Demotech downgrades UPC, withdraws FedNat & Weston ratings, affirms others

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The awaited changes to ratings of property insurance carriers with a Florida focus by rating agency Demotech have begun, with United Property & Casualty Insurance Company downgraded two notches to “M”, while insurers FedNat and Weston have both had their ratings withdrawn.

demotech-logoAt the same time, Demotech has affirmed a number of Florida carriers at “A” as well.

Demotech had warned numerous Florida property insurance carriers that they may have faced a ratings downgrade, a move that resulted in a backlash from Florida’s state Insurance Commissioner and CFO.

The deadline for the rating revisions had originally been July 26th, But Demotech pushed that back to give more time for its  review of ratings for these Florida carriers and engagement with them.

The move drove a mixed response, with the Florida Office of Insurance Regulation (OIR) announcing a plan to launch a temporary reinsurance arrangement through Citizens Property Insurance Corporation to support any downgraded, but still viable carriers.

We reported more details on that arrangement with Citizens yesterday.

At the same time, there have been calls for a review of the state of Florida’s dependence on Demotech.

Now, the first wave of ratings updates have emerged from Demotech, with some names you might have expected to see, another perhaps less so.

United Property & Casualty Insurance Company (UPC), a carrier of the United Insurance Holdings Corp. group, has been downgraded two notches to an “M” rating by Demotech.

This one is perhaps not so surprising, given the company has just come through a consolidation of its business in Florida and reorganisation of its four carriers into two.

Next, FedNat Insurance Company, a carrier that has also been through a significant upheaval in recent months and had been particularly impacted by catastrophe losses in recent years as well.

It’s restructuring plan and downsizing in Florida had been under the watch of the regulator, in addition to which, FedNat had already lost its “A” rating and been downgraded to an “S”, so it’s not so surprising to hear Demotech has now withdrawn FedNat’s rating completely.

The final carrier is Weston Property & Casualty Company, the property insurer that insurance-linked securities (ILS), reinsurance and transportation investment manager Hudson Structured Capital Management (investing as HSCM Bermuda) has a majority stake in.

Weston has had its “A” rating withdrawn completely, so now sits with an unrated “NR” from Demotech.

As a reminder, it was Weston that ventured to the catastrophe bond market in 2022 to secure additional reinsurance coverage, with a successful $45 million Marlin Re Ltd. (Series 2022-1) issuance.

A rating withdrawal, such as FedNat and Weston have now suffered, has typically come prior to a carrier either falling under measures imposed by the regulator in Florida, or even an insolvency.

An “M” rating, the status UPC Insurance now finds itself with, is generally seen as a status more easy to recover from.

However, with the new Citizens backed guarantee announced by the Florida Office of Insurance Regulation (OIR), it will be interesting to see what these downgraded and withdrawn ratings actually mean this time around.

The “M” rating from Demotech is not generally accepted by the mortgage market, meaning UPC could be the first carrier to test this new arrangement.

It’s harder to know what could happen with the withdrawn ratings of FedNat and Weston, but this will likely now come down to an assessment by the regulator as to whether the companies are viable enough to fall under the exception for the mortgage market, with the guarantee of Citizens above the level of FIGA claims.

A number of carriers had their “A” ratings affirmed yesterday as well, including: American Coastal Insurance Company, American Integrity Insurance Company of Florida, American Mobile Insurance Exchange, American Platinum P&C Insurance Company, American Traditions, Bankers Insurance, Centauri Specialty, Edison Insurance Company, Florida Peninsula, Great Northwest, Hawaiian Insurance and Guaranty Company, Heritage P&C Insurance, Homeowners Choice, Kin Interinsurance Network, Ocean Harbour Casualty Insurance, Safe Harbour Insurance, Safepoint, Slide Insurance, Southern Oak, Tower Hill Insurance Exchange, Tower Hill Prime, TypTap, US Coastal,  and Vyrd.

There are some names missing, that have yet to be affirmed or have any change to their ratings, so there could be more adjustments to come over the coming days.

Exactly how this all plays out remains to be seen, whether the Citizens guarantee will come into play, or whether any carriers head for further restructuring or even insolvency.

Update: Demotech also downgraded the Florida Family Insurance companies from A’ Prime to A Exceptional yesterday.

Read all of our news and analysis on the Florida insurance and reinsurance market.

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