Barry J. Koestler II, CFA
Chief Ratings Officer, Demotech, Inc.
October 27, 2011
2
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Based on review of company financials,
reinsurance program and other readily available
information
Predominantly quantitative in nature
Created for companies to overcome barriers
◦ Access to markets
◦ Acceptance of policies
◦ Credibility with insureds, agents, reinsurers, etc.

Not regulating companies or setting company
policies or practices
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Independent verification of financial stability
Access to agents
Access to markets and ancillary products
Acceptability of policies
Marketing to insureds, agents, reinsurers, etc.
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From the 2011 A.M. Best Key Rating Guide
◦ BCAR compares an insurer’s adjusted surplus relative to the required
capital necessary to support its operating and investment risks.
◦ Companies deemed to have “adequate” balance sheet strength
normally generate a BCAR score of over 100% and will usually carry
a Secure Best’s Credit Rating.
◦ The level of capital required to support a given rating level varies by
company, depending on its operating performance and business
profile.

Analysis of BCAR scores from year-end 2010.
2011 AM Best Ratings and BCAR Scores
AM Best
Rating
A++
A+
FSC
XV
XIV
XIII
XI
IX
VIII
XV
XIV
XIII
XII
XI
X
IX
VIII
VII
VI
Number of
Companies
50
2
6
3
3
1
197
32
6
26
10
25
21
17
4
4
Average BCAR
weighted by
Surplus
253.8
360.2
489.4
227.6
366.7
999.9
275.4
280.6
289.6
264.6
380.5
262.1
296.1
430.3
636.1
365.9
High
425.4
360.2
489.4
227.6
366.7
999.9
999.9
406.4
289.6
405.0
504.5
308.3
484.3
652.3
999.9
623.5
Low
185.8
360.2
489.4
227.6
366.7
999.9
147.2
148.7
289.6
192.4
194.4
207.4
146.0
257.3
250.4
188.7
Average
283.3
360.2
489.4
227.6
366.7
999.9
278.6
243.5
289.6
246.8
397.1
232.6
305.0
382.8
647.6
365.7
Data from 2011 AM Best Key Rating Guide
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2011 AM Best Ratings and BCAR Scores
AM Best
Rating
A
B++
FSC
XV
XIV
XIII
XII
XI
X
IX
VIII
VII
VI
V
IV
III
XIII
XI
IX
VIII
VII
VI
V
IV
III
II
Number of
Companies
202
42
53
39
33
57
121
120
43
28
25
1
1
3
2
13
12
11
26
37
21
10
1
Average BCAR
weighted by
Surplus
222.5
225.0
291.0
290.0
347.8
287.8
278.9
323.2
374.4
417.7
568.7
698.9
999.9
311.0
135.4
217.5
248.1
285.6
225.2
322.7
332.3
706.4
179.4
High
999.9
270.2
420.6
454.5
999.9
548.4
999.9
999.9
809.3
945.5
999.9
698.9
999.9
311.0
647.0
399.6
999.9
999.9
383.5
999.9
999.9
999.9
179.4
Low
127.5
208.0
180.8
192.1
181.6
150.7
148.1
143.9
140.4
169.8
166.7
698.9
999.9
311.0
117.4
124.0
124.0
117.1
131.6
110.6
119.9
158.5
179.4
Average
222.6
219.2
275.3
255.9
332.0
265.7
266.1
310.6
368.6
417.9
564.4
698.9
999.9
311.0
382.2
170.7
360.2
353.3
224.5
325.1
334.8
672.1
179.4
Data from 2011 AM Best Key Rating Guide
7

Similar BCARs appear in many different rating categories, implying
that since factors other than financial results may greatly affect a
company’s rating, there is a need to establish and carefully manage a
company’s rating agency/AM Best relationship.
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Smaller companies seem to receive lower AM Best ratings despite
relatively higher BCAR results, so these companies may need to
actively manage their rating agency relationship like larger
companies.
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A wide range of ratings containing all but identical BCAR scores
means that even good financial results do not always speak for
themselves. There is a need for explanation and context to present
financial results and manage a rating agency relationship.

David L. Kaufman, Executive Vice President, COO & Director
The Motorists Insurance Group
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James J. Kennedy, President, CEO & Director
The Ohio Mutual Insurance Group
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David E. Tschantz, VP - Claims, Corporate Counsel & Director
Wayne Insurance Group
9