Demotech may downgrade the ratings of 27 of Florida’s 40 property insurance companies from their current “A” rating to “M” or “S.”
Why it matters: This could send millions of property owners scrambling to find better-rated insurers, since the terms of most conventional mortgages include provisions that require the owner to maintain property insurance coverage from an “A-rated” insurer only.
The rating agency has said it doesn’t think the latest legislative changes do enough to ensure that the insurers will remain viable in the face of mass catastrophic events such as powerful hurricanes.
Situation Awareness: State regulators argued that the ratings agency is not following its usual formulas and guidelines for such ratings, and Demotech has agreed to delay the ratings changes for an undefined time as of this writing.
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Regulators are also imploring Fannie Mae and Freddie Mac to lower their standards and accept “S” rated insurers for their mortgages.
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The State has announced that Citizens Insurance will “reinsure” any insurers who are downgraded in an attempt to shore up their ratings.
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The ratings change could come at any day, as Demotech is pushing for it to occur.
It is expected that owners would have at least a few months to obtain new insurance from a higher-rated carrier, but if they are not successful, then the lender could “force-place'“ insurance on the property with a carrier of the lender’s choice. Such force-placed insurance insures only the asset for the lender against casualties such as leaks, fires, and vandalism.
Our thought bubble: Having seen many homeowners confronted with force-placed insurance, we have experienced their inability to continue paying the monthly mortgage payments when such expensive coverage is added to the monthly mortgage payment. This makes Florida a less-attractive place to relocate.
