3 Florida property insurance ratings downgraded or withdrawn
TAMPA, Fla. — Effective Aug. 1, Florida-based rating agency Demotech lowered the financial stability rating of one property insurance company and removed the ratings of two others.
Demotech has downgraded United Property & Casualty Insurance (UPC) from an “A” meaning exceptional to an “M” meaning moderate.
The agency also stripped the ratings of Weston Property Insurance, which previously had an “A” and FedNat, which had previously been downgraded from an “A” to a substantial “S” in April.
The agency also downgraded Florida Family Insurance Company from Aʹ (A Prime) to A and Florida Family Home Insurance Company from Aʹ (A Prime) to A. However, these specific downgrades will not affect the company’s operations in the State since they are Always like.
A Financial Stability Rating (FSR) is a registered certification mark of Demotech and is determined by “a company’s ability to survive a downturn in economic conditions as well as a downturn in the underwriting cycle and meet its obligations to policyholders in all cases,” according to the Demotech site.
A study by Guy Fraker titled “Florida’s P&C Insurance Market: Spiraling Toward Collapse,” commissioned by the Senate Banking and Insurance Committee, found UPC to be one of the top companies for the largest net financial losses in 2019. .
Its underwriting losses were 35,544 and its net income loss was 20,828. In 2019, UPC held about 5.3% of the Florida market with 761,039 policies. They also had 1,405 pending lawsuits, an 80% increase from 2016.
We also know that FedNat has abandoned about 60,000 customers, or half of its policyholders, in recent months to avoid ending up in receivership. According to the same study, FedNat had underwriting losses of 38,816 and a net income loss of 18,174.
In 2019, FedNat held 4.2% of the Florida market with 605,202. They also had 1,261 lawsuits, an 81.4% increase from 2016.
The study also indicates that in 2019, Weston Insurance held 0.6% of the Florida market with approximately 80,000 policies and 17 lawsuits. The Insurance Information Institute tells us that Weston now has around 20,000 policies.
Mark Friedlander of the Insurance Information Institute said FedNat’s CEO resigned on Friday and a board member temporarily fills the job.
Additionally, “UPC has also gone through a lot of changes,” Friedlander said. “Two weeks ago their board announced that they were considering a sale or merger, so it was a big red flag just a few weeks ago that they were looking for a significant financial investment. in order to stay afloat.”
Demotech originally planned to release new ratings on July 26, as stated in a statement, but decided to postpone.
The ratings delay came after a letter from Florida’s Office of Insurance Regulation (OIR) expressed deep concern over the possible downgrade of about 17 companies, asking the agency to roll back and reassess its scoring methodology.
The rating agency said in a response that it had worked with insurance companies to enable them to further prove their financial stability.
When a company receives an “NR” or no rating, Friedlander said it runs a high risk of being placed into state receivership, which could lead to rehabilitation or insolvency.
“The purpose of a rating is to show the financial stability that you are a strong business that can pay your claims and without a rating a business cannot show that, it’s just not possible. So in most cases, when we see a rating withdrawn, that is the first step towards insolvency,” he said.
However, it’s unclear what these downgrades really mean for these companies, agents and owners.
Prior to the OIR’s emergency action last week, any rating below ‘A’ would prevent homeowners from receiving Freddie Mac and Fannie Mae mortgages. The temporary program establishes citizen relief reinsurance to any downgraded business, allowing their customers to be in compliance with their loan providers.
The OIR informed us on Tuesday evening that the UPC was the first to register and qualify for the reinsurance relief funding. The office has also created a new web page containing information.
Also, independent agents generally do not write for insurers rated below “A”. Two agents tell us that it is not yet clear what the effects will be for them and their clients. One said he was still concerned that loan providers would force customers to switch.
The Insurance Information Institute predicts that Weston and FedNat will be the 5th and 6th insurance companies this year to go into receivership, the highest number in Florida since Hurricane Andrew in 1992.
“We know the ratings are being pulled, they won’t be able to continue operating unless they do a major reorganization. And they get further capital injections, so they’re most likely heading into insolvency” , explained Friedlander.
He suggests anyone with one of these three insurance companies call their agent.
“If I’m a policyholder with one of these companies, I call my insurance agent as soon as possible. Ask them what they know and tell them to shop around for my coverage. So you’re all set, because s ‘they go through the receivership and liquidation process, they’ll get 30 days’ notice that they need to move their policy, it will be canceled on X date,’ Friedlander said.
We have inquiries with all three property insurance companies for further information on what customers need to know. We haven’t heard back yet, but we’ll update this article when we know more.
Regarding the FSR criteria, Demotech states on its website:
“Our rating process is based on an analysis of a series of quantitative ratios and certain qualitative considerations. Typical information reviewed by Demotech for an established insurer may include:
- Quarterly and annual statutory financial statements
- Management discussion and analysis
- Statement of Actuarial Opinion
- Summary of Actuarial Opinion
- Audit report
- Reinsurance information.”