We are preparing for the possibility of more Florida based property insurance companies facing receivership as soon as the end of January. Demotech, a company which rates many of the property insurance companies in Florida, indicated it would downgrade as many as 18 of the 40 Florida insurers it evaluates. As an example, Florida Specialty Insurance was downgraded mid August and was put into receivership by October.
You can read more about the Florida Specialty receivership here.
What does a downgrade mean other than the possibility of receivership? Fannie Mae and Freddie Mac typically require an "A-Exceptional" rating as acceptable coverage in their portfolio programs so if an insurer is downgraded, they would no longer be in compliance with that loan provision or the lender may trigger forced placed insurance (even though they have an active policy).
To make matters worse, Citizens may not be able to bail out several insurance carriers in a short window of time like they did with Florida Specialty. As for upcoming loan closings, borrowers may want to have several backup options ready to go in case Company A gets downgraded by Demotech and is no longer acceptable coverage you will have Company B and Company C as a backup.
We will learn more about what Demotech plans to do between now and March and the Department of Financial Services will most likely follow suit.
If your insurance carrier is put into receivership, we are here to help answer any questions you may have or we can find you other coverage options.