Demotech

Last updated
Demotech, Inc.
Company type Corporation
Industry Financial services
Founded1985
FounderJoseph L. Petrelli
Sharon Romano Petrelli
Headquarters
Columbus, Ohio
,
U.S.
Area served
 United States
Key people
Joseph L. Petrelli
President & CEO
ProductsDemotech Difference (magazine)
Services Rating agency, insurance information publications
Website www.demotech.com

Demotech, Inc., is an American insurance rating agency headquartered in Columbus, Ohio, that focuses on independent, regional, and specialty companies in the property and casualty insurance (P&C) industry. [1] [2] It is independent from the companies that it rates. [3]

Contents

Differences

An insurance rating agency issues financial-strength ratings measuring a company's ability to immediately pay claims presented.

A credit rating agency issues financial-strength ratings measuring a company's ability to pay back debt by making timely principal and interest payments and the likelihood of default.

Traditional companies such as AM Best, Moody's Investors Service, Standard and Poor’s, and Fitch Ratings do rate insurance providers, but typically only large national companies. [4] Demotech was founded in 1985 [1] [2] to provide financial analysis of, and actuarial services for, niche markets ignored by Big Three (credit rating agencies). [5] [6] The principals were Joseph and Sharon Romano Petrelli. [7]

The U.S. Securities and Exchange Commission provides a list of nationally recognized statistical rating organizations on its website. As of August 2022, Demotech was one of ten organizations on that list. [8]

Ratings

Demotech developed a rating system for independent, specialty, and regional insurance carriers. It gathers and analyzes annual and quarterly statutory financial statements, statements of actuarial opinion, actuarial opinion summaries, reinsurance information, audit reports, and discussions with management. [9] It then performs "an analysis of a series of quantitative ratios and certain qualitative considerations". [9]

Demotech uses the registered term Financial Stability Rating® (FSR) to judge an insurer's ability to perform in the general economy and the "underwriting cycle that exists in the insurance industry". [10]

The company has eight levels of stability. The first five predict the percentage of insurers that will have a surplus 18 months after their ratings no matter "the severity of a general economic downturn or deterioration in the insurance cycle". [10]

RatingPercentDescription
A″100%(A Double Prime), Unsurpassed
A′99%(A Prime), Unsurpassed
A97%Exceptional
S95%Substantial
M90%Moderate
L--Licensed by state regulatory authorities. Evaluation of their financials precludes assignment at an FSR.
NR--Not Rated do not currently have an FSR.
N/A--Ineligible for an FSR because complete financial data was not available.

Their FSRs were approved by Fannie Mae in 1989, [11] Freddie Mac in 1990, [12] and HUD in 1993. [13] Following Hurricane Andrew in 1992, more than 20 insurance companies could not cover their losses and were taken over by the state of Florida. In 1996, the Florida Office of Insurance Regulation requested that Demotech rate new Property & Casualty Insurance companies doing business in Florida. Because newly capitalized insurers do not have the financial records typically utilized, a new process was developed using business plans; pro forma financial statements; administrative agreements; marketing and sales materials; job descriptions of key personnel; investment policy statement; claims department procedures and practices; initial rate, rule, and form filings; biographies of critical employees, service providers and principals; reinsurance data; Catastrophe modeling reports; and Underwriting guidelines and application. [9] As of 2014, the company was reviewing/rating companies that write about 60% of those policies in Florida and were reviewing/rating over 400 insurance carriers nationwide. [7]

Demotech issues financial stability ratings for 50 Florida-based insurers. On March 23, 2022, the top five executives from Demotech sent a letter to Florida's Governor Ron DeSantis plus the Senator and House leadership entreating them to pass reforms before the start of Atlantic hurricane season on June 1. Failure to do so would cause Demotech to downgrade the financial stability ratings for "a number" of Florida insurers. The letter stated: "The conditions of the property insurance marketplace in Florida are unsustainable, and without the necessary corrective action, many Florida insurers will struggle to maintain adequate surplus, efficient capital sources will avoid the market, private reinsurance costs will become prohibitively expensive, and consumers will ultimately bear the cost." [14]

Comparisons

In 2011, the Florida State University College of Business, Risk Management and Insurance compared Demotech FSRs with insurer ratings issued by AM Best plus the Big Three (credit rating agencies). Their independent study reviewed thousands of insurer ratings issued over nine years. The resulting paper was "A Comprehensive Examination of Insurer Financial Strength Ratings," and its executive summary contained the following conclusions: [7] [4]

In 2023, researchers from Columbia Business School, Harvard Business School, and the Federal Reserve Board examined the quality of Florida property insurers rated by Demotech versus traditional rating agencies, and found: [15]

Title insurance

Demotech has published Performance of Title Insurance Companies since 1988. The data is released annually and updated quarterly. It represents over 99% of the premium volume in the title industry and Demotech claims it "is the most complete and thorough industry analysis available". [16] [3]

Awards

Notes

  1. ↑ Government-Sponsored Enterprise, e.g. Fannie Mae or Freddie Mac

Related Research Articles

<span class="mw-page-title-main">Aon (company)</span> Professional services firm

Aon plc is a British-American professional services firm that offers a range of risk-mitigation products. Aon has approximately 50,000 employees across 120 countries.

