Florida Rating Firm Demotech Downgrades Florida Insurance Companies

This week, the Florida rating firm Demotech downgraded four Florida insurance companies. The following insurers have seen their ratings drown from and A Prime rating:

• Florida Family Insurance Company – Aʹ (A Prime) to A
• Florida Family Home Insurance Company – Aʹ (A Prime) to A
• Ocean Harbor Casualty Insurance Company – Aʹ (A Prime) to A
• United Property & Casualty Insurance Company – A to M (“M” meaning moderate)

In addition to these downgrades Demotech removed the rating or listed Weston Property Insurance and FedNat as not rated. Unfortunately, no rating could mean the insurer is headed into liquidation. 

All of these rating downgrades can spell trouble for some homeowners. If your mortgage is back by the federal government your insurance company must have at least an “A” rating or your coverage will be considered non-compliant with your mortgage terms. This could put you in default on your mortgage.

If your insurer has been downgraded below an “A” rating and your mortgage is backed by the federal government, you will need to find a new insurance company.  “You are now in disagreement of your mortgage agreement, so you have to move your coverage to another company that’s ‘A’ rated,” said Mark Friedlander, with the Insurance Information Institute, in a recent WTSP.com article.

According to Friedlander there are roughly 50 homeowner insurance companies operating in Florida and as more and more insurers are downgraded or go under, those policyholders will need to find new coverage, straining the insurers that are still operating in the state. 

 This will most likely result in higher premiums. According to the Insurance Information Institute, residents of the Sunshine State are already paying almost three times more than the national average for homeowners coverage. When the Insurance Institute ran the numbers, they found the average premium in Florida is $4,231 a year compared to the national average of $1,544.

If you are unable to find coverage in the private market your only option may be the state regulated insurer of last resort, Citizens Property. In recent years, Citizens has seen its policy count skyrocket as more homeowners have been forced to move their coverage to Citizens. 

Currently Citizens Property has $6.7 billion in reserves, and $11.3 billion in claims paying ability. Recently, in response to insurer downgrades, Florida insurance regulators have said that Citizens Property Insurance Corp, which is now the largest property insurer in the state would act as a reinsurer for carriers that are downgraded below an “A”.

While this gives some of the troubled insurers breathing room, it does put that stress on Citizens. If a major storm were to hit and Citizens was unable to cover all the claims, it could result in an assessment for all residents of Florida. 

Demotech has signaled that it will be downgrading more companies in the future, throwing the viability of the Florida property insurance market into question, as more insurers fail or pull out of the state, Citizens Property becomes more susceptible to failure if a major storm hits the state. 

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