The Division of Decimals Obfuscates the Truth

Here is a statistic that obfuscates the truth: “Insurers [Demotech] rated were 30 times as likely to become insolvent as those graded by its main rivals, according to a Wall Street Journal analysis of failures since 2017.” Below is an example of the possible deception related to the division by decimals.

Assume there were two insurer rating agencies being analyzed during a selected period. The first rating agency had a carrier survival rate of 99.97 percent during the selected period. The second rating agency had a carrier survival rate of 99.10 percent during the same selected time. This equates to the first insurer rating agency having an insolvency rate of 0.03 percent, 100.0 percent minus 99.97 percent. By direct comparison, the second insurer rating agency had an insolvency rate of 0.90 percent, 100.0 percent minus 99.10 percent, i.e., less than a 1 percent insolvency rate.

In the example above, the second insurer rating agency, despite its documented insurer survival rate of 99.10 percent over the review period, had an insolvency rate 30 times higher than the second insurer rating agency. This is the math when one divides 0.90 by 0.03; 0.90 is 30 times 0.03. Often, dividing or multiplying decimals will create enormous numbers that may serve little purpose other than to support bias or refuse to acknowledge the truth. Had my example utilized 99.10 percent and 99.98 percent, the insolvency rate would have been 45 times greater rather than “just” 30 times. These statistics hide the fact that the raw numbers show that both rating agencies reported very few insolvencies during the relevant time period.

Every bit of biased information aimed at Demotech, whether past, present, or future, can, or has been, refuted with facts. Winston Churchill once said, “A lie gets halfway around the world before the truth has a chance to get its pants on.” Arthur Schopenhauer said, “All truth passes through three stages: First, it is ridiculed. Second, it is violently opposed.

Third, it is accepted as being self-evident.” That Demotech more than holds its own on insurer ratings has passed through stage two — violently opposed. We are headed toward “self-evident,” as the facts get their pants on!

Demotech completed its fourth decade of service to the insurance industry on Sept. 9, 1985. In 1989, we became the first to review and rate independent, regional and specialty insurers. Today, our record on insurer solvency, whether measured by gross impairment rates or net impairment rates at comparable rating levels, rivals that of any insurance rating service. As we near 500 P&C, life, health, title, and other ratings, we note with pride that we uniquely rate and review more insurers in the United States than all but one insurer rating agency.

I believe that the negative press on Demotech is occurring because Demotech holds its own on insurer ratings while leading the pack on thought leadership. In addition to being the first to review and rate independent, regional and specialty carriers, we were the first to review and rate public entity liability insurance pools, health maintenance organizations, preferred provider organizations, title underwriters and, although they are not insurance, healthcare sharing ministries. By doing so, we reached Schopenhauer’s stage two — violently opposed. That Demotech holds its own against the other rating agencies is heading toward “self-evident” as facts emerge, and decimals are discussed!

Those opposed to competition in insurer ratings seem willing to say or do anything to malign Demotech as they ignore the comparability of our record on solvency to that of other rating agencies. Or, perhaps, those maligning Demotech are focused on ignoring the critical role of reinsurance in addressing the availability and affordability of insurance in certain markets. Demotech and the independent, regional and specialty carriers we review and rate invite comparisons and analyses based upon facts.