Coastal Insurance Underwriters

15
Financial Stability Ratings ® and Florida’s Property Insurance Market Demotech, Inc. February 4, 2010

description

 

Transcript of Coastal Insurance Underwriters

Page 1: Coastal Insurance Underwriters

Financial Stability Ratings® andFlorida’s Property Insurance Market

Demotech, Inc.February 4, 2010

Page 2: Coastal Insurance Underwriters

Incorporated in 1985, Demotech, Inc. is a financial analysis and actuarial services firm that provides Financial Stability Ratings® (FSRs) to the Property & Casualty 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 Department of Insurance 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.

Page 3: Coastal Insurance Underwriters

In 1996, when the State of Florida, the Florida Department of Insurance (now OIR), and the secondary mortgage marketplace needed a rating solution, they contacted Demotech, Inc.

We developed a procedure to review and rate start-up insurance companies.

Our procedure met the needs of the State of Florida, insurance agents, insurance companies, consumers and was acceptable to the secondary mortgage marketplace.

Page 4: Coastal Insurance Underwriters

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

Investment guidelines Claims department

procedures and practices 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

Page 5: Coastal Insurance Underwriters

Capital adequacy Quality and liquidity of invested assets Loss and loss adjustment expense reserves  Unearned premiums Premium to surplus leverage ratios Other underwriting expenses incurred Quality and quantity of reinsurance Adequacy of rate levels

Page 6: Coastal Insurance Underwriters

Demotech data call◦ Exhibit A◦ Illustrative tower graph

Aggregate retentions and impact of multiple events Provision for reinstatement of reinsurance coverage Probable maximum loss Catastrophe modeling

◦ Parameters/switches◦ Particular model utilized

Florida Hurricane Catastrophe Fund (FHCF)◦ Company liquidity relating to FHCF funding◦ Company decisions regarding TICL

Financial stability of reinsurer Changes or modifications to book of business

Page 7: Coastal Insurance Underwriters

Lack of focus on marketing, underwriting and claims practices

Reinsurance purchasing decisions Pricing decisions Emphasis on earning projections or 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

Page 8: Coastal Insurance Underwriters

Demotech AM Best S&P Moody's Fitch

2001 93 467 136 6 12

2002 114 425 136 3 20

2003 108 419 121 22 21

2004 125 422 115 7 26

2005 129 414 100 4 19

2006 168 256 42 8

2007 179 347 16 14

2008 200 327 46 33

Total 1,116 3,077 712 42 153

Source: An Examination of Insurer Financial Strength RatingsSouthern Risk and Insurance Conference - November 2009

Page 9: Coastal Insurance Underwriters

Is there agreement in terms of insurers considered to be secure?

Firms Rated Secure by Demotech

Not Secure Secure % Agree

Best 69 344 83 %

S&P 10 92 90 %

Moody's 4 30 88 %

Fitch 1 31 97 %

Source: An Examination of Insurer Financial Strength RatingsSouthern Risk and Insurance Conference - November 2009

Page 10: Coastal Insurance Underwriters

Demotech does appear to rate a group of insurers that is different from those generally rated by other rating agencies.

Controlling for differences in the sample of firms each agency rates, there is some consistency between factors impacting Demotech ratings and other agencies (especially AM Best).

Source: An Examination of Insurer Financial Strength RatingsSouthern Risk and Insurance Conference - November 2009

Page 11: Coastal Insurance Underwriters

Source: A.M. Best Co.'s Impairment Rate and Rating Transition Study dated May 1, 2009; complement of page 4, Exhibit 2.

Demotech, Inc.’s Serious About Solvency updated for data as of 12/31/2008.

Page 12: Coastal Insurance Underwriters

Source: A.M. Best Co.'s Impairment Rate and Rating Transition Study dated May 1, 2009; complement of page 4, Exhibit 2.

Demotech, Inc.’s Serious About Solvency updated for data as of 12/31/2008.

Page 13: Coastal Insurance Underwriters

Source: A.M. Best Co.'s Impairment Rate and Rating Transition Study dated May 1, 2009; complement of page 4, Exhibit 2.

Demotech, Inc.’s Serious About Solvency updated for data as of 12/31/2008.

Page 14: Coastal Insurance Underwriters

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

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

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

Page 15: Coastal Insurance Underwriters