Demotech will not downgrade any of the 16 Florida homeowners insurers that it said earlier this year could face financial stability ratings (FSRs) adjustments because of hurricane losses and assignment of benefits litigation during 2017.
The announcement comes after the Ohio-based ratings agency affirmed the “A” ratings in February of 35 of the more than 50 Florida carriers it rates but said it would not affirm the “A” ratings of the remaining ones until it had analyzed their year-end financial information, revised business plans and operating agreements for 2018.
The company said March 28 that all but one insurer – Florida Specialty Insurance Co. – had taken the necessary actions to have their “A” FSRs affirmed.
On March 30 Demotech affirmed Florida Specialty based upon their development and implementation of a business plan that includes a loss portfolio transfer of the company’s net losses to Sirius America Insurance Co., as well as reinsuring the balance of its net premium effective February 28, 2018, also with Sirius America. The plan is subject to approval by the Florida Office of Insurance Regulation.
“Florida Specialty Insurance Company has worked diligently to develop an action plan that addresses the concerns of regulators, consumers, producers, and Demotech,” said Joseph L. Petrelli, president of Demotech. “Given this action plan, regulators, policyholders, claimants, and producers currently associated with Florida Specialty Insurance Company can be comfortable knowing that the company has the capability to stand behind its commitments.”
Demotech cited ongoing issues in Florida, including AOB litigation and the state’s judiciary climate, for not affirming the 16 insurers back in February.
Petrelli told Insurance Journal at the time that some of the 16 companies were more at risk than others and needed to do more to avoid a ratings downgrade, but noted Demotech expected all 16 would make some changes in an attempt to maintain their ‘A’ rating.
“There is a big difference between a company being financially stable and a company having an ‘A’ rating. These sweet 16 need to do something to show us that their assertions [to us] have been met. As long as they do that they will be fine,” Petrelli said. “If they haven’t shown us their assertions – or proof of assertions – there could be revisions.”
Petrelli said then that these companies had committed to taking steps such as cash infusions, changing of their business model or extra reinsurance to maintain their rating.
Demotech indicated in its most recent FSR update that it would be closely monitoring the Florida judiciary and that all ratings currently assigned are “subject to revision at any point.”
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