“Due to various circumstances, Demotech will not take any rating action, including affirmation, downgrade, or withdrawal until further notice,” stated Joe Petrelli, President of Demotech. “While we are unable to provide a specific date for release, we are working to expedite the release of our ratings as soon as possible.”
This week, Demotech was expected to downgrade up to 17 insurers from an “A” rating to ratings of either “S” for substantial or “M” for moderate. Petrelli wrote about the delay in an email he sent to Florida Insurance Commissioner David Altmaier on Monday that Spectrum Bay News 9 obtained.
Last week, both Altmaier and Chief Financial Officer Jimmy Patronis sent letters to Demotech criticizing the planned downgrade and questioned the company’s method. Petrelli stated Demotech will have a “comprehensive response” on Tuesday.
“The Department is focused on protecting and helping policyholders,” said Devin Galetta, spokesperson for CFO Patronis. “While the ratings entity has yet to formally release their report, the Department is prepared to assist policyholders that may need extra help resulting from potential downgrades.”
A downgrade could affect hundreds of thousands of Florida homeowners, Fannie Mae and Freddie Mac federally backed their mortgages. The company will force those affected homeowners to find a new policy in the middle of hurricane season, which will probably cost more money and offer less coverage.
“I think people should be very concerned,” said State Senator Jeff Brandes, R-St. Petersburg. “This is what I’ve been fearful of for basically almost a year now.”
Senator Brandes has been leading efforts to reform Florida’s insurance market, which he said has been collapsing for the past year. Brandes believes some of the 17 companies that were notified by Demotech will avoid the downgrade.
“I think what’s most likely to happen is between 7 and 10 companies get downgraded,” he said. “The remaining companies will be on a watch list and pending their second quarter numbers or them raising new capital.”
Brandes said he doesn’t blame Demotech for any upcoming downgrade because ratings agencies need to call balls and strikes to build trust in the system.
“There’s going to be some pain that’s going to be felt. I don’t think this is the rating agency’s fault,” he said. “I frankly think this is largely the legislatures’ fault because we’ve known about these problems and failed to address them for years.”
The Republican senator from St. Petersburg said before news of the downgrade came out, the state run Citizens Insurance projected to have 1.2 million policyholders by the end of the year. Brandes believes the number will swell to over 2 million and it’s bad news for Floridians.
“If there’s a storm, we have that exposure, but we don’t have the policy dollars in reserves to pay those claims,” he said. “So, ultimately, that could be a tax on every Floridian who has an insurance policy in the state.”