$1.5M in taxpayer money approved to research insurance rating agencies


TAMPA, Fla. — The newest controversy with Florida’s property insurance market comes after legislators approved $1.5 million of taxpayer money for the Department of Financial Services and Office of Insurance Regulation to research other ways to financially charge insurance firms.

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“If they’re willing to spend $1.5 million of taxpayers’ money to find out if there’s other rating agencies, global rating agencies in the marketplace that are interested in rating companies in Florida, all they had to do is pick up the phone and talk to AM Best,” Managing Director of Strategy and Communications at Global Credit Rating Agency AM Best Jeff Mango stated.

On Sept. 9, Florida’s Legislative Budget Commission approved the request for $1.5 million {dollars} from the Insurance Regulatory Trust Fund, which DFS stated would “allow key stakeholders to research and explore more predictable and reliable financial rating services or alternative solutions.”

Their concern is householders with mortgages defaulting on their loans if their insurance firm’s monetary stability rating is downgraded by Demotech.

In August, Demotech withdrew rankings for 2 property insurance firms: Weston and United Property and Casualty Insurance (UPC). Weston then went into receivership and liquidation. UPC is in a runoff because it plans to pull out of Florida and several other different states.


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In the funding request, DFS said, “Demotech, Inc. has been the only financial stability ratings organization willing to rate start-up insurance companies and insurance companies with less than five years of historical operating experience in the state of Florida. Therefore, these insurance companies have limited options for obtaining ratings from an entity other than Demotech.”
But AM Best instructed ABC Action News that that’s not true.

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“There’s a misconception in the marketplace and the media that AM Best has left the market. We haven’t,” Mango defined. “We continue to rate companies down there. We have 14 ratings, domicile Florida insurance carriers.”

Another assertion in the request referring to Demotech’s downgrades said, “Downgrades are also a leading cause of insolvencies among insurance companies since agents may be obligated to move their customers out of a company that has been downgraded.”

Homeowners insurance

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We went to the Insurance Information Institute to ask them about this assertion.

“Is the downgrade what is making these companies go into insolvency, or are these downgrades because they’re financially unstable as it is?” In-depth reporter Stassy Olmos requested.

“We recently learned that 27 Florida domestic insurers are on the watch list of Florida’s insurance regulator. What that means is, they have financial issues that are of concern to Florida’s insurance regulator,” Insurance Information Institute spokesperson Mark Friedlander stated.

“The fact that we have so many companies on a watch list, in fact, more than we’ve ever seen in the past, is a major red flag showing how unstable Florida insurers are,” he added.

Friedlander stated firms with an ‘A’ rating from Demotech must be grateful.

“We have talked to executives at some of the other rating firms and they have told us, very emphatically, that companies in Florida are undercapitalized and most would not qualify for an ‘A’ rating with their firm,” he stated.

We requested Demotech for a response to the state’s new efforts.

President Joe Petrelli stated in a press release that it’s “an unnecessary response to a problem that does not exist. The reality is that when Hurricane Andrew devastated the state nearly 30 years ago, the rating agencies involved in Florida chose to step away – but Demotech stepped up.”

“A research effort on rating alternatives could be accomplished at no cost to the taxpayers by reviewing existing Freddie Mac and Fannie Mae sellers or servicer guides,” he additionally stated.

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A have a look at the Fannie Mae mortgage web site reveals there are 4 agencies they’ll settle for rankings from — one is AM Best. While an ‘A’ is required from Demotech, the mortgage suppliers will settle for a B from AM Best.

We requested AM Best why extra firms wouldn’t need to be rated by their company.

“They may not either think they could potentially get the rating they want, or they just don’t want to approach us because there’s an easier path to go to with other rating agencies,” Mango answered.

Mango stated an company’s default statistics converse volumes. An organization defaults on its rating after they have had a number of formal regulatory actions towards them.

“We have ‘A’ ratings and ‘A-’ ratings on a 10-year default basis, those companies have only defaulted 0.1% and 0.6%. And that compares extremely favorable against other local agencies in the market,” Mango stated.

We appeared up Demotech’s default rankings.

Their three ‘A’ ranges are as follows:

  • A” default is at 2.3%
  • A’ default is at 8.0%
  • A default is at 9.1%

Insurance specialists have expressed concern with Demotech’s ‘A’ rankings dropping straight to withdrawals or ‘NR’ – no rating, with out first downgrading to their different two ranges at ‘M’ – average, or ‘S’ – substantial.

While Friedlander stated Demotech has a a lot completely different rating methodology than international rating agencies with a wider scale of rankings, he added, “Switching firms actually would make the crisis worse here in Florida because all of these insurers would then be downgraded.”

There’s additionally concern that the state could also be utilizing the $1.5 million to work out how they’ll charge firms internally. Friedlander stated this technique is remarkable.

“We’ve never seen any other state have an internal rating process for insurers. The integrity of your insurance company is so important, and that’s why you need a third-party analysis of his financial position,” he defined.

When the Office of Insurance Regulation created its momentary market stabilization program to financially again firms that had been downgraded by Demotech, the workplace stated it will preserve firms in compliance with federal loans. However, once we reached out to ask the suppliers if this was true, we didn’t obtain a response.

Friedlander stated if that form of reinsurance program was accepted by the federal suppliers, they’d have stated so by now. We have tried to ask the mortgage suppliers earlier than and by no means acquired a response. Friedlander added that an inside rating company would seemingly additionally not be accepted by federal mortgage suppliers.

We additionally requested DFS and OIR for explanations on using the funds. DFS referred us to OIR. A spokesperson for OIR stated in an electronic mail that the research completed with the $1.5 million can be “another tool in the toolkit.”

“OIR is hopeful the information gathered from this research will provide additional data to state leaders and assist them with continuing to develop and implement meaningful property market insurance reform,” the spokesperson said.

The Insurance Information Institute careworn that state leaders had missed the mark on the taxpayer’s expense.

“All legislators who sat in that committee are guilty of making a very poor decision, in our opinion,” Friedlander exclaimed.

“It’s not solving the crisis. The reason why we are having a home insurance crisis in Florida is because of frivolous litigation filed against property insurers and excessive fraud claims related to roof replacements. This is an ongoing problem. It has not been resolved, and changing rating agencies is not going to fix the problem,” he stated.

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