Two months after state officials lambasted property insurance rating agency Demotech for threatening to downgrade 17 carriers, the Legislature is set to go hunting for a new agency to rate Florida’s insurers.
The Legislative Budget Commission will meet Friday and its agenda includes consideration of spending $1.5 million to hire consultants to search for a different ratings agency.
The Department of Financial Services (DFS), which houses the Office of Insurance Regulation, is requesting the funds. Insurance Commissioner David Altmaier and Chief Financial Officer Jimmy Patronis responded to Demotech’s July warning to the 17 companies of an imminent downgrade with outrage, penning letters to Demotech President Joe Petrelli and federal housing authority leaders to condemn the move.
Patronis was most concerned with the effect the downgrades would have on Florida’s housing market, since federally backed mortgage guarantors Fannie Mae and Freddie Mac require a minimum “A” rating for Demotech to underwrite mortgages.
“Demotech’s business practices appear to have caused confusion and concern for Floridians regarding the Florida insurance market,” the request from the DFS on the LBC’s agenda states. “Due to the concern of the methodologies used by Demotech and the impact that questionable downgrades will have on millions of Floridians, immediate action is required.”
Petrelli backed off his initial move to downgrade 17 companies, but later downgraded three. Florida regulators responded by using the surplus from state-run Citizens Property Insurance Corporation to provide reinsurance for any downgraded company that later goes bankrupt.
Five insurers have already been liquidated this year, with assessments placed on all non-auto insurance policies to help pay their claims. It’s a sign of the status of the beleaguered market, which has seen high litigation, roof and water claims bite into profits and push up premiums for homeowners across the state.
The $1.5 million is needed to “to explore alternative methods and develop options for admitted property insurance companies to acquire a financial rating satisfactory to federal mortgage standards,” the request from DFS states. “The selected vendor will have an extensive financial background, demonstrated skills, experience with rating agency practices, and knowledge of the property and casualty insurance market.”
Consultants will make recommendations to the Legislature, which could take action on moving to an alternative to Demotech during the 2023 Legislative Session, which begins March 7.
Not all lawmakers are in favor of moving away from Demotech, however.
Sen. Jeff Brandes, a St. Petersburg Republican who has criticized the state’s response to the insurance crisis as half-measures, defended Demotech in an Aug. 26 letter to Federal Housing Finance Agency Director Sandra Thompson.
“Given that the property insurance market share of insurance companies earning a Financial Stability Rating of A or better is approximately 80% of the Florida market, the Federal Housing Finance Agency, Fannie Mae and Freddie Mac can continue to have confidence in Demotech despite others who appear to differ with my opinion,” Brandes wrote.
September 8, 2022 at 1:52 pm
TOPICS POLITICIANS DON’T LIKE TO TALK ABOUT!
Like all businesses, Insurance companies operate for a singular purpose……TO MAKE MONEY.
Florida residential properties, multi-story coastal high rise buildings and businesses that sometimes are no more than ten feet above sea level ….. present unreasonable financial risks for insurers.
AFTER A HURRICANE YOU’RE ON YOUR OWN!
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