State plan 'unprecedented'

"OIR's greatest priority is ensuring consumers have access to insurance, especially during hurricane season; and because of the uncertainty with the status of Demotech's ratings, we've been forced to take extraordinary steps to protect millions of consumers."

David Altmaier

Florida Insurance commissioner

Florida insurance regulators are taking an "unprecedented" and "extraordinary" step to try and prevent tens of thousands of homeowners from being forced to look for new property insurance coverage if rating agency Demotech follows through on plans to downgrade many Florida carriers.

The Florida Office of Insurance Regulation announced a plan Wednesday to provide companies that are downgraded with reinsurance coverage through state-run Citizens Property Insurance.

The dramatic decision to assume financial responsibility for a raft of struggling insurers underscores the dire circumstances Florida is facing as a large portion of its homeowners insurance market teeters on the brink of collapse.

Downgrading so many companies could wreak havoc in the state, causing big problems for homeowners and the real estate industry.

Mortgage giants Fannie Mae and Freddie Mac require borrowers to have a home insurance policy from a highly rated company. Florida's home insurance market is dominated by smaller companies that only get ratings from Demotech, giving the company significant sway in the industry.

Florida Insurance Commissioner David Altmaier wrote a letter to Demotech last week expressing concerns that the company was poised to downgrade "approximately 17" Florida insurers.

Downgrading the companies could prompt mortgage lenders to not accept those policies and force homeowners to get coverage elsewhere, a difficult proposition in a state where insurers are dropping policies and dramatically raising rates on policyholders.

"OIR's greatest priority is ensuring consumers have access to insurance, especially during hurricane season; and because of the uncertainty with the status of Demotech's ratings, we've been forced to take extraordinary steps to protect millions of consumers," Altmaier said Wednesday in announcing the reinsurance plan.

An OIR news release said that providing downgraded companies with reinsurance will make their policies acceptable to Fannie Mae and Freddie Mac.

"Fannie Mae and Freddie Mac each offer an exception to the financial rating requirements for an insurer that is covered by a reinsurer who assumes, by endorsement, 100 percent of the insurer's liability for any covered loss payable, but unpaid by the insurer, by reason of insolvency," the release states.

Gov. Ron DeSantis said Wednesday that it makes sense to use Citizens as a financial backstop for insurers, because if the companies are downgraded many of their policies would ultimately flow into Citizens — the state's insurer of last resort. "If the companies get downgraded and they have to shed policies those will end up going on Citizens anyway, so the exposure to Citizens is more to take on the policies than it will be to act as a reinsurer of last resort," DeSantis said during a news conference in Tampa.

Reinsurance is insurance for insurance companies. By providing such coverage, Citizens would be on the hook to pay claims if the downgraded insurers aren't able to meet their financial obligations. Spiking reinsurance costs have contributed to the home insurance industry's problems in Florida, which is heavily reliant on such coverage.

The additional reinsurance coverage comes on top of a $2 billion rescue fund approved by state lawmakers during a special session earlier this year. That fund provides reinsurance at no cost to Florida insurers.

Demotech had planned to release its ratings revisions on Tuesday, but said in a statement provided to USA TODAY Network-Florida that it is taking more time to update the ratings.

"As the current regulatory climate has become hostile and negative and we have and will expend a significant effort creating responses to third party letters, we will be taking additional time to review information and consider the issues affecting the companies operating in Florida," the statement reads.

Follow Herald-Tribune Political Editor Zac Anderson on Twitter at @zacjanderson. He can be reached at [email protected].

"OIR's greatest priority is ensuring consumers have access to insurance, especially during hurricane season; and because of the uncertainty with the status of Demotech's ratings, we've been forced to take extraordinary steps to protect millions of consumers."

David Altmaier

Florida Insurance commissioner