Robert M. Warren, CPA, CPCU
Demotech, Inc.
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Incorporated in 1985, Demotech, Inc. is a financial analysis and actuarial
services firm that provides Financial Stability Ratings® (FSRs) to the P&C and
Title insurance industry.
Demotech was the first company to have its rating process formally reviewed
and accepted by:
 Fannie Mae
(1989)
 Freddie Mac
(1990)
 HUD
(1994 & 2005)
1996 - Worked with Florida Office of Insurance Regulation (then DOI) to
develop FSRs for Florida “take out” insurers to depopulate the residual
market.
2005 - Accepted by HUD for rating Professional Liability insurers of long term
care facilities
2009 - Received carve-back on insolvency provision from several insurance
agents’ errors and omissions insurance carriers.
2010 - Participant in independent Florida State University and Wharton
School studies evaluating insurer financial ratings.
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Demotech’s business model is to support financially stable insurers that are
unrated or underrated by other services. We will not review or follow insurers
once we have concluded they have mediocre financial stability.
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Other rating agencies seem to focus on solvency; yet they seem to weigh the
ability to accrue and enhance quarterly earnings heavily.
Demotech encourages carriers to focus on long-term solvency.
Our
perspective encourages carriers to increase loss and loss adjustment expense
reserves to adequate as opposed to reasonable levels.
Earnings should be stabilized by booking adequate loss and LAE reserves, not
manipulated by accruing loss and LAE reserves at an optimistic level.
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Based on review of company financials, reinsurance program and other
readily available information, rarely need supplemental information not
prepared by carrier
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Predominantly quantitative in nature
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Created for companies to overcome barriers
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Access to markets
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Acceptance of policies by third parties
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Credibility with insureds, agents, reinsurers, etc
Not regulating companies or setting company policies or practices
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Balance sheet fundamentals
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Management – planning/strategy
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Rate adequacy
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Operating results
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In addition to statutory accounting, our evaluation includes GAAP and Hybrid
Accounting Methodologies
Our scope of review and evaluation includes:
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Independent Audit Report
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Management Discussion and Analysis
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Statement of Actuarial Opinion
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SEC Filings as Appropriate
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Other Required Regulatory Filings
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We do not Audit or Review from a Public Accounting Perspective, Demotech is not
a Registered Public Accounting Firm.
Our Review and Evaluation Process and Procedures are Dependent on the
Integrity of Management’s Information and the Quality of the Financial
Information Presented in the Financial Statements and Supporting Documents.
It is Critical that Demotech Analysts Maintain a Comprehensive Understanding of
Current Accounting and Financial Reporting Standards Including but not Limited
to:
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Corporate Governance
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Regulatory Oversight
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Enterprise Risk Management
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Demotech is Dependent on Management’s Integrity and Pursuit of Best Practices Standards
in the Presentation of Financial Statements and Related Financial Reports.
Information that Triggers Further Analysis
Merger or Acquisition Activities
 Structural Changes in Capital and Surplus
 Intercompany Transactions
 Changes in Senior Management, Board Members or Professional Service Providers
Demotech supports the various federal, state and local legislative efforts that attempt to
mandate management execute their duties and responsibilities with the utmost integrity
utilizing a completely ethical and transparent approach in their financial reporting.
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We do not approach our financial reviews focused on discovering erroneous information
whether through acts of omission or commission by management. While it is our
expectation that management executes their duties and responsibilities with the utmost
integrity utilizing a completely ethical and transparent approach in their financial reporting,
we also realize it is incumbent upon us to be aware that may not always be the case.
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