Ratings agency Demotech has now extended the process of revising ratings for Florida property insurance carriers, which is expected to expire today, as it responds to criticism from Florida leaders.
As we reported last week, Demotech warned many property insurance brokers in Florida that they may have experienced a downgrade on July 26, a move that prompted earlier resignations from Florida’s State Insurance Commissioner and CFO.
Now, Demotech has said that the July 26 deadline will not be met, as it continues to review the ratings of these Florida carriers and contact the companies in question.
Last week, Florida Insurance Commissioner David Altmaier criticized Demotech for not complying with its accounting standards and for failing to provide an opportunity to renew a recently established special unit.
Commissioner Altmaier said, “This is an example of the arbitrary, capricious power of a discretionary agency and it is trying to expose Floridians and policymakers to trying to block public policy based on their views.”
Meanwhile, in a letter to Fannie and Freddie, the CFO of the State of Florida, Jimmy Patronis called Demotech a “fraudulent organization”, and asked the GSE to give time to the administration of Florida to find another audit team.
As we said at the time, another accounting agency will not make a big difference, because it is the financial inadequacy and financial stress of the Florida insurance carriers, and the cases that were involved in the Florida insurance market which is the driving force. These carriers are difficult to consider creditworthy, not the rating agency that is doing the evaluation.
The issue is that some property insurers in Florida are running on such low financial waters that they may have had their ratings downgraded to a level that would not be sufficient for Florida property insurers to write business in the secondary mortgage market, as they do. Under ‘A’, mortgage lenders Fannie Mae and Freddie Mac will no longer accept their policies.
What can cause a Florida insurance problem, are the discounted insurances that can not survive and maybe hundreds of thousands of additional people who are insured by Citizens, the last insurance, or looking for new policies.
This is the problem that Florida lawmakers and government leaders want to avoid.
But, by criticizing the agency for its invitation to the state, while other rating agencies may take a less favorable view of Florida carriers, they have shown that they still don’t appreciate the real driver of this cargo insurance policy. problems in Florida, the failure of the law to quickly resolve cases in the state.
Demotech responded in a letter, which the company shared with Artemi.
The investment watchdog explained, “We have been consistent in our monitoring and evaluation of companies operating in this market. We continue to remain calm even though the residential insurance market is full of lawsuits, and, some believe, fraud.”
Demotech also explained its approach, saying that it has been involved in the risk of insurers at risk and that at no time did it threaten to download those sent to them without them having their right to answer and the opportunity to contact the regulatory body. .
“It is understood that we sent letters to the customers who voted for them saying that they will be reduced but did not allow to discuss or complain. This is not true, because we have talked to all those who asked for a discussion, allowing them to express their feelings and understand our point of view.
“In addition, we encouraged them to provide information or additional information if they want. In several cases, this has led us to consider different changes. This is the same method we have used since we were invited to participate in Florida in 1996,” said Demotech.
Adding that, “It is not acceptable for an independent organization to expect to discuss unfinished business and include discussions and information that should be confidential between the regulatory body and the rated organization. Since it would be harmful and discriminatory to publish what we are doing before we complete our process and finalize our opinion, Demotech will not comment on rating changes until our work is done. We will continue to follow our own rating system and remain independent despite pressure from third parties.”
Demotech also noted that a major part of their recent acquisition of NRSROs is “the ability and willingness to resist being influenced or pressured into doing things that do not conform to established procedures.”
Going on to say, “In addition, it should be noted that although our published method allows to negotiate and influence price decisions, it does not include any requirement for Demotech to provide support or to allow the rated organization for a period of time to fix the issue. It is up to the organization to report acceptable financial results, because Demotech, an independent third-party organization, is tasked with evaluating and evaluating the results.”
Finally, the ratings agency explained why it is delaying the announcement of the ratings revision.
“As the current situation has been brutal and negative and we have put a lot of effort into creating responses to other people’s letters, we will be taking additional time to review the information and consider the issues affecting companies operating in Florida. Our update is scheduled to be released on Tuesday, July 26 it will be announced after we have completed negotiations with the organizations that have been voted on.
“We will be releasing all updates to Florida insurers at the same time. Until then, we will not be commenting on individual companies or responding to those outside of the policy.”
This is a fair and measured response from Demotech.
It’s not uncommon for lawmakers to come out in strong opposition to the insurance agency, especially when outsiders feel that it has been inaction on the part of lawmakers that has led to serious problems in Florida’s property insurance market.
While no one wants to take the blame for starting the property insurance market in Florida, the legislative environment has encouraged bad actors and caused profits to be squeezed out of the industry through lawsuits.
As we have been saying for several months, additional special rules are needed and can be seen before next year’s reinsurance reform, since no one wants to repeat the previous two months.
Read all of our news and analysis of the Florida insurance and reinsurance market.