Demotech – The Rating Agency that Stepped Up

Columbus, Ohio, November 22, 2022: An editorial in a recent Insurance Advocate, authored by Steve Acunto, Editor and Publisher, referenced Demotech, Inc. as the “rating agency that stepped up in its rhetorical outreach to better a marketplace in which it plays a key role.” Acunto also noted that with the Governor (of Florida) and many state leaders calling for another special session prior to year-end 2022, “this implies that the May 2022 reforms were not up to the task.”

The Insurance Information Institute has estimated that since Hurricanes Ian and Nicole made landfall more than 630,000 claims have been reported in Florida. To date, catastrophe modelling results and initial carrier estimates indicate that direct damages will be within the reinsurance towers purchased by Demotech-rated carriers.

According to Demotech’s President and Co-founder, Joseph L. Petrelli, “When analyzing insurer operating results the legislative, regulatory, and judicial environment may be considered in Demotech’s review where legislation, regulations, or judicial decisions could materially impact an insurer’s financial position or its ability to operate consistently given the market conditions of a particular jurisdiction. Regulatory practices or regulatory actions may affect the operating environment of insurers positively or negatively. Such actions may relate to product regulation, financial regulation, or market regulation. In some instances, legislation or judicial decisions may also alter the operating environment or risk exposures of certain insurers by altering the policyholder claims and litigation environment or the insurance regulatory environment. We hope that the efforts of the May 2022 special session, enacted on July 1, 2022, benefit Floridians who have been hard hit by Ian and Nicole.”

About Demotech, Inc.

Since 1985, Demotech has served the industry by assigning accurate, reliable, and proven Financial Stability Ratings® to P&C insurers and Title underwriters. Demotech was the first to review independent, regional and specialty insurers, 1989. 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.  Visit for additional information.



Of Fevers and Thermometers:

The Coming Florida Insurance Market Gets the Shivers

Ian hit Cape Cayo at 155 m.p.h. Wallop. Too late to start thinking. Too late for “feel good” plans.

In a flash, first responders and insurers were hit with tidal waves that have yet to subside.

But in Ian’s wake, there has been time to reflect for real on the insurance industry’s performance, its readiness and its future in the Sunshine State. While some domestic insurers, like Centauri among others, fared quite well and served clients amiably and effectively, others are close to insolvency – or there already –for reasons other than the direct impact of Ian.

Thirty years after Hurricane Andrew devastated Florida’s residential property insurance marketplace, many in Florida are – incredibly – blaming the thermometer – the measuring instruments of insurer solvency – for the fever afflicting the marketplace. In 1996, when the major insurer rating agencies avoided the newly capitalized insurers depopulating the Florida Residential Property and Casualty Joint Underwriting Association (JUA), Demotech, Inc.,the insurer rating agency accepted by Fannie and Freddie since 1990, stepped up to rate the insurers that would de-populate the JUA.

Leading up to Ian, Demotech’s warnings in the form of rating downgrades, using their standard of “claims paying ability”, were seen as purely ”negative” and destructive, as if the thermometer caused the fever.

Demotech long ago inserted itself into one of the most difficult, catastrophe prone markets in the world. By doing so, the rating agency grew from rating a negligible market share of Florida’s premium volume to nearly 60% of the homeowners’ volume in the state. Year after year, and hurricane after hurricane, Demotech rated carriers, many of which were heavily reinsured by the largest and finest reinsurers in the world, paid claims and responded responsibly to the other challenges of that marketplace.

By the time it became well known that Florida’s 8% of the unresolved Homeowners’ claims in the country were responsible for nearly 80% of the litigated homeowner’s claims in the country, Demotech had already underlined that a veritable litigation explosion was plaguing insurers, those it reviewed and rated, and others. They were so familiar with the issue that, in March, 2022, when the legislature adjourned without deliberating legislative reforms, Demotech publicly asked the Governor, House and Senate to call a special session to introduce legislative reforms.

The Governor called for a special session. Legislation was enacted to be effective July 1, 2022. However, in late July, with the crescendo of disparate litigation getting louder and some Demotech rated carriers failing, Demotech was attacked for asking carriers how they would continue to respond to the increasing levels of litigation. Some stated that Demotech was being obstinate because the legislative reforms enacted did not go as far as its communications had suggested.

Demotech held its ground and argued that the level of litigation and the laws enabling lopsided decisions were destroying insurers. Dr. Shahid Hamid, CFA, the Director of the International Hurricane Research Center at Florida International University, published an article in October describing how fraud and litigation are causing insolvencies, not hurricanes. Having asked its clients for an assessment of the damages associated with hurricane Ian, a category 4, nearly category 5, event, Demotech has indicated that it appears that all Demotech rated carriers are within their vertical reinsurance towers. The wild card was litigation ….and still is.

As to the attacks on Demotech related to its failure to consider the impact of the reforms enacted on July 1, 2022, reforms that may not have occurred had Demotech not spoken out publicly to request a special session, the Governor and many state leaders are calling for yet another special session prior to year-end 2022. This implies the May 2022 reforms were not up to the task.

Now, just to be clear, Demotech is NOT a lobbying agency, it is a rating agency that stepped up in its rhetorical outreach to better a marketplace in which it plays a key role. Many would consider that quite a decent, well intended gesture.

A little research reveals that in the nearly three decades that it has factored critically in the resuscitation of Florida’s residential property insurance marketplace, Demotech has done excellent public service, right up to its recent advocacy.. Yet, often, they have been ignored. Or attacked.

Today, it is clear that they have been judicious, careful and, above all, right about the solvency of many insurers in the face of a hurricane as serious as Ian and in the disproportionate litigation outcomes in Florida.

Our view, the State of Florida – its top decision makers in Tallahassee in the legislature and in insurance – should confer with Demotech and conference in some of the successful carriers who withstood Ian to set a path forward, while enduring disparate levels of litigation.

The patient, if anything, needs the best measuring devices available to gauge its fever and the progress of its recovery.