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Florida is in the reinsurance market | Property Insurance Protection Law Blog



Florida’s Office of Insurance Regulation (OIR) gets an A+ for creativity in its effort to avoid a perfect storm insurance crisis, as I noted in Outrageous! Shocking to think any insurance regulator would trust Demotechand Insurance agent leader questions Demotech’s motives for downgrading Florida insurers. In a successful last-second three-point shot, OIR, with the agreement of Citizens Property Insurance, allows Citizens to reinsure the 17 airlines that are about to be downgraded by Demotech. This creative solution meets federal mortgage requirements.

The notice from OIR stated:

[T]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 financial rating downgrades by Demotech, Inc. This unprecedented solution would allow insurers to meet an exemption that offered by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) 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 that meets financial appraisal requirements.

Fannie Mae and Freddie Mac each offer an exemption from the financial valuation requirements for an insurer covered by a reinsurer that, by underwriting, assumes 1

00 percent 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 shall perform its statutory duties under Part II of Chapter 631, Florida Statutes, and pay claims under the statute.

As a result, OIR, in partnership with Citizens, has established a program that meets the exemptions from Fannie Mae or Freddie Mac guidelines. Therefore, there should be no reason for lenders to require a replacement policy or force site coverage based solely on rating downgrades. This temporary arrangement would allow insurance companies to remain viable, to continue providing coverage for Floridians and help keep insurance away from citizens.

Readers of this blog know that I am fair and balanced. In this case, OIR deserves credit. I’m not the only one who says so.

Paul Handerhan is an extremely experienced and knowledgeable observer of the Florida insurance market. He was quoted in one Insurance magazine article, Florida Regulators Reveal Valuation Crisis Solution: Let Citizens Reinsure Carrierswhich says:

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

Rating downgrades likely would not have cost Fannie Mae significantly, but the new arrangement should give lenders confidence that the 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 only a temporary measure. There is much more work that needs to be done to achieve a stable insurance market in Florida.

No hurricanes in 2022 would help much. But making an insurance business model built on luck is dangerous.

Today’s thought

I have missed more than 9000 shots in my career. I have lost almost 300 matches. 26 times I have been trusted to take the winning shot and missed. I have failed over and over and over again in my life. And that’s why I succeed.
-Michael Jordan


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