17 Florida property insurers get reprieve from ratings agency downgrade

More than a dozen Florida property insurance companies won’t receive an official downgrade from Demotech, an Ohio-based ratings agency – at least not yet.

The new ratings were to take effect Tuesday, but on Monday Demotech President Joseph Petrelli wrote a letter to Insurance Commissioner David Altmaier saying he notified the companies in imminent danger of a downgrade that it wouldn’t be happening immediately.

“Due to various circumstances, Demotech will not take any rating action including affirmation, downgrade, or withdrawal until further notice,” Petrelli states in his letter.

Downgraded ratings, however, could still be on the table, and there isn’t a timeframe for them to happen.

“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,” Petrelli wrote. “We will withhold the release of all ratings related information and any updates to our website until we have completed all aspects of our rating process.”

Altmaier wrote to Petrelli on Thursday asking for an explanation for his letters to companies on July 19 warning of an imminent downgrade and criticizing him for not accepting or reviewing additional information given to him by the companies that could mitigate the ratings decision.

Also Thursday, Chief Financial Officer Jimmy Patronis, who oversees the Office of Insurance Regulation, wrote to the leaders of Fannie Mae and Freddie Mac, government-backed entities that underwrite mortgages.

Patronis warned of a wave of thousands of homes in Florida being force-placed into different insurers because their underwriting standards require an “A” rating from Demotech, and an “S” (substantial) or “M” (moderate) rating was forthcoming for many of the companies.

In their letters, Altmaier and Patronis stated there were 17 companies in danger of a downgrade, but other news outlets have reported Petrelli said the number is more than 20.

Petrelli’s letter is one page long, but he wrote that a more thorough response to Altmaier will be forthcoming Tuesday.

Demotech is the only agency that rates domestic Florida insurers, so Fannie Mae and Freddie Mac, which require mortgages to have minimum property insurance coverage, would not back up those mortgages.

Demotech’s new ratings haven’t been made public, so the identity of the companies isn’t yet known, but Patronis’ and Altmaier’s letters say the agency has been in contact with the companies staring at imminent downgrades. OIR’s letter indicates the companies were informed of the downgrades on Tuesday, and they are slated to take effect on July 26.

Reinsurance is one of the main issues, which has become much more expensive this year as reinsurers take a more skeptical eye on the Florida market. Some carriers have been priced out of the market altogether, jeopardizing their ability to keep the minimum amount of claims-paying ability on their books.

But Patronis says in his letter that all downgraded companies have been able to obtain reinsurance. And Patronis and Altmaier contend Demotech hasn’t considered the changes to the law passed by the Legislature in a Special Session in May, which set up a $2 billion reinsurance fund and sought to limit the amount and expense of litigation for insurers.

If Demotech is allowed to go through with the downgrades, Patronis wrote, the consequences for Florida could be dire.

“Not only could Florida families end up being required to accept expensive and inadequate forced-placed coverage from their lender, but a ‘rug-pull’ of this magnitude would expose over 115,000 Florida insurance agents to litigation risks,” Patronis wrote.

Gray was the Sentinel’s Tallahassee Bureau reporter, covering the Legislature and the rest of state government at the Capitol. He grew up in Brevard County and is a proud alumnus of the University of Central Florida. He worked for papers in Jacksonville and the Fort Myers area before covering state government for online publications in Tallahassee.