Demotech informs 17 real estate insurance companies about the downgrade

Demotech informs 17 real estate insurance companies about the downgrade

Demotech, a Florida insurance rating agency, has notified approximately 17 property insurance companies that their ratings will be downgraded following a review of reinsurance packages for the 2022 hurricane season, according to a letter from Florida Insurance Regulation (OIR).

OIR Commissioner David Altmaier sent a scathing letter to Demotech President Joe Petrelli on Thursday, demanding that the agency conduct a more thorough review of the downgrade. According to the letter, about 17 domestic insurance companies told OIR that Demotech had sent them letters recommending that their ratings be downgraded from an “A” rating for “exceptional” to an “S” for “significant” or an “M” for “average”.

These ratings are Financial Stability Ratings (FSRs), which not only allow companies to operate in the state, but many Florida agents can only market to and write for “A” rated agencies, according to the Insurance Information Institute. They also determine the types of loans that homeowners receive.

Whether or not the company receives a “NR” rating, it is at high risk of entering into state bankruptcy, which may result in either reorganization or insolvency.

In a May interview with the Insurance Information Institute about FedNat’s downgrade, spokesman Mark Friedlander explained why it hurts the company.

RELATED: More than 40 Companies Submit Homeowners Insurance Rates to Use Florida Reinsurance Assistance Funds

“It prevents them from insuring homes that have federal mortgages, and in some cases it prevents independent agents from representing them. They can no longer market their products to customers because typically independent agents only represent A-rated companies. In other words, it’s basically freezing their business. It is not a sustainable model,” explained Friedlander.

Altmaier wrote:

“As such, we have sought to ensure that Demotech can derive its ratings based on a consistent and objective application of its standards. However, as OIR learns more about the notices sent to businesses, and given the impact these actions have on millions of Floridians, countless jobs and Florida businesses, this type of unilateral action requires additional scrutiny. OIR is being forced to take the extraordinary step of scrutinizing these unprecedented measures to protect the Floridians we serve, especially two months into hurricane season. This is an example of an elected CRA’s inconsistent monopoly power and attempts to exert coercive influence over Florida residents and policymakers in an attempt to thwart public policy. according to your opinion.

Altmaier claims there are discrepancies in the agency’s rating actions and is demanding that the agency take them into account and allow companies to appeal its decision “as permitted by the methodology posted by Demotech.”

Commissioner Altimaier is also asking Demotech to offer companies the opportunity to review or appeal their ratings.

We reached out to Demotech representatives on Thursday evening for an answer. We haven’t heard back yet.

In a statement from the Insurance Information Institute Thursday evening, Friedlander said:

“Market reaction to the special legislative session has been very negative, with seven insurers in Florida imposing a moratorium on new deals since late May, and the global reinsurance market also reacting very negatively, criticizing the legislature for not taking strong enough action to stop underwriter schemes and excessive litigation Against Florida insurers.

In addition to Altmaier’s letter, Florida CFO Jimmy Patronis also wrote letters to the Federal Housing Finance Agency, Freddie Mac and Fannie Mae management expressing concern about the reliance on Demotech’s ratings.

Freddie and Fannie are federally guaranteed home mortgage loan companies created by the United States Congress. They require mortgages to be insured and have a specific rating. Because Demotech is the only credit rating agency allowed in Florida, Freddie and Fannie require the insurance company to have a Demotech rating of “A” or better.

In the letter, Patronis calls Demotech “one of the rogue credit rating agencies” and advises loan servicers to reconsider their reliance on the agency.

Kyle Ulrich, president of the Florida Insurance Agents Association, also responded to Demotech’s downgrade in a blog post on his website.

In it, Ulrich noted, “Here we go again. In documents obtained by FAIA, Demotech has notified several airlines of their intent to downgrade the company’s rating from ‘A Exceptional’ to ‘S Significant.'” Also attached was a press release dated July 26, 2022, attempting to clarify Demotech’s role in the Florida market, recent events and legislative reforms and stating that all carrier Financial Stability Ratings (FSRs) have now been updated on their website. Another chapter in Demotech’s tumultuous saga as Florida’s domestic insurance market begins to unfold.”

Read the full FLOIR letter here:

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