Watchdog: Insurers have own test for stress
May 10, 2009
While the nation’s biggest banks underwent financial "stress tests," the companies that most likely insure your and your neighbors’ homes have endured a high-stakes stress test of their own.
Florida’s fragile real estate market has hung in the balance.
Demotech Inc., the only company that issues financial-stability ratings for Florida’s new breed of small insurers, threatened earlier this year to withhold ratings if companies couldn’t show how they would pay claims after a monster hurricane.
The question arose when the Florida Hurricane Catastrophe Fund, which backs up those companies, appeared billions of dollars short and unable to raise money by selling bonds in markets that lacked buyers.
That’s scary — really scary — because mortgage companies and institutions such as Freddie Mac require borrowers to buy insurance from highly rated companies.
No ratings, no mortgages. No mortgages, no home sales. Default on terms with your lender, and you could lose your home.
Yikes.
But, on Friday, Demotech President Joseph Petrelli told me that Florida-based insurers, overall, appear healthy. Bond markets have improved, he said.
So, now, Demotech is grading about 59 companies on their ability to bridge the financial gap between the time when they must pay hurricane claims and the later date when money would arrive from the bond buyers.
"By and large, they look pretty good," Petrelli said of companies on the scale of Security First, St. Johns Insurance, Tower Hill, American Integrity and American Strategic Insurance Co., to name a few.
Demotech will issue more "definitive statements" on the solvency of home insurers within the next two weeks, Petrelli said.