<span class="mw-page-title-main">Insurance</span> Equitable transfer of the risk of a loss, from one entity to another in exchange for payment

Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect against the risk of a contingent or uncertain loss.

<span class="mw-page-title-main">Reinsurance</span> Insurance purchased by an insurance company

Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insurance liabilities to the other insurance company. The company that purchases the reinsurance policy is referred to as the "ceding company" or "cedent". The company issuing the reinsurance policy is referred to as the "reinsurer". In the classic case, reinsurance allows insurance companies to remain solvent after major claims events, such as major disasters like hurricanes or wildfires. In addition to its basic role in risk management, reinsurance is sometimes used to reduce the ceding company's capital requirements, or for tax mitigation or other purposes.

<span class="mw-page-title-main">Gen Re</span> American reinsurance company

General Reinsurance Corporation is an American multinational property/casualty and life/health reinsurance company offering a range of reinsurance products and services. The company is a primarily direct reinsurer and is represented in all major reinsurance markets worldwide through a network of more than 40 offices. Gen Re is a wholly owned subsidiary of Berkshire Hathaway Inc.

Chubb Limited is a Swiss company incorporated in Zürich, and listed on the New York Stock Exchange (NYSE) where it is a component of the S&P 500. Chubb is a global provider of insurance products covering property and casualty, accident and health, reinsurance, and life insurance and is the largest publicly traded property and casualty insurance company in the world. Chubb operates in 55 countries and territories and in the Lloyd's insurance market in London. Clients of Chubb consist of multinational corporations and local businesses, individuals, and insurers seeking reinsurance coverage. Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance, and life insurance.

A nationally recognized statistical rating organization (NRSRO) is a credit rating agency (CRA) approved by the U.S. Securities and Exchange Commission (SEC) to provide information that financial firms must rely on for certain regulatory purposes.

<span class="mw-page-title-main">Moody's Ratings</span> Bond credits rating business of Moodys Corporation

Moody's Ratings, previously known as Moody's Investors Service and often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Ratings provides international financial research on bonds issued by commercial and government entities. Moody's, along with Standard & Poor's and Fitch Group, is considered one of the Big Three credit rating agencies. It is also included in the Fortune 500 list of 2021.

Catastrophe modeling is the process of using computer-assisted calculations to estimate the losses that could be sustained due to a catastrophic event such as a hurricane or earthquake. Cat modeling is especially applicable to analyzing risks in the insurance industry and is at the confluence of actuarial science, engineering, meteorology, and seismology.

AM Best is an American credit rating agency headquartered in Oldwick, New Jersey, that focuses on the insurance industry. Both the U.S. Securities and Exchange Commission and the National Association of Insurance Commissioners have designated the company as a Nationally Recognized Statistical Rating Organization (NRSRO) in the United States.

The following outline is provided as an overview of and topical guide to actuarial science:

<span class="mw-page-title-main">Catastrophe bond</span> Risk-linked securities

Catastrophe bonds are a subset of insurance-linked securities (ILS) that transfer a specified set of risks from a sponsor to investors. They were created and first used in the mid-1990s in the aftermath of Hurricane Andrew and the Northridge earthquake.

QBE Insurance Group Limited is an Australian multinational general insurance and reinsurance company headquartered in Sydney, Australia. QBE offers commercial, personal and specialty products and risk management products. The company employs around 13,500 people in 27 countries.

<span class="mw-page-title-main">Grinnell Mutual</span> Mutual insurance company

Grinnell Mutual is a property-casualty mutual insurance company and reinsurer based in Grinnell, Iowa, United States.

Bond insurance, also known as "financial guaranty insurance", is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security. It is a form of "credit enhancement" that generally results in the rating of the insured security being the higher of (i) the claims-paying rating of the insurer or (ii) the rating the bond would have without insurance.

Insurance in the United States refers to the market for risk in the United States, the world's largest insurance market by premium volume. According to Swiss Re, of the $6.782 trillion of global direct premiums written worldwide in 2022, $2.959 trillion (43.6%) were written in the United States.

