Independent Rating Organizations Looking at Insurance Companies

In the insurance industry there are four well known outside independent rating organizations. These four organizations are: A.M. Best, Demotech, Standard and Poor’s, and Fitch. A.M. Best has been around over 100 years, Demotech 30 years, and Standard and Poor’s and Fitch are commonly known for rating bonds rather than insurance companies. A.M. Best is known mostly for its rating of large, national-type companies while Demotech is known as a technical actuarial-driven rating model with a focus on mid-size and small insurance companies.

Independent rating organizations exist because insurance buyers want assurance from an outside agency that their insurance company has the financial wherewithal to pay claims that might take years to payout. After all, members pay premium with the promise that their insurance company will pay for losses in the future. If the insurance company does not keep the financial reserves it needs, then its ability to pay future claims could be hampered.

MTMIC is rated by Demotech. Each quarter we send them our financial information for their review. Each year, MTMIC Management meets in person with the Demotech analysts for a presentation and Q&A. This meeting was 1 held in early June and Management updated the Demotech analysts on current claims status, workload, loss control focus, and other operational areas.

When Demotech first rated MTMIC, based on our financial condition and claims practices, we received an A rating with the description of “exceptional”. About a week after our June meeting with Demotech, we received a notice that our financial rating was being raised from A, exceptional to A’, unsurpassed. Here is their notice:

“Thank you for the supplemental information provided. This was beneficial in our review and evaluation. Based on our review of the company’s current and recent financial performance, as well as the supplemental information provided, Demotech has assigned a 2016 preliminary financial stability rating of A Prime, unsurpassed. The company has made significant progress leading to the consideration for this rating upgrade. Please note that A Prime, unsurpassed, rating carries a higher standard of financial performance including, but not limited to, consistently reporting positive underwriting and operating results, surplus growth, favorable loss reserve development, liquidity, leverage, RBC, and other financial measures on a future quarterly and annual financial statements.”

This is great news for MTMIC and its members. It shows that the company that you own is in excellent financial condition and that Management has handled their fiduciary responsibilities well. Also know that this upgrade came at a time where dividends of $6 million were paid to members. It is always harder to pay members a dividend and at the same time make sure that the finances of the company provide the stability and growth that is necessary for a financial upgrade. My congratulations to the Management team and the Board of Directors for their strong stewardship that made this financial upgrade possible.

For anyone that would like additional information about this, please do not hesitate to call me. A few of our member companies are involved in the independent rating agency pretty deeply because the jobs they get for on-site work sometimes requires them to show their insurance company independent rating organization detail. We’re happy to help through that process if the need arises.

Until next month, we will celebrate the great news, but also know that this rating was a grade in time and that continued focus is required to keep this new rating. More updates on this and our members dividend program as the year progresses.