Florida property insurers avoid ratings downgrades

March 18--Despite warnings in February of looming downgrades, insurance ratings firm Demotech has decided not to reduce financial strength ratings of any Florida carriers below A.

The Ohio-based Demotech issued a statement that said carriers at risk of downgrades after excessive losses from weather and increased claims in 2016 followed its advice by securing additional capital, or finding new owners with stronger cash flows.

"The overwhelming majority of the carriers reviewed appeared to have the situation under control," Demotech said.

The statement means that for now, Florida homeowners won't have to worry about running afoul of their mortgage lender's requirement that they purchase insurance from an A-rated carrier. Federal lending agencies Fannie Mae and Freddie Mac require A-rated insurers for homes they finance, and sources familiar with Demotech's warning said the firm was considering downgrading six to eight companies with about 250,000 total customers.

In its statement, Demotech said the carriers it reviews added roughly $355 million in claims reserves or net worth in response to its request that carriers strengthen their claims-paying capabilities.

"This additional $355 million to benefit policyholders or claimants indicate the insurers' recommitment to Floridians and financial stability," Demotech said.

However, three companies secured new ownership to meet Demotech's expectations -- Elements Property Insurance Co., Mount Beacon Insurance Co. and Prepared Insurance Co. Combined, the three companies insured 27,900 residential customers in the tricounty region and 111,837 statewide at the end of 2016, according to data filed with the state.

Still, the same uncertainties remain in place that prompted Demotech to suspend the standards under which it rates Florida insurers. The company said it is continuing to analyze year-end financial reports and reinsurance programs for the coming hurricane season.

Demotech also cited recent state Supreme Court rulings that it said reversed claims procedures, protocols and practices that remain standard in other locations, as well as excessive claims and lawsuits connected with the assignment of benefits [AOB] clauses currently under debate in the state Legislature.

"In the longer run, absent meaningful improvement in the AOB situation, it is likely that insurers may face downgrades in the future," Demotech said, adding,"consumers may face higher and frequent rate increases, and investors who would otherwise capitalize or fund Florida-based insurance companies will deploy their capital elsewhere."

Jay Neal, president and CEO of the Fort Lauderdale-based Florida Association for Insurance Reform, said the efforts companies made to avoid ratings downgrades were an example of "market forces working in a way that's beneficial."

However, Neal said "it would have been best for the market if some companies were downgraded below the A level."

Perhaps Florida's insurance market needs some other way to rate "within the space" if Demotech is reluctant to downgrade any company below 'A,' Neal said.

"Some companies are clearly more financially healthy than others. We need to find a way they can differentiate themselves to consumers."

rhurtibise@sun-sentinel.com, 954-356-4071, twitter: twitter.com/ronhurtibise

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