Florida Hatches plan to keep homeowners insured, for now


The measure involves a temporary arrangement with Citizens Property Insurance Corporation.

TALLAHASSEE, Fla. — State regulators have developed an idea they hope will keep homeowners insured during hurricane season if a rating agency moves forward with plans to downgrade two dozens of Florida-based property insurance companies.

More on that in a moment, but first here’s the context:

On Tuesday, ratings firm Demotech delayed releasing ratings that were widely expected to downgrade 27 insurers from an “A” rating to “S” for substantial or “M” for moderate.

Heads of state had warned that the move could cost more for homeowners with loans. Florida Insurance Commissioner David Altmaier and Chief Financial Officer Jimmy Patronis have previously criticized the rating agency over the situation. They said the decision was largely based on the company’s view that the legislative reforms passed over the past two years were not sufficient to restore the health of the overall state insurance market. The market has suffered losses over the past five years.

In doing so, the ratings firm was applying a methodology that did not match the criteria it is supposed to use, Florida officials said in letters.

“This is an example of inconsistent monopoly power by a selected rating agency and attempts to exert coercive influence over Floridians and policy makers in an effort to thwart public policy according to its own views,” said Altmaier in his previous letter.

Federal mortgage guarantors Fannie Mae and Freddie Mac require borrowers of loans they back to maintain insurance coverage with A-rated insurers. Borrowers with insurance backed by companies rated below A could end up in default on the terms of their home loan. If that were to happen, then Fannie Mae and Freddie Mac could order mortgage managers to get more expensive coverage from acceptable insurers on the home loans they service.

But, there might be a solution – at least for now.

On Wednesday, the Florida Office of Insurance Regulation (OIR) revealed that it plans to enter into a temporary reinsurance agreement through Citizens Property Insurance Corporation if Demotech proceeds with rating downgrades, disrupting the market.

Under this arrangement, the OIR says insurers would enjoy an exception with the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). This exception would allow Floridians to maintain coverage during hurricane season, which is currently underway.

Here’s how it would work: Both Fannie Mae and Freddie Mac require policies on properties with mortgages they back to be underwritten by insurers who meet a certain rating threshold. But, as the OIR explains in a press release, they both allow an exception if the insurer “is covered by a reinsurer who assumes, by endorsement, 100% of the insurer’s liability for any loss covered payable, but not paid by the insurer, due to insolvency.”

According to the OIR, if an insurer were declared insolvent, the Florida Insurance Guaranty Association would pay claims required under state law. The OIR says its deal with Citizens would follow Fannie Mae and Freddie Mac guidelines and help ensure the system still works.

“If there were claims that needed to be paid and the company couldn’t be paid, then Citizens would step in and pay those claims,” ​​said Michael Peltier, spokesman for Citizens. “The Office of Insurance Regulation has a plan that the agency says will satisfy the requirements of federal mortgage guarantors in the event Demotech downgrades certain Florida companies.”

“Therefore, there should be no reason for lenders to require a replacement policy or force coverage based solely on rating downgrades,” OIR wrote in the statement. “This temporary arrangement would allow insurers to remain viable, continue to provide coverage to Floridians, and help keep policies out of reach for citizens.”

In a statement, Altmaier said these steps were taken to protect millions of consumers uncertain about the future of Demotech’s ratings.

“This innovative arrangement meets the requirements set by the secondary mortgage market,” Altmaier wrote. “In the event that we were to implement this temporary solution, consumers won’t need to seek coverage elsewhere, agents won’t need to move policies, and lenders can trust that these insurers will continue to respond. mortgage requirements.

Last week, the OIR asked Demotech to further explain its rating methodology. Demotech returned a six-page response, but the OIR complained that it did not offer a timeline for upcoming rankings.

“The sudden loss of an acceptable financial strength rating would have a significant and adverse impact on insurance consumers, insurers, agents and the property insurance market in Florida,” the OIR wrote in a statement. communicated. “OIR remains committed to protecting Floridians and the property insurance market through this plan.”

Citizens said they were confident they had the necessary funding to get Florida and all of its new policyholders through the current hurricane season.

“Citizens have approximately $11 billion in claims-paying capacity, which can handle a very severe storm or a series of storms,” Peltier said. “If we were to exhaust all of that, we would be forced to levy surcharges on our policyholders first.”

So why are these insurance companies facing a rating downgrade? Florida is the national leader in insurance litigation.

“Florida accounts for about 8% of all claims in the country,” William Trump, president and CEO of Trump Insurance, told 10 Tampa Bay earlier this week. “When you think about it, it’s pretty average. [Florida has] 75% of all insurance disputes… It doesn’t take long for this to erode the entire market.”

Trump said he often had dark conversations with his clients, worried about where the situation left them.

“Obviously Demotech delayed the downgrade — these companies have already received downgrade letters,” Trump said. “It’s not like it won’t happen or it’s going to happen. It’s definitely when.”

Trump’s insurance companies have customers in Largo and St. Petersburg. He says that currently 92% of policies underwritten by his company are with Citizens, which is seen as a company of last resort for homeowners who could not get insurance elsewhere. While citizens are an option of last resort, experts like Trump warn that if it becomes everyone’s option, they will have to refuse new policies.

Florida has seen a lot of new residents move here, buy homes and get home insurance policies on their homes. There are a few fine print to be aware of before signing a policy with citizens and this is how the company can ensure that it will stay afloat even if the most severe disasters strike. Policyholders will sign an acknowledgment of potential surcharge and liability for assessment.

The acknowledgment reads, in part, “As a policyholder of Citizens Property Insurance Corporation, I understand that if the company suffers a deficit as a result of losses caused by a hurricane or for any other reason, my policy could be subject surcharges, which will be due and payable upon renewal, cancellation or termination of the policy, and that surcharges may be up to 45% of my premium, or such different amount as may be imposed by the Florida legislature.”

Insured citizens can be billed thousands of dollars more per year if the company cannot pay claims.

“The way we created Citizens, we operate like a private insurance company, with one notable exception,” Peltier explained. “In the event that we exhaust our ability to pay claims, say a big storm comes and wipes out our surplus and all the reinsurance we have, Citizens Insurance is required to first levy surtaxes on our policyholders , and then to collect contributions from other FL policyholders if we have to continue to pay claims.”

The Associated Press and Malique Rankin contributed to this report.


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