You’ve likely read that insurance company ratings agency Demotech last Thursday sent letters to several Florida-based homeowners insurance companies to inform of a potential downgrade of their “A” (Exceptional) Financial Stability Rating. The recent Demotech actions, while surprising with the short time frame for companies to respond, are not the crux of the problems Florida faces.
Insurance ratings are used by the mortgage industry. Leaders of our state – the CFO, the banking commissioner and insurance commissioner – all regulate the financial services industry which comprises banks and insurance. Perhaps these leaders can meet with Florida’s mortgage industry leaders and ask for “forbearance,” a term they are familiar with, in granting policyholders time prior to force placing insurance with a company that has an S (Substantial) rating. Furthermore, the mortgage industry should communicate with Fannie and Freddie to accept the S. It’s not that hard. Fannie and Freddie have not changed their rating categories in 30 years and there is no process in place to allow rating agencies to request adding a rating category.
Demotech doesn’t appear to intend to completely remove ratings of these companies, but it has communicated in two letters to elected leaders that there are problems in our state that need to be tackled head-on. In talking with insurance agents who are on the front lines, they comment that while there is heightened concern about the press reports of Demotech’s recent involvement, the communications written by state leaders to Fannie Mae, Freddie Mac and the Federal Housing Finance Administration most likely won’t solve our immediate crisis.
Some have opined that it would make sense for the Florida Bankers Association, the Florida Realtors and the Florida Association of Insurance Agents to roll up their sleeves with our state leaders who oversee the financial services industry to engage the mortgage industry. The fallout of any rating downgrade impacts one stakeholder: the mortgage industry. And mortgage banks consider unacceptable a mortgage whose “hazard insurance” doesn’t have an “acceptable” rating according to their guidelines.
The Office of Insurance Regulation has the strongest solvency standards in the country. Isn’t that enough for the mortgage industry? Governor DeSantis understands business and it just makes sense that cooler heads prevail instead of escalating rating downgrade fears that will simply give rise to mortgage companies force placing coverage on homeowners caught in the middle.
LMA Newsletter of 7-25-22
