The New Insurance Challenge: The Lower Test

Demotech invests in insurance and warned companies 17 Fla. This creates problems for home owners if Fannie or Freddie has a loan.

TALLAHASSEE, Fla. – Florida regulators threw a tantrum Thursday when they announced that the financial regulator had notified 17 property insurance companies to cut rates.

Insurance Commissioner David Altmaier and Chief Financial Officer Jimmy Patronis interviewed the accounting firm, Demotech, Inc., and warned that such a decline would affect homeowners across the state.

The ratings are important to homeowners with Fannie Mae or Freddie Mac loans because the mortgage giants require property insurers to maintain adequate coverage. If the price is not considered sufficient, the landlord must find other options.

In the meantime, insurers have been warned.

In a letter on Thursday to the leaders of the mortgage finance giants and the head of the Federal Housing Finance Agency (FHFA), Patronis criticized Demotech and the possibility that the decline could lead to insurers not meeting the requirements of ratings and, as a result, lead to loan problems for policyholders.

“If (Fannie Mae and Freddie Mac) approve the majority of Florida insurers based on the questionable ideas of one company, it could cause financial chaos for millions of Floridians,” Patronis said.

The state Office of Insurance Regulation late Thursday afternoon released Patronis’ letters and a letter Altmaier wrote to Demotech President Joseph Petrelli. The document did not name which insurers would be affected by the downgrade, Altmaier said “about 17” could be affected.

The downturn could exacerbate existing problems in the state’s property insurance market, as many carriers have dropped customers and are looking for bigger increases due to the economic downturn. Four insurers have been declared insolvent since the end of February, and thousands of claims each week are pouring into state-backed Citizens Property Insurance Corp.

Gov. Ron DeSantis called a special meeting in May to try to help resolve these issues. Although lawmakers made several changes, they acknowledged that the market will not be fixed quickly.

In a June 30 news release, Demotech stated that it continues to “assess, analyze, and evaluate the results of operations for Q1 (first quarter) 2022, disaster recovery programs, disaster recovery plans, disaster recovery plans, regulations that have come out of the special meeting at the end of May 2022, and other considerations. These factors, and others, affect Demotech’s quarterly assessment of financial stability offered to carriers writing home insurance in Florida.

But in a three-page letter Thursday to Petrelli, Altmaier raised questions about things like Demotech’s accounting system.

“Given Demotech’s financial impact, OIR (Office of Insurance Regulation) believes that Demotech should conduct a detailed review, using consistent standards, of the proposed proposals prior to their due date,” Altmaier wrote.

“Furthermore, in order to stabilize the business market and ensure that companies have all the necessary information to prepare the right products, we encourage Demotech to clearly define its standards and methods of evaluation in advance.”

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