Demotech Proposes New Classification System for Life Insurers

Demotech Proposes a New Classification System for Life Insurers

Demotech, Inc. has been a pioneer in rating independent insurance companies since it established its Property and Casualty (P&C) Company Classification System back in 2007. The company has now set its sights on providing a similar classification system specifically tailored for life insurance companies. They invite industry participants and stakeholders to offer their thoughts and comments on this proposal.

Understanding the Demotech Life Company Classification System

The Demotech Life Company Classification System is designed to classify individual life insurers into ten distinct categories. This categorization is based on a thorough analysis of data reported by insurers in their annual statements for the National Association of Insurance Companies. The intention behind this classification is straightforward: to better understand and categorize life companies according to their business models and operational scopes, which allows for more informed assessments.

Key Features of the Classification System

Each life insurance company will be categorized into only one classification, ensuring clarity and consistency. For this classification, premiums reported will encompass both traditional life premiums and annuity considerations. By focusing on individual insurers rather than grouped entities, Demotech enhances the specificity and usefulness of their evaluations.

The Ten Categories Explained

Each of the ten classifications has specific criteria that distinguish them from one another. While the complete details can be found in the official documentation, here’s an overview:

• Fraternal Benefit Societies: These companies operate under a set standard which defines them, comprising about 9.2% of the market.
• Reinsurers: Companies that have significant assumed premiums relative to direct written premiums, accounting for 4.9%.
• Large Nationals: Insurers with over $100 billion in net assets, representing approximately 3.1%.
• Midsize Near Nationals: With net assets between $500 million and $100 billion, these account for 17.8% of insurers.
• Super Regionals: These firms have more than $100 million in net assets and operate in 2 to 34 states, comprising 4.9% of the total.
• Limited New Writings: Independent companies with minimal new business, making up 11.3%.
• State Specialists: Focused on one state, these companies earn over 90% of their premiums from it, representing 13.9%.
• Product Specialists: Companies specializing in one product category, also comprising 10.0%.
• Strategic Subsidiaries: These serve unique strategic purposes within large groups, accounting for 12.7%.
• Regionals: Small companies writing multiple products but not on a national scale, representing 12.3%.

Inviting Feedback on the Proposal

Demotech encourages industry professionals, companies, and stakeholders to share their insights regarding this initiative. Feedback is crucial in shaping a system that aims to enhance transparency and reliability in life insurance evaluations. Interested parties are invited to send their thoughts directly to the Demotech team.

How to Participate

Those wishing to contribute their remarks on the proposed Life Company Classification System should do so by a specified date. The engagement from the industry is encouraged, as it will help shape a system that is not only functional but beneficial for life insurance assessments.

Frequently Asked Questions

What is the purpose of the new Life Company Classification System?

The purpose is to categorize life insurers based on their business models and operations to improve evaluation and comparisons in the industry.

How are the categories determined?

Categories are based on an analysis of insurers' data as outlined in their National Association of Insurance Companies annual statements.

Who can provide feedback on the classification system?

Industry participants, insurers, and stakeholders are all encouraged to share their thoughts and comments on the proposal.

What happens after feedback is collected?

Demotech will review all feedback and make necessary adjustments to the classification system before finalizing it.

Is there a deadline for submitting comments?

Yes, comments should be submitted by the specified date to ensure they are considered in the decision-making process.

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