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Comparative Financial Observations

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

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

What are Comparative Financial Observations (CFOs)?

CFOs represent Demotech’s evaluation of certain insurance company balance sheet fundamentals. CFOs are based on public statutory financial data.

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 certain reported fundamental financial metrics. Insurers are then benchmarked against our industry aggregate to distinguish insurers that reported favorable metrics despite market and financial pressures. CFOs are an indication of the commitment to certain balance sheet fundamentals that imply a high priority to solvency and the ability to honor policyholder claims. CFOs are our generalized opinion of insurer fundamentals.

What CFOs Are Not

CFOs are not a replacement, substitute, or approximation of a Financial Stability Rating® (FSR). 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 process. 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 assigns CFOs to insurers that did not finalize their Preliminary Financial Stability Rating® (PFSR). CFOs are assigned based upon our interpretation of statutory financial statement information.