Print this pageComparative Financial Observations™ (CFO)

Demotech, Inc. focuses on insurance fundamentals, including loss and loss adjustment expense (L&LAE) reserve adequacy, liquidity of invested assets, the quick ratio and the quality of reinsurance. This focus on fundamentals also underscores our Financial Stability Ratings®.

Demotech developed Comparative Financial Observations™ (CFOs) to provide this perspective in situations where Financial Stability Ratings® (FSRs) have not been finalized. CFOs summarize financial observations from our review. CFOs are applicable to insurers that have not finalized a Financial Stability Rating®.

What are Comparative Financial Observations™ (CFOs)?

Comparative Financial Observations™ (CFOs) represent Demotech's evaluation of property and liability insurance company balance sheet fundamentals. CFOs are based on insurance fundamentals as referenced above.

CFOs are not a replacement, substitute or approximation of a Financial Stability Rating®.

CFOs are Demotech's opinion based upon an analysis and review of insurance fundamentals. CFOs represent our assessment on an overall, aggregate basis of each individual insurer on the basis of its reported fundamentals. Insurers are then benchmarked against our industry aggregate to distinguish insurers that reported favorable solvency determinants despite market and financial pressures. CFOs are an indication of the commitment to those balance sheet fundamentals that imply a high priority on solvency and the ability to honor policyholder claims. CFOs are a generalized assessment of insurer fundamentals.

What CFOs Are Not.

Comparative Financial Observations™ (CFOs) are not a replacement or substitute for Financial Stability Ratings® (FSRs). FSRs are based on a thorough review of several key financial variables, including the quality and quantity of reinsurance. Companies that finalize FSRs have committed to, and completed, a rigorous, voluntary financial analysis. Furthermore, FSRs are accepted by the major participants of the secondary mortgage marketplace, included Fannie Mae and Freddie Mac, which in turn facilitates the elimination of cut-throughs and the acceptance of rated insurers by mortgage lenders.

Can One Determine what FSR is applicable to a Company with a CFO?

No. A CFO is not a replacement, substitute or approximation of a Financial Stability Rating®.

Which Companies have CFOs Assigned to Them?

Demotech assigned CFOs to Property and Casualty insurers that did not finalize their Preliminary Financial Stability Rating® (PFSR). CFOs are assigned based upon statutory financial statement information.

CFO Definitions

Above Average

Companies assigned a Comparative Financial Observation™ (CFO) of Above Average (Green) have reported statutory financial information that indicated to Demotech that the Company has above average ability to report adequate loss and loss adjustment expense reserves, thereby providing a realistic report of pretax income on a statutory basis. The company has also reported sufficient liquidity to protect the short-term interests of policyholders and claimants and has utilized reinsurance to protect its policyholder's surplus.

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Definitions of Financial Stability Ratings®
P&C Insurer Review Process
Title Underwriter Review Process
Health Insurance Company Review Process
Self-Funded Entity Review Process
Serious About Solvency – Financial Stability Rating® Survival Rates 1989 through 2004PDF File – a 15-year retrospective review of the accuracy of FSRs
Financial Stability Rating® Notifications
Frequently Asked Questions (FAQs)