Florida regulators to use Citizens as backstop to struggling insurance market

Citizens Property Insurance Corp. would act as a reinsurance backstop for downgraded companies that later went insolvent, regulators announced.

With more than a dozen property insurance companies facing ratings downgrades that would compel lenders to force-place homeowners with mortgages into new insurers, Florida regulators have moved to shore up the struggling companies with a new source of reinsurance: Citizens Property Insurance Corporation.

The Office of Insurance Regulation is creating a “temporary reinsurance arrangement” where Citizens would pay the outstanding claims of companies that are downgraded and later go insolvent.

The move was triggered by Demotech, an Ohio-based ratings agency, which gave notice to at least 17 insurers on July 19 that it would lower their rating from “A” to “S” (substantial) or “M” (moderate), within a week. Fannie Mae and Freddie Mac, federal government-backed entities that underwrite mortgages, require an “A” rating from Demotech.

If the ratings were lowered, mortgage lenders would be compelled to force-place all affected homeowners in new companies. With hundreds of thousands of homeowners potentially affected, such a move would convulse the Florida insurance market in the middle of hurricane season.

After Insurance Commissioner David Altmaier wrote to Demotech President Joseph Petrelli last week blasting the decision and asking for further explanation, Petrelli said he would hold off on any changes in the ratings of the companies, but didn’t give a timeline for when the downgrades would occur, leaving the already-fragile market unsettled.

“OIR’s greatest priority is ensuring consumers have access to insurance, especially during hurricane season; and because of the uncertainty with the status of Demotech’s ratings, we’ve been forced to take extraordinary steps to protect millions of consumers,” Altmaier said in a released statement.

“This innovative arrangement satisfies requirements set by the secondary mortgage market. 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.”

There has been no official declaration from OIR implementing the new program, but it would entail Citizens using its surplus to pay claims of companies that went insolvent after receiving a downgrade from Demotech.

Currently, the Florida Insurance Guaranty Association pays the outstanding claims of insolvent carriers, but its payments are capped at $300,000 per claim. Under the new reinsurance program, Citizens would pay the amount of the claim above the cap for affected companies.

Regulators believe such a reinsurance backstop would meet the requirements for an exemption to Fannie Mae and Freddie Mac’s underwriting standards requiring an “A” rating from Demotech and prevent affected homeowners from being pushed into different insurers.

“We have been in contact with OIR and Citizens Property Insurance, and appreciate their willingness in working together to establish an unprecedented arrangement that would allow for a number of insurers, that Demotech is presently reevaluating, to continue offering coverage for policyholders,” Chief Financial Officer Jimmy Patronis said in a released statement.

“This agreement would no doubt provide a lot of comfort to insurance agents who are monitoring things closely on behalf of policyholders.”

Citizens is a state-run company created by Florida lawmakers in 2002 but it runs on the premiums it collects from customers and its employees are not state workers. It has the power to assess surcharges and assessments, first to its own customers and then, if a large enough hurricane were to hit the state, to all property insurance policies in the state to collect enough premium to pay claims.

Gray Rohrer


  • SteveHC

    July 27, 2022 at 6:39 pm

    Now let’s hope that Citizens policy holders’ premiums don’t skyrocket as a result of this; *should* work out fine IF we don’t get hit with a major hurricane this season.

  • PeterH

    July 27, 2022 at 7:32 pm

    The insurance reality.

    The day you moved to Florida you realized that your home was 10 feet above sea level….. but you decided to stay anyway.

    Florida residents should understand that they are on there own should a major hurricane or two hit this state. First, there are not enough contractors available to jump in and miraculously fix condos, homes, businesses and especially underground flood electrical, plumbing and road structural infrastructure. Most homes in the path of a hurricane WILL BE UNINHABITABLE.

    Florida residents MUST HAVE their own recovery plan to exit Florida and live somewhere else for at least two or three years…… if not longer.

    The government or insurance companies WILL NOT BE a phone call away to provide assistance. FEMA is meant to provide temporary help of fresh water and a meal or two for a few days until you can find a bus to get you out of the state.

    At this time there is ZERO UNINHABITED AVAILABLE HOUSING in Florida for you and your family. You must leave…. so have a plan.

    If you don’t believe me take a look at Mexico Beach in Florida’s panhandle.

    • Sue

      July 28, 2022 at 2:49 pm

      You hit the nail on the head. So many people drawn to this so called state of Freedom? If there is a big hurricane it will be a huge disaster, of course the Governor will ask Biden for help, but why should the government bail him out again.

  • Arthro

    July 28, 2022 at 3:49 pm

    Demotech is getting blasted for finally telling the truth – Florida is full of financially unstable domestic insurers that were driven there by roofing scams and legal fees. While Altamier was smart to make this move, the reality is that it is still inadequate to cover the potential liabilities from 17 (or 27) financially unstable companies. Its like moving all of the eggs into one basket. (Better hope we don’t have a hurricane.) But, Maybe Demotech will see this as a way to get out from under the scrutiny they are facing for finally being honest.

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