Demotech Encourages Property Insurers to Re-think Their Rating Agency of Choice


Columbus, Ohio, January 18, 2021:  Although 2021 is upon us, the financial statements associated with year-end 2020 are in process. Despite the impact of COVID-19, business interruption litigation, riots, severe convective storms, the record number of named storms in the US, wildfires, and the increases in the cost of catastrophe reinsurance since 2019, property insurers from coast to coast have been investigating, evaluating, and honoring property damage claims without missing a beat. 

Although Demotech views the ability to investigate, honor or defend meritorious claims as the primary function of an insurer, other rating agencies seem to have taken what Demotech views as a short-sighted, quarterly earnings perspective.  According to Joseph L. Petrelli, President and co-founder, Demotech, Inc., “For property insurers with exposure to catastrophes, they must secure an appropriate level of vertical coverage (how much reinsurance for an individual event) as well as a vibrant horizontal program (how many events in the season).  They spend heavily on reinsurance. Demotech views the quality and quantity of reinsurance as a critical component of the carrier’s enterprise risk management program and business model.  In contrast to our view, which recognizes an appropriate reinsurance program as prudent practice, other rating agencies may view this important expenditure negatively and characterize it as a dependency on reinsurance.”

“In 2020, with the number of named storms in addition to other events, property insurers honored commitments to policyholders by addressing the claims that emanated from the named storms and events in addition to attritional claims.  Rather than applaud these insurers for having reinsurance programs that facilitated their ability to pay claims and simultaneously protect their financial stability, other rating agencies seemed to be surprised that insurers could not earn an operating profit while addressing the undue number of claims emerging from the catastrophe events.” Petrelli continued. 

“If you are a property insurer that honored its commitments to policyholders despite the confluence of events that occurred in 2020, and your rating agency of choice failed to recognize or acknowledge this accomplishment, contact Demotech.  Our analysts are credentialed professionals who understand your primary purpose as well as the need to purchase catastrophe reinsurance to mitigate the financial impact of events on your operating results,” concluded Petrelli.

Demotech, Inc.

Demotech, Inc. is a financial analysis firm specializing in evaluating the financial stability of independent, regional, and specialty insurers.  Demotech’s philosophy is to review and evaluate insurers based on their area of focus and execution of their business model rather than solely on financial size.  Demotech reviews and rates more than 400 insurers operating in the US. More than 225 of these insurers are uniquely rated by Demotech.  Visit www.demotech.com.