Demotech to Downgrade Four or More Florida Property Insurers This Week

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

Source: Florida Politics | Published on January 14, 2020

Demotech, Inc. (PRNewsFoto/Demotech, Inc.)

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.”

This comes as many property insurance claims have been left unfulfilled throughout the state.

The highest Financial Stability Ratings (FSR) scores are A++ and A+++ for superior. Exceptional businesses earn A or A+ while good insurers get B+ or B++.

“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.”

American Property Casualty Insurance Association assistant vice president of state government relations Logan McFaddin issued a statement shortly after Democtech’s announcement.

“A ‘substantial’ rating, while disappointing, still indicates these companies are well above average in terms of financial stability and are able to continue to serve Florida consumers with a high-level of confidence. Furthermore, a ‘substantial’ rating is considered equal to an AM Best ‘A-‘ rating, which has been recognized by Fannie Mae as acceptable security in the past,” he said.

“Over the past several years, the state of Florida has dealt with multiple catastrophic weather events that caused billions of dollars in damages. Florida insurance companies have been there and will continue to be there to help families, individuals, and businesses recover after a disaster.

“However, market factors such as Florida’s crumbling legal environment and lawsuit abuse have had significant consequences in the insurance marketplace and made it challenging for companies to maintain A ratings.

“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.

“Abuse of the system by some hurts all Floridians. This could come in the form of higher costs in the short term, but could also have implications on insurance availability over the long-term.

“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.