The Insurance Information Institute (Triple-I) has flagged possible communications issues and concerns around a backstop drafted in a bid to keep Florida homeowners from defaulting on their mortgages in the wake of an insurance crisis.
In late July, the Florida Office of Insurance Regulation announced a reinsurance plan run through Citizens earlier this month, with multiple Demotech rated carriers said to be on the brink of downgrades by ratings agency Demotech.
However, Mark Friedlander, Triple-I communications director, told Insurance Business on Friday that the institute had “recently” spoken to mortgage lenders and an executive at a federal provider had said they were “very surprised” at the regulator’s announcement and that it had confirmed support for the plan prior to it.
As of two weeks ago, Friedlander said, “they were continuing to assess the proposal”.
“Our assessment at this point is that was not accepted by the Federal mortgage servicers,” Friedlander said.
While the plan had been mooted as a “reinsurance” plan, Friedlander said this was now instead being referred to as a “market stabilization” initiative.
Friedlander’s comments came as United Property & Casualty, estimated to have 185,000 policies in the Floridian market alone, announced it was pulling out of personal lines across Florida, Texas, Louisiana, and New York, after receiving news that its Demotech rating was to be removed.
Should UPC fail, which Friedlander said was a distinct possibility, it would be the sixth Florida carrier to enter insolvency this year.
The reinsurance, or market stabilization, plan mooted by FLOIR would likely not have responded to UPC policyholders in Florida anyway, according to Friedlander, as it was intended to assist policyholders who had a carrier with a rating lower than an A (exceptional).
Federal mortgage providers Fannie Mae and Freddie Mac can grant an exception for insurers backed by a reinsurer that will assume 100% liability for losses if the carrier enters insolvency, FLOIR said in its initial release on the plan.
“This innovative arrangement satisfies requirements set by the secondary mortgage market,” Insurance Commissioner David Altmaier said at the time.
“In the event we need to implement this temporary solution, consumers will not need to seek coverage elsewhere, agents will not need to move policies, and lenders can have confidence that these insurers continue to meet the mortgage qualifications.”
Under the Demotech ratings changes, multiple previously A rated insurers in Florida were expected to find themselves with an S (substantial) or M (moderate) rating, not currently acceptable to the mortgage providers.
When the ratings changes were first reported on last month, market stakeholders – including Florida Association of Insurance Agents CEO Kyle Ulrich and Altmaier, who decried the move as “an example of inconsistent, monopolistic power of a select rating agency” – took umbrage at Demotech’s move.
Joe Petrelli, Demotech president, has previously blasted criticism as “misinformation”.
