Demotech Makes Loss Reserve Development Information Available

August 6, 2003

In the 24-month period from Dec. 31, 2000 through Dec. 31, 2002, the property and casualty industry strengthened prior period loss and loss adjustment expense reserves by approximately $40 billion. Traditionally the information presented in loss reserve studies has been limited to an estimate of aggregate reserve deficiency on an industrywide basis or on an aggregate estimate by line of business.

Today, things change for the better.

Stock analysts, insurance agents, reinsurers, consumers and other interested third parties can view company specific loss and loss adjustment expense reserve development on a quarterly basis. To provide public information to interested third parties, Demotech, Inc. has reproduced the first quarter 2003 statutory insurance accounting reserve development as reported by 1,921 P/C companies. Visit www.demotech.com to view Demotech’s Quarterly Reserve Position, QRP.

Whether your interest in a P/C company relates to current quarter profitability or long-term financial stability, the importance of reasonable loss and loss adjustment expense reserve estimates cannot be over-emphasized. It seems to me that other rating services are promoting their loss reserve studies by creating sensationalized headlines. At any given point in time, the overwhelming majority of P/C insurance companies would appear to be reasonably reserved. I felt that someone needed to identify those insurance companies, so Demotech, Inc. developed QRP.

The loss and LAE reserve development information that Demotech, Inc. publishes is excerpted from the quarterly financial statement that the company prepared and submitted to the appropriate department of insurance regulatory authorities. The information has been excerpted from the section of the quarterly statement described as ‘Part 3.’ We are not making projections of loss and LAE reserves nor are we opining on loss and LAE reserves. We are presenting the latest available loss and LAE reserve development data as soon as we receive it.

In addition to presenting a company’s QRP, our Web site also presents policyholder’s surplus (net worth) as of the same date.

This permits interested parties to evaluate the relative importance of the company’s quarterly loss and LAE reserve development by comparing that development to the insurer’s reported policyholder’s surplus. In keeping with the reporting format of the quarterly loss reserve information, a negative number implies redundancy might exist and a positive number implies that strengthening occurred.

Demotech, Inc. decided to introduce the service at this point in time because the overwhelming majority of P/C insurance companies are reasonably reserved.

Joseph L. Petrelli is president of Ohio-based Demotech.

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