FLOIR's warning as Demotech moves to downgrade 17 carriers

Floridian rating agency Demotech has notified approximately 17 Florida domestic property insurance companies that their Financial Stability Rating (FSR) will be downgraded from an “A” to an “S” or an “M”.

In a letter criticising the move, David Altmaier, commissioner from the Florida Office of Insurance Regulation (OIR) says “this type of unilateral action warrants further scrutiny… two months into hurricane season”.

”This is an example of inconsistent, monopolistic power of a select rating agency and is trying to exert coercive influence over Floridians and policymakers in an effort to thwart public policy according to its own opinions,” he wrote in the sternly-worded letter to Joseph Petrelli, president of Demotech.

“It appears that impacted carriers only received notification of this rating methodology in the last two days through the downgrade notice they received.

”OIR has reviewed recent letters received by impacted carriers, received feedback regarding conversations between Demotech and impacted carriers, reviewed your personal statements, and have noted several discrepancies between these recent decisions and the rating methodology posted on Demotech’s website.

”To ensure actions are not made in a capricious manner and are fairly and consistently applied, the OIR has determined that we would benefit from an understanding of why these discrepancies exist, if Demotech plans to amend its methodology to account for these discrepancies, and if Demotech plans to allow companies to appeal its decision as allowed for in Demotech’s posted methodology.”

He concludes: “In the interest of stabilising the private market and ensuring companies have all necessary information to take appropriate corrective action, we strongly encourage Demotech to clearly communicate its rating standards and methodology prior to these ratings becoming effective.

Capacity has been an issue for some time in the Florida market, with some carriers exiting business to make their catastrophe reinsurance more affordable.

It reached a head during the 1 June ‘Florida book’ renewals, which saw significant reinsurance rate increases and a very late renewal, according to Gallagher Re, which noted that for some buyers, pricing was ’nearing distress levels’.