Another Florida Homeowners Insurance Company Is In Trouble

It looks like another homeowners insurance company is in trouble in Florida. Recently, FedNat Holding Company, which sell homeowners insurance and other insurance products under the name FedNat Insurance Company, was downgraded from A to S by Demotech, a consulting company that rates the financial health of insurance companies.

According to Demotech, an A rating is exceptional and indicates that the company is expected to have a positive surplus “regardless of the severity of a general economic downturn or deterioration in the insurance cycle.”

On the other hand, an S rating which stands for “substantial” is one level down on the rating scale and indicates that while the insurance company is not on the verge of collapsing, it may be less able to handle uncertainty in both the insurance market and the economy as a whole. 

However, an S rating for your insurance company may make their policies unacceptable to some mortgage lenders, this includes Fannie Mae and Freddie Mac. This means that many customers may need to look for a new policy with an insurer that has an A rating.

It is not only losses in Florida that have caused the rating downgrade. FedNat also writes policies in Louisiana and Texas and the losses they experienced in those states along with Florida result in the downgrade according to Demotech.

FedNat was forced to cede $562 million in losses to its reinsurance partners in the third quarter of 2021 and has said that the cost of reinsurance has been a major issue in their profitability.

FedNat’s financial issues are just another example of how turbulent and unpredictable the Florida homeowners insurance has become. Recently, major insurance companies St. Johns and Avatar both entered receivership and other insurers in the state are sending out non-renewal notices to customers or leaving the state entirely.

If FedNat is unable to regain its A rating with Demotech, there could be up to 175,000 residents of Florida that need to find a new policy with a new insurance company. Unfortunately, there is a good chance that their new insurance company will end up being the state insurer of last resort, Citizens Property Insurance Corp. Citizens has seen its policy count skyrocketing in the past few years, which may result in an assessment hitting every resident of Florida if Citizens finds itself unable to cover all its claims after a major storm.

State law limits Citizens premium increases to 11 percent a year which has made Citizens one of the most affordable homeowner insurance companies in the state, pushing up its policy count. 

Gov. Ron DeSantis is planning to call a Special Session next month to address the insurance market’s issues but as lawmakers have failed for years to solve the issue, there is little hope much will get done in the special session.