Florida ratings agency consultation – a “waste of the taxpayer’s money”?

Florida’s Joint Legislative Budget Commission earlier this month approved a $1.5 million consultation to examine Demotech options.

The consultation, according to deputy CFO Julie Jones, could see the creation of a “public rating agency” in 2023, with the executive governor’s office and findings to be presented to the legislature.

The department expects there will be “many competitive bids” during the process and expects the cost to remain under $1.5 million, Jones told the commission.

It is understood that at least four other rating agencies are already acceptable to the GSE. Florida insurers are not required to be A-rated. However, federal mortgage providers Fannie Mae and Freddie Mac will not accept customers who do not have home insurance from an “A” rated provider.

Read more: Florida legislators race to find Demotech alternative

Mark Friedlander, Insurance Information Institute’s (Triple-I) communications director, even asked whether consulting is a waste of public money.

“We think the approval of a $1.5 million budget to appoint an advisor was a poor decision by a bipartisan group of legislators [measure received unanimous approval of the committee] and misuse of taxpayer money,” Friedlander told the insurance business.

According to Friedlander, the legislature’s turn on Demotech is the first US-wide.

“We have never seen officials in any state publicly attacking the integrity of a third-party insurance rating agency,” said the triple-eye comms boss, which happened in Florida in July.

Most Florida residential insurers would be unable to qualify for financial ratings from global rating agencies due to their current capital position, otherwise they would be rated “very low” compared to an ‘A’, which could be assigned by Demotech, according to Friedlander. who said the claim was based on talks with Triple-I’s rating agencies.

Friedlander continued, “Consumers have a right to know that their home insurers are financially stable and can pay their claims if a loss occurs, which is why it is so essential to obtain a credible rating from an independent third party. “

“It is not proper for the state leaders to interfere in this process,” he said.

Triple-Eye and other market sources have argued that Florida’s insurance problem is driven by fraudulent roof repair schemes and incentives for claims litigation – despite Florida accounting for only 8% of claims, US comprehensive home insurance. Claims account for 79%. Data from the Florida Governor’s Office is frequently cited by stakeholders.

Friedlander commented, “The failure of the state legislature to effectively address the root causes of the Florida insurance crisis – the massive roof replacement claim schemes and litigation filed against insurers – is creating further volatility in the market. “

“We do not think insurers or policyholders will benefit from the budget action taken last week.”

Speaking exclusively to the insurance business, Demotech President Joe Petrelli explained that alternative rating agencies already “currently exist”.

“We’ve been competing for a very long time already and when we joined in 1996 we were a really new guy,” Petrelli said.

“If anyone wants to spend up to one and a half million dollars to find additional contestants, that is certainly their prerogative,” said the rating agency’s boss.

Petrelli stressed that the rating agency’s strategy has been “consistent”, with both its chief rating officer and rating manager on the board since at least 1996 and 2005, respectively.

“We have been completely consistent, and we have the same people who have been consistent for 26 years,” Petrelli said.

“I’m at a loss to understand the other side of the equation here.”

Petrelli used a bowling analogy, saying, “Sometimes I get a strike and sometimes I split and sometimes I get a gutter ball, but I swear I’ve got the same one every time.” work done.” “When this happens I don’t blame the scorekeeper, I blame myself.

“Blaming the scorekeeper, I think this is what happens with every rating agency – but I don’t think scorekeeper and market conditions are the same.”

Demotech is in the process of drafting a preliminary report, Petrelli said, which he believes will further show why Florida is so part of homeowners’ lawsuits.

“We will share this publicly,” Petrelli pledged.

As for next steps, Petrelli said: “We look forward to spending another 26 years helping Floridians and insurance companies in Florida.

“As a scorekeeper, there is only so much we can do, but we will continue to keep score.”

Demotech’s July warning that 17 businesses could be set to lose or have their ratings downgraded, triggering reactions from Insurance Commissioner David Altmaier and Florida CFO Jimmy Patronis, caused fear among Flore and others. is born.

Altmaier wrote to Demotech in July, “The OIR is compelled to take extraordinary steps to investigate these unprecedented actions to protect the Floridians, especially the two months into the hurricane season.”

“This is an example of the disproportionate, monopolistic power of a selective rating agency and trying to exert coercive influence over Floridians and policy makers in an attempt to thwart public policy according to their opinion.”

The rating agency was also slammed for using “estimates” as part of its process in Petronis’ letter to the GSE the same month.

Kyle Ulrich, CEO of the Florida Association of Insurance Agents, labeled Demotech as “monopolistic” and accused the organization’s president of “grand” in a July blog.

In response to fears of a downgrade, FLOIR sought to refer to what’s referred to as a “temporary reinsurance” plan, which is expected to be run through the Citizens’ Insurer of Last Resort, which is now the largest property insurance provider in the state.

The foreseeable rash of downgrades failed to materialize. By September 9, when the committee approved the consultation budget, only one company had been downgraded and two had lost their ratings, according to a briefing document prepared for the legislature.

Among the casualties, however, was combined property and casualty insurance, estimated to be 185,000 residential policyholders in Florida. UPC said it would look to a systematic run-off, though triple-eye analysis suggests the insurer may be on the “brink” of failure.

Read more: UPC puts employees, insurer on “brink” of failure – Triple-I

Read more: “Surprised” by Federal Mortgage Provider Florida Reinsurance Plan – Triple-I

Ohio-based Demotech gained a foothold in the Floridian market in 1996, following the 1992 Hurricane Andrew, amid carrier failures and exits.

Despite not being hit by a major storm since Hurricane Michael of 2018, the market is again struggling financially.

Read more: Florida and Louisiana in crisis – a story of two states

At the time of writing, five Floridian property insurers have failed, and warnings have come in – not just from Demotech – and more may follow.

The message shared by ALIRT with the insurance business in July was, “ALIRT expects additional market exit and potential insolvency in Florida given the current financial profiles of these smaller Florida home insurers.”

In fact, our April update on the Florida homeowners market noted that about 70% of these are dedicated Florida insurers.[s] ALIRT score that fell into its ‘red zone’, indicating the need for potential remedial actions.”

S&P data supplied by Citizens showed that just two of Florida’s top 10 homeowners’ insurers booked net underwriting benefits in 2021, with none seeing any gains in 2019 or 2020.

Source: Citizen and S&P

When contacted by the insurance business on the Demotech issue, FLOIR pointed to previous bills that have passed through the legislature that dealt with areas such as assignment of benefits (AOBs) and claimed transparency.

“Florida has implemented historic and unprecedented reforms designed to promote market stability, but these reforms will take time to take effect,” a FLOIR spokesperson said.

“OIR is committed to working with Governor DeSantis, the Florida Cabinet, and the Florida Legislature to promote a stable and competitive insurance market for consumers.”


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