Another View on Florida Ratings Flap; and Petrelli Calls Citizens Re Idea ‘Creative’

By Scott Johnson | August 1, 2022

  • August 1, 2022 at 10:18 am
    Tim says:
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    So does Florida law presently prohibit Florida domiciled companies from using KBRA (Kroll Bond Rating Agency)? If not, what are the Kroll ratings on the 17 or so companies Demotech is working on? And on the 27 companies the Florida regulators have noted for special solvency monitoring? And speaking of the latter, when will the regulators release the names of those companies to compare to Demotech’s list. It seems if regulators are concerned enough about a company to tag it for special monitoring, a rating agency would reasonably be concerned about its rating.

    Demotech IS NOT a monopolistic entity. The fact the KBRA, AM Best, and S&P are int he same industry, and Demotech is not the largest of the four by any means, indicates the fallacy of that argument. That Demotech is at present the only one of the four apparently willing to rate Florida domiciled entities might suggest, to the casual reader or industry regulator or commentator, that perhaps the Florida market is in worse shape than the Florida agent’s association or Florida regulators wish to acknowledge. What are the AM Best ratings (the dominant player in insurance company ratings) for the 17? Or 27? I bet there isn’t an AM Best rating, because the companies aren’t willing to pay for a rating that would simply indicate their precarious financial position. And I doubt KBRA or S&P would be any more generous.

    The problem isn’t with the rating agency, with our without its political battles with HUD. It’s in the companies. Every month brings news of another Florida domiciled insurer stopping new or renewals, or being placed into supervision or liquidation. The “take out” companies are being taken out by the reality of the insurance market place.

    Without real reform the Citizens as reinsurer plan will just shift the burden up to Citizens, through the cut-through, eventually leading to massive rate increases from Citizens or the shifting of the entire burden directly to the taxpayers of Florida. Though I’m sure that will be postponed, by whatever means necessary, until after the 2024 election cycle so as to not trouble a possible national candidacy of one Governor DeSantis, or Senator Marco Rubio.

  • August 1, 2022 at 9:26 pm
    Joe Petrelli says:
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    In 1996, the State of Florida contacted us to review and rate what were then called takeout carriers, being formed to depopulate the JUA. In 1996, in FL, whether by carrier count or by market share of the carriers writing HO insurance, having concentrated on contacting carriers in Midwest and Northeast, Demotech had a zero % market share in FL. Stated another way, everyone else had a 100% market share of rated carriers in Florida, whether HO or any other line.

    In 1996, we stepped up when the other rating agencies with the 100% market share stepped away. Dozens of hurricanes later, including record storms in 2004 – 2005, Demotech rated carriers have withstood storms and honored their commitments. What is causing financial distress is that FL’s 7% of open HO claims countrywide represent 75% of the country’s open litigated HO claims. Reinsurers have observed this. The availability and affordability of reinsurance is a critical consideration in the marketplace. The business model of many domestic carriers, no matter who rates the carriers, is heavily dependent on reinsurance. Hopefully, the recent efforts of the special session meet or exceed expectations and FL’s 75% of countrywide HO litigation moves toward the representative level of open claims, 7%.

    Joe Petrelli, Demotech

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