Florida Is in the Reinsurance Market

Florida’s Office of Insurance Regulation (OIR) gets an A+ for creativity in its effort to avoid a perfect storm insurance crisis, which I noted in Shocking! Shocking To Believe That Any Insurance Regulator Would Rely Upon Demotech, and Insurance Agent Leader Questions Motives of Demotech to Downgrade Florida Insurers. In a successful last second three-point shot, the OIR, with agreement from Citizens Property Insurance, is having Citizens reinsure the 17 carriers about to be downgraded by Demotech. This creative solution satisfies federal mortgage requirements.

The announcement from the OIR stated:

[T]he 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 financial rating downgrades from Demotech, Inc. 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 ensures Floridians can maintain coverage during hurricane season.

…

Fannie Mae and Freddie Mac require that property insurance policies for properties with a mortgage backed by Fannie Mae or Freddie Mac must be written by an insurer meeting financial rating requirements.

Fannie Mae and Freddie Mac each offer an exception to the financial rating requirements for an insurer that is covered by a reinsurer who assumes, by endorsement, 100 percent of the insurer’s liability for any covered loss payable, but unpaid by the insurer, by reason of insolvency. In the event that a participating insurer is declared insolvent, the Florida Insurance Guaranty Association shall carry out its statutory duties under Part II of Chapter 631, Florida Statutes, and pay claims as set forth in the statute.

As a result, OIR, in conjunction with Citizens, has formed a program that meets the exceptions to the Fannie Mae or Freddie Mac guidelines. Therefore, there should be no reason for lenders to require a replacement policy, or force place coverage based solely on the ratings downgrades. This temporary arrangement would allow insurers to remain viable, to continue providing coverage for Floridians and helps keep policies out of Citizens.

Readers of this blog know that I am Fair and Balanced. In this instance, the OIR deserves praise. I am not the only one saying so.

Paul Handerhan is an extraordinarily experienced and understanding observer of Florida’s insurance marketplace. He was quoted in an Insurance Journal article, Florida Regulators Unveil Ratings Crisis Solution: Let Citizens Reinsure Carriers, stating:

[T]he plan is a good one, said Paul Handerhan, president of the Florida-based Federal Association for Insurance Reform. He noted that it is similar to a ‘cut-through endorsement’ that essentially guarantees an insurer’s obligations.

Ratings downgrades likely would not have cost Fannie Mae significantly, but the new arrangement should give the lenders confidence that loans are fully protected, Handerhan said.

Florida Insurance Commissioner David Altmaier and his staff deserve a tip of the hat and a shout-out for finding a way out of this current crisis. But this is just a temporary measure. There is much more work that needs to be done to achieve a stable insurance marketplace in Florida.

No hurricanes in 2022 would help a lot. But it is dangerous to make an insurance business model built on luck.

Thought For The Day

I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.
—Michael Jordan