<span class="mw-page-title-main">Verisk Analytics</span> American data analytics and risk assessment firm

Verisk Analytics, Inc. is an American multinational data analytics and risk assessment firm based in Jersey City, New Jersey, with customers in insurance, natural resources, financial services, government, and risk management sectors. The company uses proprietary data sets and industry expertise to provide predictive analytics and decision support consultations in areas including fraud prevention, actuarial science, insurance coverage, fire protection, catastrophe and weather risk, and data management.

<span class="mw-page-title-main">Citizens Property Insurance Corporation</span> Insurance company in Florida, United States

Citizens Property Insurance Corporation (Citizens) was created in 2002 from the merger of two other entities to provide both windstorm coverage and general property insurance for home-owners who could not obtain insurance elsewhere. It was established by the Florida Legislature in Chapter 627.351(6) Florida Statutes as a not-for-profit insurer of last resort, headquartered in Tallahassee, Florida, and quickly became the largest insurer in the state. The company has no connection to Louisiana Citizens Property Insurance Corporation, the equivalent entity in Louisiana, or several similarly named "for-profit" subsidiaries in the Hanover Insurance Group.

EMB Consultancy, also known as EMB Actuaries and Consultants, is an international actuarial business consultancy and software provider. EMB was originally established as a strategic and actuarial advisor to non-life insurers. The company has developed and now operates in a growing range of business functions and sectors, such as banking, investments, asset management, fraud prevention, risk enterprise management, mergers and acquisitions and marketing. These are areas where the widespread collection and use of data and financial models have become commonplace.

<span class="mw-page-title-main">Russian National Reinsurance Company</span>

Russian National Reinsurance Company (RNRC) is the largest Russian reinsurance company. The Central Bank of Russia is a full shareholder of RNRC. The state-owned reinsurance company was established in 2016. RNRC is the largest in terms of the authorized share capital and second-largest in terms of paid-in capital on the domestic insurance market.

<span class="mw-page-title-main">AIR Worldwide</span>

AIR Worldwide was an American risk modeling and data analytics company based in Boston, Massachusetts that was acquired by Verisk Analytics in 2022.

References

  1. 1 2 Hunt, Janet (December 21, 2021). "Demotech, Inc. Insurance Company Review". Financial Review Board. Retrieved 30 March 2022.
  2. 1 2 "Insurance Journal Names Demotech As Official Research Partner". Wells Publishing Company. January 18, 2007. Retrieved 30 March 2022.
  3. 1 2 McKenna, Bruce A. (1999). Title Insurance A Guide to Regulation, Coverage and the Claims Process in Ontario. CCH Canadian. p. 236. ISBN   9781551412382 . Retrieved 31 March 2022.
  4. 1 2 "The Bar Plan Chooses Demotech, Inc". Thebarplan.com. The Bar Plan, Inc. 6 November 2017. Retrieved 30 March 2022.
  5. ↑ "AM BEST VS. DEMOTECH FINANCIAL STABILITY RATING". Myclearchoiceins.com. Clear Choice Insurance Services. Retrieved 30 March 2022.
  6. ↑ Pelletier, Andrea (29 October 2019). "Insurance Carrier Ratings: What Are They And Why Should It Matter?". Gulfshoreinsurance.com. Gulf Shore Insurance. Retrieved 30 March 2022.
  7. 1 2 3 "Corporate Milestones". Demotech.com. Demotech. Retrieved 29 March 2022.
  8. ↑ "Current NRSROs". US Securities and Exchange Commission. US Government. Retrieved 31 August 2022.
  9. 1 2 3 "Property & Casualty Review". Demotech.com. Demotech. Retrieved 30 March 2022.
  10. 1 2 "Financial Stability Ratings® Definitions". Demotech.com. Demotech. Retrieved 29 March 2022.
  11. ↑ "Fannie Mae Title Acceptance" (PDF). Demotech.com. Federal National Mortgage Association. Retrieved 30 March 2022.
  12. ↑ "Freddie Mac rating acceptance" (PDF). Demotech.com. Federal Home Loan Mortgage Corporation. Retrieved 30 March 2022.
  13. ↑ "HUD Casualty Insurance Acceptance" (PDF). Demotech.com. US Department of Housing and Urban Development. Retrieved 30 March 2022.
  14. ↑ Hurtibise, Ron (29 March 2022). "Grim new developments reveal more trouble in Florida home insurance market". South Florida Sun-Sentinel. Retrieved 30 March 2022.
  15. ↑ Sastry, Parinitha; Sen, Ishita; Tenekedjieva, Ana-Maria (December 23, 2023). "When Insurers Exit: Climate Losses, Fragile Insurers, and Mortgage Markets". SSRN   4674279.
  16. ↑ "Demotech Performance of Title Insurance Companies". Demotech.com. Demotech. Retrieved 30 March 2022.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.