Florida Property MarketPrivate Carrier Metrics – 2010 to 2014

Demotech Rated Carriers

September 22, 2014

As of 9/22/2014, Demotech reviews and rates 53 companies that we consider to be predominantly Florida property writers◦ 1 company added since 6/30/14 (Mount Beacon Insurance Company)

with other entities currently under review◦ 1 company added in 2014 prior to 6/30/14 (Frontline Insurance

Unlimited Company)◦ 4 companies added in 2013 (American Platinum Property & Casualty

Insurance Company, Elements Property Insurance Company, Safepoint Insurance Company, Weston Insurance Company)

◦ 2 companies added in 2012 (Heritage Property & Casualty Insurance Company, Southern Fidelity Property & Casualty, Inc.)

◦ 1 company added in 2010 (Lakeview Insurance Company)

Financial Stability Ratings® for Florida Property Writers

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6/30/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010

$8,368,562,072 $7,134,477,404 $6,083,587,570 $5,102,466,934 $4,806,750,192

Net Admitted AssetsCurrently Rated Florida Property Writers

6/30/2014 – 12/31/2010

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6/30/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010

$3,177,411,526 $2,882,142,200 $2,312,787,280 $1,913,794,006 $1,795,306,300

Policyholders’ SurplusCurrently Rated Florida Property Writers

6/30/2014 – 12/31/2010

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6/30/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010

Gross Written Premium $4,498,695,657 $7,724,499,877 $6,488,061,683 $5,500,441,025 $4,894,298,413

Ceded Written Premium $2,866,669,270 $4,210,484,548 $3,813,670,905 $3,397,565,108 $2,888,457,239

Net Written Premium $1,632,026,387 $3,514,015,329 $2,674,390,778 $2,102,875,917 $2,005,841,174

Written PremiumCurrently Rated Florida Property Writers

6/30/2014 – 12/31/2010

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2014 1st Event Vertical Limit 100 Year Return Period -

Section II Exhibit A (additional conservative model parameters)

Reinstatement Premium Protection and Reinstatement Options Available for Lower Layers of Program

2nd Event Vertical Limit 50 YR Return Period (following a 1st event which exhausts the FHCF)

Confirmation of Multiple Event Coverage Beyond 1st and 2nd Moderate Event Scenarios

Pre-tax Net Retentions Maximum of 25% Between Combination of 1st and 2nd Event Scenarios

Exhibit B - Data Call Required Average Annual LossOccurrence Exceedance ProbabilityAggregate Exceedance ProbabilityConditional or Tail Value at Risk

CAT Response Plan Data Call Required Basis Risk Reviewed

CAT Bond – Indemnity trigger Financial Statement Reports and Verification of

Capital Required for Captive Review of Participating Reinsurers

2010 1st Event Vertical Limit 100 Year Return Period

Reinstatement Premium Protection and Reinstatement Options Available for Lower Layers

2nd Event Limit - Reviewed, No Specific Limit Required

Multiple Event Coverage – Reviewed, No Specific Requirement

Pre-tax Net Retention Maximum of 15% 1st Event Scenario

Exhibit B - Data Call Not Required

CAT Response Plan Data Call Not Yet Required Basis Risk Reviewed - No Specific Requirement

No Requirement for Captive

Review of Participating Reinsurers

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Financial Stability Rating® Reinsurance Criteria

Demotech, Inc. reviews and analyzes approximately 400 insurance entities countrywide. Participation in our process requires quarterly and annual reviews and updates in order to affirm the Financial Stability Rating® assigned to the carrier. As is the case with all other rating services or organizations issuing ratings, the data prepared by the insurer is reviewed for reasonableness and consistency but is not audited. Furthermore, in some jurisdictions, political or regulatory risk, in the form of suppressed pricing levels, mandated credits or other qualitative considerations that might be counter to an insurer’s perspective on actuarially sound rates, can influence market conditions. Unfortunately for all involved in the insurance process, no rating service has a perfect record. This was made clear in Florida in the early 1990s, well before Demotech’s entry into the Florida property insurance marketplace, when more than twenty insurers, each of which was unrated by Demotech, were placed into rehabilitation and subsequently liquidation subsequent to Hurricane Andrew, a 1:35 year event. 

Company Insolvencies in Florida

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Since 1996, Demotech has taken the lead to review and rate insurers focused on Florida’s property insurance marketplace. From 1996 to date, Demotech has issued nearly 800 insurer ratings in Florida. Despite the storms, changes in regulatory focus and legislative revisions that have occurred over the past eighteen years, only twelve carriers entered regulatory supervision within eighteen months of being assigned a Financial Stability Rating® of A or higher. Several companies issued inaccurate financial statements as evidenced by restated audited financial statements.

In total, in these twelve instances, the average time from withdrawal of Demotech’s FSR to liquidation of these companies has been 330 days. In the situation involving the largest insolvency in the State of Florida, three carriers within the Poe Financial Group, our lead time was well in excess of eighteen months.

Consumers, agents and reinsurers should monitor the FSRs assigned or withdrawn on a quarterly basis as that is our review cycle.

Company Insolvencies in Florida (cont.)

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Perceptions, ignorance and lies related to the financial stability of the carriers reviewed and rated by Demotech and the extensive financial and reinsurance analysis that they undergo, by us and then independently by the Office of Insurance Regulation, are not a substitute for the truth, no matter how many times the misinformed repeat the falsehoods.

Joseph L. Petrelli President

Demotech, Inc.

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Florida’s private domestic property insurance writers are in excellent financial condition as indicated by the metrics. In addition to increasing surplus and net admitted assets, the companies continue to report favorable loss reserve development and underwriting profit while expending significant portions of their premium to purchase catastrophe reinsurance to protect themselves and their policyholders.

◦ Second quarter 2014 aggregate surplus for the companies Demotech reviews and rates increased more than $295 million or 10.2% over year-end 2013. 

◦ Positive underwriting results continued for the second quarter reporting period with a majority of the client companies reporting an underwriting gain.  The underwriting gain for the collective group was approximately $224.4 million.

Summary

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◦ Based on our review of the CAT reinsurance programs, all Florida companies that we review have purchased first event vertical limits in excess of the 100 year event return period.  The probable maximum loss for the return period includes demand surge, or loss amplification, as well as secondary uncertainty.  Collectively, the Demotech Florida client companies purchased first event cover representing approximately 125.7% of the 100 year event return period including demand surge and secondary uncertainty, i.e., a 1:125 – 1:126 event.

◦ Also, the Demotech Florida client companies purchased second event limits representing approximately 63.0% of the 100 year event return period, a 1:63 event.  This is a significant increase overall for the group when comparing the renewal CAT programs to expiring. Other protection against catastrophes is also in place.

◦ Probable Maximum Loss relative to Gross Premium Written is also a measure we review each year.  Generally speaking, for the Demotech Florida client companies, this ratio has been decreasing the past several renewals  and collectively stands at 2.5:1 for the current renewal season.

Summary (cont.)

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