Ratings downgrade jeopardizes another Florida insurer

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Trouble is on the horizon for another company that writes home insurance policies in Florida.

FedNat Holding Company, which offers insurance as FedNat Insurance Company, had its stability rating downgraded from A to S by Demotech, an advisory firm that assesses the financial health of insurance companies.

Demotech defines an A rating as “exceptional” and indicates that a company should have a positive surplus “regardless of the severity of a general economic downturn or deterioration in the insurance cycle”.

An S – or “substantial” – rating is a rung down and companies that achieve the rating, while not on the verge of collapse, are less able to handle market turmoil or economy in general.

Still, the S-listed company’s creditworthiness isn’t good enough to satisfy some mortgage lenders, including Fannie Mae and Freddie Mac. That leaves many current customers no choice but to seek coverage elsewhere unless FedNat can regain an A rating.

FedNat’s policy portfolio in Florida and other states has proven to be a drag on its financial health, resulting in losses for the company over the past two years. Losses in Louisiana and Texas were cited by Demotech when it released the downgrade.

The company ceded $562 million in losses to its reinsurance partners in the third quarter of last year and cited reinsurance costs as a major factor in posting consecutive annual losses. His focus on Florida compounds the problem.

The Sunshine State market has become increasingly turbulent, with large insurers such as St. John’s and Avatar going into receivership and others issuing non-renewals or leaving the state altogether.

If FedNat doesn’t regain an A rating, up to 175,000 Florida policyholders could be looking for a new insurer, likely ending up with the state-backed Citizens Property Insurance Corp., which has saw his political account explode These last months.

Citizens was established in 2002 with the goal of being Florida’s “insurer of last resort” for homeowners who could not find affordable property coverage in the private market. Private insurers, however, often complain that its lower prices – Citizens’ rates cannot be increased by more than 11% per year – attract owners to the company.

If the ability of citizens to pay claims is overwhelmed by a large hurricane, assessments can be imposed on non-citizen homeowners, automatically increasing insurance premiums for Florida homeowners. This means that the more risk citizens take, the greater the risk of assessments.

Gov. Ron DeSantis plans to convene another special session next month to address insurance market issues, though it’s unclear what lawmakers’ solution will look like.

A potential solution proposed during the regular session fell through due to fears that homeowners on low and fixed incomes might not be able to afford the deductible to repair their roofs. And it’s likely that many solutions would result in more rate increases for homeowners in the short term.

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Florida Politics reporter Gray Rohrer contributed to this article.


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