Freddie Mac Accepts KBRA Ratings, Giving Fla. Agents, Mortgagees More Options

Freddie Mac, one of two mortgage-buying companies that buttress the U.S. home-lending market, has agreed to accept the Kroll Bond Rating Agency as a rating firm for homeowners’ insurance companies.

“We have expanded our list of eligible rating providers to include the Kroll Bond Rating Agency (KBRA),” Freddie, formally known as the Federal Home Loan Mortgage Corp., posted on its selling guide Wednesday. “We will now accept an insurer with a minimum insurance financial strength rating of BBB rated by KBRA.”

The approval will be seen as good news for policyholders with Frontline Insurance group, which had been dropped by its previous rating firm, Demotech, after a disagreement over Demotech’s plan to downgrade some Florida carriers.

Frontline and its sister company, First Protective Insurance Co., both have a financial rating of BBB+ from KBRA, good enough to keep Freddie Mac from requiring insured mortgagees to find a new carrier or be forced-placed. As of last fall, First Protective was ranked the 8^th-largest property insurer in Florida, with almost 231,000 policies in force, according to the Florida Office of Insurance Regulation.

KBRA has recently signed on several more Florida carriers and now rates at least eight, including:

• United Insurance Holdings, parent of United Property & Casualty (BB), which is now in an orderly runoff
• Heritage Property & Casualty Insurance (BBB+); (Heritage also has an “A Exceptional” rating from Demotech)
• Tower Hill Prime Insurance (A-); and Tower Hill Insurance Exchange (BBB+); (both have an A rating from Demotech)
• Universal Property and Casualty Insurance (A-); (has an A rating from Demotech)
• Olympus Insurance Co. (BBB+); (A rating from Demotech)
• American Traditions Insurance Co. (BBB); (A rating from Demotech).

The ratings issue has been simmering since last summer, when Demotech told as many as 16 carriers that they were headed for a ratings downgrade or withdrawal, thanks to their surplus shortages and underwriting losses brought on in part by Florida’s distressed market and hyperactive litigation scene. Florida regulators and the Florida Association of Insurance Agents sharply criticized Demotech for the notice, arguing that the rating firm was inconsistent and had not followed its own criteria.

Since then, regulators have devised a plan to let the state-created Citizens Property Insurance Corp. act as a backstop on unpaid claims in case of an insurer insolvency, a plan later approved by Freddie Mac and Fannie Mae. The Florida Department of Financial Services also commissioned a study on alternatives to Demotech, which for more than two decades was the predominant rating firm for Florida insurers.

Frontline officials have not previously responded to requests for comment on this issue.

The acceptance of KBRA should help put to rest some confusion created in January over Frontline’s rating. The insurance group initially said it was participating in the Citizens’ cut-through endorsement plan. But a day later, Frontline officials suggested in a bulletin to agents that Freddie Mac was planning to accept KBRA as a rating firm.

Fannie Mae, the Federal National Mortgage Association, which buys loans mostly from larger lending companies, already had accepted KBRA ratings. Both organizations now accept favorable insurer ratings from KBRA, Demotech, AM Best, and S&P Global.

Demotech President Joe Petrelli said in an email Wednesday that Demotech has been accepted by Freddie Mac since 1990.

An earlier version of this posting had an incorrect KBRA rating for Heritage Property & Casualty Insurance Co.