Although insurance companies are regulated under state insurance laws, many also choose to be rated by an independent rating agency. The Bar Plan first sought such an independent rating in 1994 from A.M. Best. In 2012, The Bar Plan sought an additional rating from Demotech, Inc., and received a rating of “A” “Exceptional” which has remained the same since that time.
Demotech has been providing Financial Stability Ratings (“FSRs) to insurers since 1985. It has a strong history of rating smaller companies that are geographically focused like The Bar Plan, and in fact, was the first rating agency to provide FSRs to regional specialty insurance carriers. A rating of “A” indicates exceptional ability to maintain liquidity of invested assets, quality reinsurance, acceptable financial leverage and realistic pricing establishing loss and loss adjustment expense reserves at reasonable levels.
A Comprehensive Examination of Insurer FSRs published by Florida State University in 2011, compared Demotech to A.M. Best, Moody’s, Standard and Poor’s and Fitch. The study noted that Demotech uses a strictly quantitative model, in contrast to the other rating agencies that rely in part on subjective factors that pose difficulty in creating an unbiased picture of the insurer. More importantly, the study found that Demotech’s model was at least as effective at predicting the long-term survival of insurance companies, and possibly more effective.
Demotech believes that financial stability is independent of size and that well-managed, properly reinsured regional companies can be more financially stable than larger, highly leveraged companies. Its strong historical record of financial analysis supports this belief, concluding that regional and specialty insurance companies like The Bar Plan that earn a stable FSR have proven to be financially stable, regardless of their size.
For these reasons, The Bar Plan has decided to be exclusively rated by Demotech going forward. We have devoted a significant amount of time and resources each year as part of the A.M. Best review and oversight process. These are valuable resources that can now be devoted to running a successful company and servicing our customers, agents and other constituencies.
In coming to this decision, we reached out to our many business partners: independent insurance agencies, Bar leaders, reinsurers, auditors and regulators. We thank you for your time and valuable feedback, and we are gratified by the overwhelming support and understanding we received.