Demotech Actuaries Offer Guidance on Florida Insurers’ Financial Ratings

The actuarial services firm, Demotech, which rates most of Florida’s newer and smaller domestic property insurers, has published a position paper outlining its approach to its carrier Financial Stability Ratings and the financial and management factors it monitors.

Entitled Guidance on Financial Stability Ratings and Catastrophe Reinsurance Program Reporting for Florida Property Insurers, the document discusses Demotech’s quarterly and annual reviews of carriers after it assigns an initial rating and what an insurer needs to do to maintain its rating.

The topics reviewed include capital adequacy, liquidity, loss expenses, unearned premiums, premium to surplus leverage and underwriting results. It discusses key ratios and factors that trigger closer scrutiny of a carrier.

The document includes a discussion of the use of business models that divert revenue from the insurer to other entities, an issue highlighted in a recent Sarasota HeraldTribune report on Florida’s domestic property insurance carriers.

Demotech also provides guidance on issues relating to insurers’ catastrophe reinsurance programs in the position paper.

Demotech has been in the news as a number of Florida’s young insurers have run into trouble. Last month, Demotech pulled the rating on a carrier, Northern Capital, for its failure to meet its financial reporting deadline. State regulators took control of Magnolia Insurance Co. last December, a few weeks after Demotech withdrew its rating of the company. Last spring, it pulled the ratings of two other Florida insurers and initiated a review of all domestic carriers in light of the state’s overall market difficulties and a projected funding shortfall in state’s backup hurricane insurance fund.

The position paper is available for free on Demotech’s Web site.

Source: Demotech

Note: Demotech is an Insurance Journal official research partner and in that capacity helps Insurance Journal produce its annual list of the country’s Super Regional Property/Casualty Insurers.