New market stabilization program premiers
The biggest concern recently explained by regulators about Florida insurance company rating downgrades has been the effect they may have on tens of thousands of federally-backed home mortgages in Florida, which require insurance companies be A-rated for the mortgaged properties they insure. Recall that the only industry in the country that requires a different solvency standard other than the insurance commissioner’s expertise is the mortgage industry. Responding to the Demotech review, the Florida Office of Insurance Regulation (OIR) created a new program as a stopgap.
OIR’s Temporary Market Stabilization Arrangement allows downgraded insurance companies to meet an exception offered by Fannie Mae and Freddie Mac. OIR issued an Order to Citizens Property Insurance Corporation, the state-backed insurer of last resort, authorizing it to act as a reinsurer and ordered Citizens to offer temporary reinsurance to participating insurers identified by OIR. It’s similar to a cut-through endorsement that guarantees a company’s obligation to pay its claims. The Florida Insurance Guaranty Association (FIGA) would still be responsible for paying claims for any insolvent carriers up to the statutory limit of $300,000, with Citizens covering any liabilities above that.
Florida Insurance Commissioner David Altmaier. Courtesy, OIR
Commenting on what OIR termed an “unprecedented solution,” Insurance Commissioner David Altmaier said that with it, “consumers will not need to seek coverage elsewhere, agents will not need to move policies, and lenders can have confidence that these insurers continue to meet the mortgage qualifications.”
United Property & Casualty Insurance (UPC) became the first carrier to enroll in the program. UPC is a staple in the insurance industry with excellent leadership and claims service. Despite its good efforts, UPC reported that its net admitted assets fell nearly 20% and its surplus by 31% from this past December 2021 through March 2022. The company said it expects to have $21 million in catastrophe losses for the second quarter of this year, as it finishes its reorganization. UPC had about 185,000 policies as of March 31st. The Florida Department of Financial Services sent a notice to agents, notifying them of the news and the stopgap arrangement and that this move was done “in an abundance of caution.”
OIR has produced an FAQ on the new stabilization program, with helpful tidbits, including that the program will end no later than June 1, 2023 – the start of next year’s hurricane season. For those companies needing to avail themselves of this program, please call us so that we may share further details gleaned over the past week from state regulators.
LMA Newsletter of 8-8-22
