Self-Funded Entities Review (Pools)
Financial Stability Ratings® assigned to self-funded public entities (pools) are not NRSRO ratings.*
Financial stability can be independent of size. Small, well-managed self-funded public entities (pools) can be more financially stable than larger, highly leveraged self-funded public entities.
Demotech, Inc. was the first company to review the financial stability of self-funded public entities and publish independent financial opinions. Since 1986, Demotech has continued to analyze the financial stability of self-funded entities and will assign Financial Stability Ratings® to virtually all self-funded entities, largest to smallest.
Demotech reviews and assigns Financial Stability Ratings® to established self-funded public entities as well as start-ups. The review of start-ups that have less than five years of representative historical operating history requires additional information to be submitted for the assignment of a Financial Stability Rating®.
Our rating process is based on an analysis of a series of quantitative ratios and certain qualitative considerations.
Typical information reviewed by Demotech for an established pool may include:
- Quarterly and annual statutory financial statements
- Management discussion and analysis
- Statement of actuarial opinion
- Actuarial opinion summary
- Audit report
- Reinsurance information.
Typical information reviewed by Demotech for a newly formed pool may include:
- Biographical information on principals, key employees, or service providers
- Administrative agreements with principals and third parties
- Job descriptions or summaries of the duties of key personnel
- Pro forma financial statements and business plans
- Proposed underwriting guidelines and application
- Initial rate, rule, and form filings and underlying information
- Claims department procedures and practices manual
- Investment guidelines
- Reinsurance information
- Proposed marketing and sales materials
- Producer contracts including commission structure and contingency commission criteria
- Catastrophe modeling report and analysis of base rates and rating territories (when applicable)
- Other information to familiarize us with the company and its operations.
After Demotech’s review and analysis process is completed, the pool will be presented with the opportunity to finalize the Preliminary Financial Stability Rating®.
* Demotech is registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSRO) in the class of ratings for insurance companies. Financial Stability Ratings® assigned to self-funded public entity pools are not NRSRO ratings, as these pools are not considered insurance companies for purposes of Demotech’s registration as an NRSRO in this class of ratings.
Demotech’s Financial Stability Ratings® for self-funded public entity pools (non-NRSRO ratings) utilize a different rating scale than FSRs assigned to insurance companies (NRSRO ratings).