Status of Demotech’s Year-End 2016 Reviews
Columbus, Ohio, March 7, 2017: In 2016, severe weather started early and hammered the Sunshine State through October. The Cape Coral tornado struck on January 9, 2016. The dissipation of Hurricane Matthew occurred on October 6, 2016 to close out the severe meteorological onslaught. To close out the year, and exacerbate Demotech’s concern related to the on-going isolation of the State of Florida regarding the exaggerated utilization of assignment of benefits (AOB) in routine property insurance claims, the Johnson and Sebo cases furthered the erosion of claim reserve adequacy and rate level adequacy emanating from the as yet unresolved AOB situation, unique to Florida. Viewing the recent Florida Supreme Court decisions in the context of other reversals of established claims procedures in casualty lines, such as personal injury protection and worker’s compensation insurance decisions, led Demotech to the inescapable conclusion that Florida’s operating environment for insurers has changed markedly over the past several years.
In October 2016, we initiated a transparent effort to supplement our quarterly reviews and reinsurance evaluation effort. To assess the financial impact of the severe weather throughout 2016, the ongoing downpour of judicial decisions upending historical claims procedures and practices, and the diminution of the utility of the reported operating results produced with those claims procedures and practices in use, Demotech promulgated a data collection effort and suspended previously applicable guidance.
Our effort communicated carrier-specific concerns related to severe weather, the unresolved AOB issue, the recent Johnson and Sebo cases, and concerns about rate adequacy. One of our requests was a projection of anticipated year-end 2016 operating results. Based upon our interpretation of each insurer’s financial projection for year-end 2016 in conjunction with other components of the request, Demotech reports that, in the aggregate, carriers favorably responded to our request to reevaluate their estimates of losses and loss adjustment expenses in light of deterioration in the operating environment and concurrently enhanced their financial stability.
We are pleased to report that despite the onslaught of severe weather in 2016, in their year-end 2016 financial reports, the carriers we review and rate reported an additional $155,000,000 of surplus at year-end 2016 versus 2015. This was the result of capital contributions along with some carriers’ operating profits.
Equally important to the protection of consumers, the response to our request to revisit loss and loss adjustment expense reserves in light of the operating environment in Florida, an additional $200,000,000 of loss and loss adjustment expense reserves is in place at year-end 2016 compared to year-end 2015. Viewed in tandem, these year-end 2016 results mark the culmination of a remarkable recommitment to Floridians seeking property insurance.
Although Demotech’s requests for a recommitment of financial resources to serve the property insurance needs of Floridians was not universally embraced, alternative strategies were utilized to address our requests. Following our internal review of supplemental information and year-end 2016 financial data, much of which was received on or about March 1, 2017, we will release affirmations, additional information, and downgrades no later than March 16, 2017.
About Demotech, Inc.
Demotech, Inc. is a financial analysis firm specializing in evaluating the financial stability of regional and specialty insurers. Since 1985, Demotech has served the insurance industry by assigning accurate, reliable and proven Financial Stability Ratings® (FSRs) for Property & Casualty insurers and Title underwriters. FSRs are a leading indicator of financial stability, providing an objective baseline of the future solvency of an insurer. 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 www.demotech.com for more information.