'Unprecedented' ratings downgrade expected for Florida home insurers

WEST PALM BEACH, Fla. (CBS12) — At least 17 companies insuring Florida homes are expected to lose their "A" ratings soon, causing even more volatility in the market.

State officials say ratings firm Demotech are about to downgrade many insurers, a move that Chief Financial Officer Jimmy Patronis warns could wreak "havoc with the financial lives of millions of Floridians."

Mark Friedlander, Florida spokesman for the Insurance Information Institute, called the expected ratings downgrade "unprecedented" but "not unexpected."

"We have seen the downward trajectory of the Florida insurance market for several years...driven by rampant roof replacement fraud schemes, and runaway litigation," he said.

A downgrade in a rating is a red flag, he said, that an insurance company is losing financial stability and potentially unable to pay claims.

The ratings are important because federally-backed mortgage companies Freddie Mac and Fannie Mae require consumers to carry insurance with A-rated companies.

The Florida Association of Insurance Agents estimates 62 percent of residential mortgages are through Freddie Mac and Fannie Mae.

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If you have a federally-backed mortgage and your insurer suddenly loses its A rating, you need to find a new insurer or else risk defaulting on your loan, Friedlander warned.

"That is a serious situation that is going to impact homeowners large and small across the state -- whether you have a 150 thousand dollar home, or perhaps a million dollar home," he said. "You will be impacted by this crisis."

Demotech's list of 17 expected downgrades has not become public yet.

State officials like CFO Patronis are blasting Demotech ahead of the announcement, calling it a "rogue ratings agency" in a letter to federal regulators.

Demotech did not respond to CBS12 News' request for comment Friday.