Demotech, Inc. Insurance Company Review

Unbiased Financial Strength Ratings

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Photo: Getty Images/Monty Rakusen

Everyone has to have insurance to protect property, health, vehicles, and more in the event of a loss. There are many insurance companies to choose from, but how can you know you are getting the best value on an insurance policy? Insurance rating organizations can tell you how financially stable a company is and whether it is a good choice for your insurance needs. One such rating company is Demotech, Inc.

Company History

Demotech, Inc. is based in Columbus, Ohio, and was founded in 1985. It is a consulting firm that provides financial stability ratings for property and casualty insurance companies. These ratings help people when choosing an insurance company, whether they want to invest or purchase a policy for their own use. They offer details and ratings to express how solvent an insurance company is, based on a number of factors. These factors include the company's balance sheet, but also many other figures beyond the basics. The company's specialty is in giving ratings and detailed financial analysis of regional and niche insurers.

Demotech, Inc. is a trusted name in the insurance industry. In 2007, Demotech, Inc. was named as the official insurance research partner of Insurance Journal, a leading insurance news publication. Demotech, Inc. provides reports on insurance industry performance and financial results to news organizations.

Since the 1990s, the company has had its rating process reviewed and approved by HUD (1993), Fannie Mae (1994), and Freddie Mac (1990).

How Demotech, Inc. Ratings are Determined

Demotech, Inc. takes pride in saying that it has “leveled the playing field” by providing financial stability ratings to insurance companies of all sizes. Their outlook regarding financial stability is that even small insurers can be as stable as the largest. For this reason, its rating system differs from some of the other rating organizations like A.M. Best, Fitch's or Moody's. Financial stability is not measured by size alone, but also by many other factors. Some of the factors Demotech, Inc. uses to assign ratings include:

  • Total assets, liabilities, revenues, and expenses
  • Working capital
  • Administrative costs
  • Net income
  • Surplus
  • Receivables
  • Amount of business written
  • Industry focus
  • Business model

What Demotech, Inc. Ratings Mean

  • A'' (A Double Prime), Unsurpassed: In spite of how well the economy is doing as a whole, and whether or not there is a downturn or breakdown in in the insurance cycle, one hundred percent of the insurers receiving a Financial Stability Rating® of A'' (A double prime) are expected to have positive surplus as regards policyholders as of 18 months from the first date a rating is assigned.
  • A' (A Prime), Unsurpassed: Insurance companies who earn the “A Prime Unsurpassed” rating from Demotech, Inc., are expected to have unsurpassed financial stability. This means they must be able to pay all claims in spite of economic downturn or changes in the insurance market. Ninety-nine percent of these insurers are expected to maintain a surplus for 18 months from the first date a rating is assigned.
  • A, Exceptional: Insurance companies who earn the “A Exceptional” rating from Demotech, Inc. are expected to have exceptional financial stability and be able to pay all claims in spite of economic downturn or changes in the insurance marketplace. Ninety-seven percent of these insurance companies are expected to maintain a surplus for 18 months from the first date a rating is assigned.
  • S, Substantial: Insurance companies who earn the “S Substantial” rating from Demotech, Inc. are expected to have acceptable financial stability and be able to pay all claims in spite of economic downturn or changes in the insurance marketplace. Ninety-five percent of these insurance companies are expected to maintain a surplus for 18 months from the first date a rating is assigned.
  • M, Moderate: Insurance companies who earn the “M Moderate” rating from Demotech, Inc. are expected to have moderate financial stability and be able to pay all claims in spite of economic downturn or changes in the insurance marketplace. Ninety percent of these insurance companies are expected to maintain a surplus for 18 months from the first date a rating is assigned.
  • L, Licensed: Insurance companies with an “L licensed” rating are licensed by state regulatory authorities. These companies have been assessed, but have not been given one of the financial strength ratings listed above.
  • NR, Not Rated: Insurers with an “NR” rating have not been rated by Demotech, Inc.
  • N/A, Ineligible: If an insurance company is given an “N/A Ineligible” rating, it could not be rated because of its financial data was incomplete.

The Bottom Line

If you want a fair look at the financial strength of your insurer and how it may perform in the future, you may want to try the services of Demotech, Inc. Demotech, Inc. has proven that it can be trusted to provide financial strength ratings to the industry since 1985. Their approach is to assess an insurance company based on more than just its size, and without bias. Demotech takes a unique approach to providing financial strength ratings of insurers to many parties, including news organizations and normal consumers. To learn more about Demotech, Inc.'s financial stability ratings, visit the Demotech, Inc. website.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Insurance Journal. "Insurance Journal Names Demotech as Official Research Partner."

  2. Freddie Mac. "EQUAL Mortgage Origination, Property Insurer Ratings, and Field Review Appraisal Form."

  3. Fannie Mae. "Acceptable Title Insurance Coverage."

  4. U.S. Department of Housing and Urban Development. "Public and Indian Housing Property/Casualty Insurance Requirements."

  5. Demotech, Inc. "Financial Stability Ratings® Definitions."

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