Demotech Joins Call for Florida Special Session; AM Best Downgrades Farm Bureau

The Demotech rating agency has joined the relatively small variety of voices calling for a special session of the Florida Legislature to enact changes that insurers hope will help curtail fraudulent roof claims, deter excessive litigation and address other needs.

In a letter last week to Gov. Ron DeSantis and legislative leaders, Demotech President Joe Petrelli wrote: “The conditions of the property insurance marketplace in Florida are unsustainable and, without the mandatory corrective motion, many Florida insurers will struggle to take care of adequate surplus, efficient capital sources will avoid the market, private reinsurance costs will develop into prohibitively expensive, and consumers will ultimately bear the associated fee.”

Petrelli, who co-founded Demotech in 1996, said that the firm’s rankings lately have been predicated on the expectation that the Legislature would address reforms to Florida’s moderately unique claims procedures, practices and protocols. No significant measures passed within the 2022 regular legislative session that ended March 11, leaving many to warn that more insurer insolvencies and steep rate increases will soon follow.

“Based upon probably the most recently reported operating results, in addition to historical operating results of the insurers we review and rate, and if current market conditions remain in place, we anticipate that we are going to downgrade the Financial Stability Rankings® assigned to plenty of corporations in the approaching weeks,” Petrelli wrote.

One milestone that some insurance carriers are dreading is available in June, when many must renew their reinsurance, and costs are expected to leap.

“We imagine that certain meaningful and significant legislative reform, if enacted during a special session prior to probably the most common renewal date for reinsurance treaties, June 1, may create circumstances permitting us to take care of rankings for a few of those insurers currently expected to be downgraded,”

He urged lawmakers, if called into session, to handle ways to attenuate claims litigation and contingency fee multipliers, and to ease the retention requirements of the Florida Hurricane Catastrophe Fund, which would supply some relief to insurers.

DeSantis has said he’s open to a special session, if legislative leaders call one. State Sen. Jeff Brandes, R-St. Petersburg, also has urged the governor to convene an insurance-focused session. Up to now, though, House and Senate leaders haven’t joined the decision.

Florida’s structure and statutes allow the governor to call a non-scheduled session together. The president of the Senate and the speaker of the House of Representatives can also issue a joint proclamation convening the Legislature. One other method: 20% of legislators can petition for a session, then three-fifths of each chambers must approve and set the date, statutes read.

Demotech’s nudge comes amid more bad news about Florida’s distressed property insurance market. One other rating firm, AM Best, said it had downgraded the financial strength rating of Florida Farm Bureau insurance firms from “A- (excellent)” to “B++ (good),” thanks partially to unfavorable reserve amounts.

Farm Bureau announced in late January that it will stop writing recent homeowner policies in Florida, making it considered one of five carriers to take similar motion.

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