Uncertainty Over Whether Frontline’s KBRA Rating Will Be Accepted by Freddie Mac

Frontline Insurance Co. has sparked confusion and concern from agents and insureds after the carrier last week sent out differing information about its financial rating agency.

The potential good news for agents and policyholders: Freddie Mac, the quasi-government corporation that buys mortgages from smaller lenders, may have agreed to accept insurer ratings from KBRA, formerly known as Kroll Bond Rating Agency, according to those who have spoken with Frontline leadership. KBRA has rated Lake Mary-based Frontline as “BBB+.”

The potential bad news: KBRA on Monday told Insurance Journal that it is still talking to Freddie, the Federal Home Loan Mortgage Corp.

“We are in discussions with Freddie Mac and await the outcome of their process,” said Adam Tempkin, KBRA’s director of communications.

Frontline put out two memos to its insurance agents last week. The first explained that the company had decided to participate in a temporary arrangement that would make Citizens Property Insurance Corp. a backstop for some outstanding claims, in case of a Frontline insolvency. That arrangement, devised by the Florida Office of Insurance Regulation last year, was seen as a work-around for insurers that had lost their financial stability rating from Demotech, the firm that has rated the majority of Florida-based carriers for more than two decades.

Freddie Mac and Fannie Mae announced in December that they had agreed to the Citizens cut-through endorsement plan, allowing some carriers to bypass a grade from a financial rating firm. Otherwise, homeowners with mortgages and with unrated HO insurers could have to scramble to find new carriers or be forced-placed into more expensive policies.

Frontline lost its rating from Demotech earlier this month, after Frontline officials had criticized Demotech last year for warning that multiple Florida carriers were in danger of seeing their ratings downgraded or withdrawn. Frontline, which in 2021 held a 3.9% share of the Florida homeowners’ market, moved to KBRA. KBRA ratings have been accepted by Fannie Mae, which buys loans from larger lenders, but not by Freddie Mac, according to the mortgage buyers’ guidelines.

As of late Monday, KBRA was not listed as an accepted rating firm on the Freddie Mac Selling Guide.

The first memo last week from Frontline apparently surprised Citizens officials and OIR regulators, who had not communicated with Frontline about the Citizens arrangement, sources have said.

Less than 24 hours later, Frontline put out another bulletin, rescinding the earlier communication and hinting that Freddie Mac may soon accept KBRA’s rating system. The second memo was not crystal clear on whether the mortgage buyer was fully on-board, however, which raised further questions in the industry.

“Following the issuance of yesterday’s update, we learned that Freddie Mac is or will be directly contacting mortgage servicers and lenders to resolve the issue and communicate that previous letters are no longer applicable and further notices should not be sent to our policyholders,” the Frontline update from CEO Leman Porter reads.

Porter said the company is working to obtain additional information. If insureds receive letters from Freddie Mac, the information should be forwarded to agency sales representatives.

Freddie Mac officials did not return phone calls and emails from Insurance Journal regarding the status of KBRA and Frontline’s rating. Frontline’s manager of communications said in an email Monday that the company will respond when it has information it can share.

Agents who spoke on background said the conflicting information has created some uncertainty in the market at a time that the Florida insurance industry can least afford it. Some agents are likely to see the confusion as a sign that Frontline is facing financial trouble and may try to move some policyholders to other carriers.