Financial Stability Ratings® (FSRs) are a leading indicator of the financial stability and solvency of Property and Casualty (P&C) insurers and Title underwriters. An FSR summarizes Demotech's opinion of an insurer's ability to insulate itself from the business cycle that exists in the general economy as well as the underwriting cycle that exists in the insurance industry.

Demotech's focus is unique. While Demotech acknowledges and recognizes the importance of profitability, they believe that balance sheet strength and financial integrity are the ultimate determinants of the long term financial stability required to honor meritorious claims. Accordingly, while operating profit remains an important element in the assignment of FSRs, the ability of an insurer to remain financially stable under a variety of economic stress tests requires a focus on balance sheet integrity. Quality and quantity of reinsurance, relative adequacy of loss and loss adjustment expense reserves, the liquidity and quality of assets and rate adequacy are some of the more critical items Demotech evaluates.

Demotech's rating process provides an objective baseline for assessing solvency based upon changes in financial stability, as manifested in an insurer's balance sheet. FSRs are based upon a series of quantitative ratios and considerations that comprise the Financial Stability Analysis Model.

The Financial Stability Analysis Model is the major component of the FSR assignment process and includes a tactile review as well as computation and analysis of critical financial ratios to determine the current and anticipated financial stability of the insurance company being reviewed. The Financial Stability Analysis Model cross checks and analyzes financial statement calculations and relationships.

A critical item to determine the financial stability of an insurer is the calculation of financial stability ratios measured against financial stability benchmarks. These ratios and benchmarks have been compiled on an industry-wide basis and have been substantiated by third parties.

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 or type of company. Demotech believes that financial stability is independent of size and well managed, properly reinsured, regional P&C insurers can be more financially stable than larger, highly leveraged P&C insurers. In other words, the financial solvency of regional P&C insurers, whether stock or mutual, can be accurately analyzed and measured and can support the assignment of a stable FSR of A or better. This is one of the reasons that Demotech was accepted by Fannie Mae and Freddie Mac in 1989 and 1990, respectively. We demonstrated our ability to assess the financial stability of regional insurers.

Since 2006, Great Lakes Mutual Insurance Company has earned and been assigned a Financial Stability Rating®.

To verify current Financial Stability Ratings® please visit www.demotech.com.

Financial Stability Rating® is a registered trademark of Demotech, Inc.