Demotech Overview for Insurance Consumers

Demotech is a credit rating agency that specializes in evaluating the financial stability of property and casualty insurance companies.

Demotech has been a leader in the industry for over 40 years, providing independent and objective evaluations of insurance companies.

Demotech's evaluations are based on a proprietary rating system that assesses a company's financial strength, management, and business practices.

Demotech is an insurance rating agency based in Columbus, Ohio. They specialize in homeowners insurance and have been in the business since 1985.

Demotech rates smaller insurance agencies, which sets them apart from other rating agencies like A.M. Best. Their rating system ranges from A for unsurpassed to L for licensed.

The ratings are based on factors such as assets, working capital, and administrative costs.

Demotech is an insurance rating agency based in Columbus, Ohio, specializing in homeowners insurance since 1985.

They primarily focus on rating smaller insurance agencies, which differentiates them from other rating agencies like A.M. Best.

Demotech provides a rating system ranging from A for unsurpassed to L for licensed.

Their ratings are based on various factors, including assets, working capital, and administrative costs.

Demotech has been in the business for over three decades, giving them extensive experience in the insurance industry.

Demotech has been in the news lately due to controversy surrounding their downgrades of small Florida insurance companies. This has caused some criticism, especially since the downgrades were done without warning.

Demotech emerged as a rating agency to fill a gap in the market, rating small Florida insurance companies that other agencies couldn't. These companies were left unranked after Hurricane Andrew, causing mortgage problems for homeowners.

Demotech looks at factors beyond size and financials to determine a company's stability, such as total assets, liabilities, revenues, and expenses. They also consider working capital, administrative expenses, net income, surplus, receivables, amount of business written, industry focus, and business model.

AM Best, on the other hand, uses a more comprehensive approach to rating insurance companies, considering balance sheet strength, operating performance, business profile, and enterprise risk management. Demotech's methods are different, but both aim to provide a benchmark for consumers to measure a company's stability.

A fresh viewpoint: Florida Commercial Auto Insurance

Here are some of the factors Demotech considers when rating insurance companies:

It's worth noting that Demotech's methods are not the same as AM Best's, and consumers should be aware of the differences when choosing an insurance company.

Demotech's Financial Stability Rating (FSR) system is a comprehensive rating system that evaluates the financial stability of independent, specialty, and regional insurance carriers.

Demotech uses a 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".

Demotech has eight levels of stability, with the first five predicting 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.

Here are the eight levels of stability, along with their corresponding percentages and descriptions:

Insurance companies with an A'' (A Double Prime), Unsurpassed rating are expected to have a 100% chance of maintaining a surplus for 18 months, regardless of economic conditions.

Demotech ratings have been compared to those of traditional rating agencies, and the results are interesting. In 2011, a study by the Florida State University College of Business found relative consistency between Demotech and other rating agencies.

Demotech serves a unique group of insurers, and its ratings are generally consistent with those of other agencies when it comes to categorizing financially secure firms. This consistency is important for insurers, regulators, and consumers.

However, a more recent study in 2023 by researchers from Columbia Business School, Harvard Business School, and the Federal Reserve Board found some significant differences. They discovered that Demotech-rated insurers are of significantly lower quality than traditional insurers across most observable measures of financial and operational risks.

Here's a summary of the key differences:

It's worth noting that Demotech ratings are often high and sufficient to meet the GSE threshold, but a vast majority of Demotech insurers would not meet GSE eligibility under AM Best's methodology.

Mangrove Property Insurance Company has received a Financial Stability Rating of A, Exceptional, from Demotech, Inc.

This rating indicates that Mangrove Property Insurance Company has a strong financial foundation.