 2020 Session, which begins Tuesday.

“The Florida Legislature needs to implement meaningful reforms during the 2020 Legislative Session that reduce lawsuit abuse and restore fairness to Florida’s legal system. APCIA looks forward to working with lawmakers during the upcoming session to address these critical issues, he concluded.

Written By

Renzo Downey covers the Florida Legislature for Florida Politics. After graduating from Northwestern University in 2019, Renzo began his reporting career in the Lone Star State, covering state government for the Austin American-Statesman. Shoot Renzo an email at renzo@floridapolitics.com and follow him on Twitter @RenzoDowney.

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