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State Eyes Shift to Rating Property/Casualty Insurers

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State leaders angered by ratings agencies that threatened to downgrade 17 Florida property insurers may be poised to find alternatives.

A joint legislative and budget committee is expected next week to consider a proposal for property insurers to spend $1.5 million to hire consultants to review options for obtaining appropriate financial ratings.

Such ratings are important because mortgage giants Fannie Mae and Freddie Mac require homes to be insured by financially sound companies. If an insurance company loses a satisfactory rating, homeowners may be forced to look for other insurance.

State insurance regulators sprang into action in July after Demotech’s rating agency threatened to downgrade 17 insurers amid widespread financial troubles in the property insurance market. Demotech eventually downgraded one of his companies and withdrew two, according to a proposal to be submitted to the legislative committee next week.

Insurance Commissioner David Altmaier and state chief financial officer Jimmy Patronis openly questioned Demotech, and Patronis sharply criticized the agency in letters to leaders of Fannie Mae, Freddie Mac and the Federal Housing Finance Agency. .

“If (Fannie Mae and Freddie Mac) delicensed a significant percentage of Florida’s insurance companies based on a company’s questionable rating, it would create financial turmoil for millions of Florida residents,” Patronis said. wrote.

The Financial Services Authority, led by Patronis, has submitted a $1.5 million proposal to the Joint Legislative and Budget Committee. The Joint Legislative and Budget Committee will meet on September 9 and has the authority to make mid-year budget decisions. The results of the consultants’ work will be passed on to Gov. Ron DeSantis and members of Congress for possible consideration during the 2023 legislative session.

“Demotech’s business practices appear to have caused confusion and concern among Floridians regarding the Florida insurance market,” the proposal said. “Concerns about the methodology used by Demotech and the impact of the dubious downgrade on millions of Floridians require immediate action. , will be able to research and explore more predictable and reliable financial rating services or alternative solutions.”

Demotech president Joseph Petrelli defended the company’s method in July, saying the company has been rating Florida insurers since 1996.

“Demotech has been committed to being a positive force in the revival and maintenance of the Florida residential property insurance market devastated by Hurricane Andrew,” Petrelli said in a six-page letter to Altmaier. “Since 1996, Demotech has consistently applied its rating methodology and appeals process to all rated insurers. It does not guarantee the economic success of operators, nor does it guarantee the level of FSR (Financial Stability Rating) that operators want or require.”

The ratings issue came at a time of turmoil in the Florida property and casualty insurance market. The insurance company withdrew the insurance contract on the grounds of financial loss and demanded a significant premium increase. Five insurers have been deemed insolvent since his February, and major insurer United Property & Casualty Insurance Co. announced last month it was exiting the homeowners market.

United Property & Casualty was one of 17 companies targeted by Demotech, which lowered its rating and then withdrew it.

After the first downgrade of United Property & Casualty, on August 2, the State Insurance Regulatory Office placed the company in a new temporary program aimed at ensuring continued coverage for homeowners. I was.

The program involves state-backed Citizens Property Insurance Corporation to provide financial assistance to downgraded private insurers. Citizens have taken on the role of reinsurance to ensure that claims are paid if insurers become insolvent.

This program is designed to satisfy Fannie Mae and Freddie Mac in such situations. The Fannie Mae and Freddie Mac standards use exceptions that apply when reinsurers are responsible for paying claims in the event of insurer bankruptcy.

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