Florida insurers face rating change that could increase costs

FORT LAUDERDALE, Florida. – A ratings agency is considering downgrading more than two dozen Florida-based home insurance companies in a move that could cost more for homeowners with loans.

The rating firm Demotech plans to downgrade the 27 insurers from an “A” rating to an “S” rating for substantial or “M” for moderate, according South Florida’s sentinel of the sun.

Demotech rates 40 Florida-based insurance companies.

Florida Insurance Commissioner David Altmaier and Chief Financial Officer Jimmy Patronis criticized the rating agency for the expected downgrade later this month. They said the decision was largely based on the company’s view that the legislative reforms passed over the past two years were not sufficient to restore the health of the overall state insurance market. The market has suffered losses over the past five years.

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In doing so, the ratings firm was applying a methodology that did not match the criteria it is supposed to use, Florida officials said in letters.

“This is an example of inconsistent monopoly power by a selected rating agency and attempts to exert coercive influence over Floridians and policy makers in an effort to thwart public policy according to its own views,” said Altmaier in his letter.

Federal mortgage guarantors Fannie Mae and Freddie Mac require borrowers of loans they back to maintain insurance coverage with A-rated insurers. Borrowers with insurance backed by companies rated below A could end up in default on the terms of their home loan. If that were to happen, then Fannie Mae and Freddie Mac could order mortgage managers to get more expensive coverage from acceptable insurers on the home loans they service.

From an owner’s perspective, the timing is bad, said Paul Handerhan, president of consumer-focused watchdog group the Federal Association for Insurance Reform.

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“Can you imagine, with the peak of hurricane season just around the corner, if you’ve just paid your insurance bill for the year and all of a sudden your mortgage officer says, ‘You’re not in compliance and we’re going to forcibly place you “and charge $5,000 or $6,000? That’s real potential,” Handerhan said.

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