Financial strength rating
An assessment of an insurer's ability to meet its obligations. When the rating crosses a threshold, automatic contractual consequences follow.
2022: the Demotech agency downgrades or withdraws the ratings of several Florida homeowners insurers, and what wobbles is the acceptance of their policies by US mortgage refinancers. A financial strength rating assesses the insurer's ability to pay claims, and not the quality of a debt instrument. It is issued by a small number of agencies, some specialized in insurance. The information it conveys is often already known to professionals. Its real effect comes from the automatic consequences third parties have attached to its thresholds. Reinsurance treaties grant an immediate termination right on downgrade below an agreed level. Public procurement excludes unrated bidders. Above all, mortgage lenders require the insurer of the financed property to reach a given grade, failing which the loan itself falls into default. A downgrade therefore costs revenue, forces the insurer to rebuild capital and, in extreme cases, makes it impossible for customers to keep their policy. The rating acts on the solidity it measures, in both directions.
In 2022 the agency Demotech downgraded or withdrew the ratings of several Florida homeowners insurers. That directly threatened the acceptability of their policies to United States mortgage refinancing agencies, and the state had to seek substitute arrangements.
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