Abstract
Demotech ratings take several factors into consideration while preparing the rating report. The article below shows the different aspects, which are considered while deciding the rankings of an insurance company.
Demotech ratings provided by Demotech Inc., are at par with industry standards. The company may be referred to as a financial analyst dealing with actuarial services and works as an independent rating company. Since the year 1985, Demotech Inc has offered varied services like price analysis, Financial Stability Ratings or FSR, assistance in state filings, offering views in actuarial services, valuation of finances. The Demotech ratings are so reliable that Freddie Mac and Fannie Mae also accept them. Making use of optimum methodologies, which help in obtaining rating grades appropriately, does Demotech ratings.
Demotech ratings take several factors into consideration while rating insurance companies. Some of the factors, which influence Demotech ratings include:
Consistency in Operations.
Operating Ratios
Leverage Ratios
Alterations in the Working Capital
Mix of Business Ratios
Alterations in the constitution of assets as well as liabilities.
Yearly statements of the insurance providing firm, its reinsurers and subsidiaries. Quarterly statements are also required for the same.
Demotech ratings and the grades assigned by Demotech Inc.
Demotech ratings include the following grades to the companies they rate. Financial Stability Ratings are usually done to see if the company has enough liquidity so that if it has to pay the policyholders to settle claims, the insurance providing firm is able to do so. These grades are related to those assigned to the firms offering P&C or Property & Casualty insurance policies.
The following grades are assigned:
Moderate or M
The companies offering P&C insurance coverage and being assigned this grade imply that the company has sufficient liquidity in form of assets as well as liabilities. Pricing is realistic and there is enough financial leverage.
Licensed or L
Indicates that the company under scanner has a license by State Regulatory Authorities. They have a limited capacity to retaliate if market conditions are adverse.
Unsurpassed or A''
The company who has been conferred a grade of A'' is Unsurpassed and has optimum features as far as financial leverage, liquid assets and liabilities, reinsurance and pricing is concerned. It also has enough financial buffer, which can cushion losses.
Unsurpassed or A'
The companies being assigned this grade also has the same features as that of A'' grade.
Substantial or S
The companies assigned this great have substantial capacity pertaining to financial leverage, pricing, and liquidity of assets, reinsurance.
A or Exceptional
Indicate exceptional ability to withstand untoward conditions of the markets pertaining to the factors mentioned above.