Demotech Company Rating Downgrades

 

Background

Demotech, Inc., an insurance company ratings agency, recently downgraded or withdrew the Financial Stability Ratings of insurance companies that insure properties in Florida. Financial Stability Ratings indicate a company’s financial strength and its ability to meet its financial obligations. Mortgage lenders such as Fannie Mae and Freddie Mac require homeowners to insure their homes with insurance companies that have an A Financial Stability Rating or better with Demotech. If an insurance company’s rating does not meet the requirement, it may impact the homeowner’s ability to maintain insurance coverage.

How Is This Being Addressed?

Governor Ron DeSantis, Chief Financial Officer (CFO) Jimmy Patronis, the Office of Insurance Regulation (OIR), Citizens Property Insurance Corporation, the Florida Insurance Guaranty Association (FIGA), the Florida Association of Insurance Agents (FAIA) and Florida’s Insurance Consumer Advocate (ICA) are all working together to protect consumers and mitigate the impact of the ratings downgrades or withdrawals.

The organizations have developed a plan that will safeguard the availability of coverage for Florida’s homeowners and ensure homeowners remain compliant with their mortgage loan requirements. The plan establishes a temporary reinsurance arrangement through Citizens Property Insurance Corporation that will allow affected insurance companies to meet an exception offered by Fannie Mae and Freddie Mac which will ensure Florida’s homeowners are able to maintain their coverage. 

How Will This Impact Me?

To learn more about how a rating downgrade or rating withdrawal may impact you and what to expect, please review the following Policyholder FAQs:

1
What is a financial stability rating?

A financial stability rating (FSR) is a determination regarding an insurance company’s financial stability and its likelihood to meet its financial obligations. This determination is based upon an evaluation conducted by a financial rating company on how well the insurance company is performing financially and its ability to pay claims.

2
If my insurance company’s financial stability rating is downgraded or withdrawn, will my insurance company go out of business? 

The downgrade or withdrawal of a company’s financial stability rating may result in the company becoming insolvent or going out of business, however, every company whose financial stability rating has been downgraded or withdrawn does not automatically go out of business due to the downgrade.

3
If my insurance company’s financial rating is downgraded or withdrawn, is my policy still active?

Yes, your policy is still active. If your insurance company goes out of business or decides to cancel or non-renew your policy, you will receive a Notice of Cancellation which will advise you of the effective date of the cancellation and the timeframe available to you to purchase a new policy. 

4
If my insurance company’s financial rating is downgraded or withdrawn and I currently have an active claim, how will the downgrade affect my claim?

The downgrade or withdrawal should not affect your claim unless the company goes out of business. If the company goes out of business, the Florida Insurance Guaranty Association will take over the handling of your claim.

5
What is the Florida Insurance Guaranty Association?

The Florida Insurance Guaranty Association (FIGA) was created by the Florida legislature to protect policyholders and handle the claims of homeowners’ insurance companies that have gone out of business. Once a company has been declared insolvent and a final order of liquidation has been entered, FIGA steps in to process and settle the claims.

6
Should I purchase an insurance policy with another insurance company? 

Contact your insurance agent immediately to discuss your options. If you decide to purchase a new policy, it is important to continue paying your premium until you have purchased the new policy so that you do not experience a lapse in coverage. Once the new policy is in place, you can cancel your old policy. Ensure you receive a refund for coverage that you already paid for under the old policy, but have not used, which is called your unearned premium.

7
If my insurance company goes out of business, will I receive a refund of the premium I paid?

Yes, you should receive a refund for coverage under the old policy that you already paid for, but have not used, which is called your unearned premium. When an insurance company goes out of business, unearned premiums are paid by the Florida Insurance Guaranty Association.

8
If my insurance company does not go out of business, how will the downgrade or withdrawal affect my insurance policy?

Contact your insurance agent immediately to discuss your policy and the options that are available to you.

9
My mortgage is backed by Freddie Mac and Fannie Mae and I am required to maintain homeowners’ insurance as a part of my loan agreement. If my insurance company’s financial stability rating is downgraded or withdrawn, will I be able to maintain my homeowner’s coverage? How will the downgrade or withdrawal impact my mortgage loan?

Fannie Mae and Freddie Mac require you to purchase homeowners’ insurance coverage from an insurance company that meets financial rating requirements. However, both Fannie Mae and Freddie Mac offer an exception to the financial rating requirements. The exception applies to policies that are issued by an insurance company that is covered by a reinsurance company that has agreed to assume liability for unpaid claims if the company goes out of business. A reinsurance company is simply another insurance company. 

Under Governor DeSantis’ leadership, CFO Jimmy Patronis and the Office of Insurance Regulation have presented a plan that establishes a temporary reinsurance arrangement through Citizens Property Insurance Corporation, for those insurance companies that no longer meet the financial rating requirements. As a part of the plan, if claims of insolvent insurance companies whose financial stability ratings have been downgraded or withdrawn, exceed the statutory limit for payment by the Florida Insurance Guarantee Association, Citizens Property Insurance Corporation has agreed to assume liability for the excess unpaid portion of the claim. 

With the implementation of this plan, you do not need to take any action. There should be no reason for your mortgage lender to require that you obtain a new policy or apply force- placed coverage based solely on the downgrade or withdrawal of your company’s financial stability rating. Under the reinsurance arrangement plan, your insurance company will continue to meet the financial rating requirements, you will maintain compliance with your mortgage loan agreement, and you will not need to obtain new coverage. You will maintain coverage with your existing homeowners’ insurance company. There is no cost associated with the plan; there will be no changes to the policy or premium. The arrangement ends no later than June 1, 2023. 

Please contact your insurance agent to discuss any questions you have regarding the reinsurance arrangement through Citizens Property Insurance Corporation. 

10
If I prefer to obtain new homeowners’ insurance from an A-rated insurance company, what are my options?
Contact your insurance agent immediately to discuss your options.
For more information, please refer to OIR's Florida's Temporary Market Stabilization Arrangement website and resources:

Florida Office of Insurance Regulation

Participating Insurance Companies

The following insurance company has received a downgrade of their financial stability rating from Demotech, Inc. and is participating in Florida's Temporary Market Stabilization Arrangement:

Hurricane Preparedness Resources

Prepare FL

Do you want to learn how to secure your property before a disaster and recover afterwards? The topics in CFO Jimmy Patronis' PrepareFL will help understand how to protect your homebase.

Plan, Prepare, Protect: Are You Disaster Ready?

ICA Carter’s Plan Prepare Protect: Are You Disaster Ready? is your preparedness portal for tips, statistics, pertinent updates and resources – all to help you successfully weather the storm.

Contact the Office of the Insurance Consumer Advocate


Office of the Insurance Consumer Advocate
200 East Gaines Street, Tallahassee, FL 32399
Phone: (850) 413-5923
Email: YourFLVoice@MyFloridaCFO.com


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