Florida Establishes Temporary Reinsurance Agreement for Insurers Facing Potential Financial Stability Rating Downgrade

Florida – Wednesday, July 27, 2022: The Florida Office of Insurance Regulation (OIR) announced a plan to establish a temporary reinsurance arrangement through Citizens Property Insurance Corporation (Citizens) in the event of disruptive downgrades to Demotech, Inc.’s financial rating.

This unprecedented solution would allow insurers to meet an exception offered by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and ensure that Floridians can maintain coverage during hurricane season.

“OIR’s highest priority is to ensure consumers have access to insurance, especially during hurricane season; and due to the uncertainty surrounding the status of Demotech’s ratings, we have been forced to take extraordinary action to protect millions of consumers,” Insurance Commissioner David Altmaier said. “This innovative arrangement meets the requirements set by the secondary mortgage market. In the event that we were to implement this temporary solution, consumers will not need to seek coverage elsewhere, agents will not need to move policies, and lenders can be confident that these insurers continue to meet mortgage requirements.

Fannie Mae and Freddie Mac require property insurance policies for properties with a mortgage guaranteed by Fannie Mae or Freddie Mac to be underwritten by an insurer that meets financial rating requirements.

Fannie Mae and Freddie Mac each provide an exception to the financial rating requirements for an insurer that is covered by a reinsurer that assumes, by endorsement, 100% of the insurer’s liability for any covered loss payable but not paid by the insurer, due to insolvency. In the event that a participating insurer is declared insolvent, the Florida Insurance Guaranty Association will fulfill its legal obligations under Part II of Chapter 631, Florida Statutes, and will pay claims as set forth in law.

As a result, OIR, in conjunction with Citizens, has formed a program that meets exceptions to the Fannie Mae or Freddie Mac guidelines. Therefore, lenders should have no reason to require a replacement policy or impose coverage based solely on rating downgrades. This temporary arrangement would allow insurers to remain viable, continue to provide coverage to Floridians, and help keep policies out of reach for citizens.

Last week, OIR asked Demotech to provide additional information regarding its rating methodology to justify these downgrades. OIR received a response from Demotech, however, the response did not provide a timeline for the reviews. The sudden loss of an acceptable financial strength rating would have a significant and negative impact on insurance consumers, insurers, agents and the property insurance market in Florida. OIR remains committed to protecting Floridians and the property insurance market under this plan.

About the RIO
Florida’s Office of Insurance Regulation (OIR) is primarily responsible for the regulation, compliance, and enforcement of insurance business and industry market oversight. For more information about OIR, please visit www.floir.com or follow on Twitter @FLOIR_comm.

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