Are Florida’s Private Residential Property Insurers Solvent?

Sharon M. Romano, CPCU, AIAF, ARC, CCPVice PresidentDemotech, Inc.February 24, 2009Grand Floridian Resort at Walt Disney WorldOrlando, FL

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.

Quality and Liquidity of Invested Assets

Adequacy of Loss and Loss Adjustment Expense Reserves 

Quality of Reinsurance

Adequacy of Rate Levels

Ability to Serve Niche(s)

Biographical information on principals and key employees

Summaries of the duties of key personnel Business plan Pro forma financial statements Catastrophe modeling analysis Underwriting guidelines Initial rate, rule and form filings Claims department procedures and practices

Investment guidelines Management and administrative agreements Reinsurance information Marketing and sales materials Producer contracts Any other information necessary to familiarize

Demotech with the company and its operations

Magnitude of surplus Broad array of insurance products Diversified geographical exposure Well-known brand names Access to capital

However, in practice, size and diversification may have limited impact on the risk of insolvency.

Lack of focus on marketing, underwriting and claims practices

Pricing decisions Emphasis on earning projections Emphasis on market share Inadequate loss reserves in order to meet earning

projections (at least on paper) Entrance into new markets/product lines Inefficient Information Technology systems

We have been part of the solution to the property insurance situation since 1996

Demotech’s track record on long-term solvency – Florida and countrywide – is enviable

We hope to be a part of the solution for years to come