Joseph L. Petrelli President & Co-Founder, Demotech, Inc.

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Reviewing nine years of insurer ratings prepared and issued by A.M. Best Co., Standard & Poor’s, Moody’s Investors Services, Fitch and Demotech, Inc. 4

As such, Demotech serves the need of another unique group of insurers, namely those that are geographically focused. Comparisons of Demotech ratings to other agencies show relative consistency in the factors that drive Demotech ratings compared to agencies such as A. M. Best, Moody’s, Standard and Poor’s, and Fitch. There is also general consistency in the firms that each agency would categorize as financially secure. 5

These results have important public policy implications for insurers, regulators and consumers as they work to better understand the ratings process. Of particular importance to most is the comparability of Demotech ratings to other agencies. Given that lenders often have requirements related to the use of rated insurers and some states require ratings to operate in a state, the results suggest that Demotech serves an important service within the ratings community and plays a very important role in the insurance market. 6

Is there agreement in terms of insurers considered to be secure? Source: An Examination of Insurer Financial Strength Ratings Southern Risk and Insurance Conference - November 2009

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9 Source: SNL Financial All companies reporting except state funds and one financial guaranty writer

10 Source: SNL Financial, Annual Statement Schedule T All companies reporting except state funds and one financial guaranty writer

11 Source: SNL Financial, Annual Statement Schedule T All companies reporting except state funds and one financial guaranty writer

12 Source: SNL Financial, Annual Statement Schedule T All companies reporting except state funds and one financial guaranty writer

13 Source: SNL Financial, Annual Statement Page 3 All companies reporting except state funds and one financial guaranty writer

14 Source: SNL Financial, Annual Statement Page 3 All companies reporting except state funds and one financial guaranty writer

15 Source: SNL Financial, Annual Statement Page 3 All companies reporting except state funds and one financial guaranty writer

16 Source: SNL Financial, Annual Statement Schedule T and Five-Year Historical Data All companies reporting except state funds and one financial guaranty writer

17 Source: SNL Financial, Annual Statement Five-Year Historical Data All companies reporting except state funds and one financial guaranty writer

 Quality and Liquidity of Invested Assets  Adequacy of Loss and Loss Adjustment Expense Reserves  Quality of Reinsurance  Adequacy of Rate Levels  Ability to Serve Niche(s)

 Capital adequacy  Quality and liquidity of invested assets  Loss and loss adjustment expense reserves  Premium to surplus leverage ratios  Other underwriting expenses incurred  Quality and quantity of reinsurance  Adequacy of rate levels

 Lack of focus on marketing, underwriting or claims practices  Reinsurance purchasing decisions  Pricing decisions  Emphasis on earnings or market share  Inadequate loss reserves to meet earning projections  Entrance into new markets/product lines  Inefficient information technology systems

A new idea is first condemned as ridiculous and then dismissed as trivial, until finally, it becomes what everybody knows. ~ William James  Mutual insurers are a critical and financially stable component of the United States insurance industry.  Demotech’s track record on long-term solvency – whether Florida or countrywide - is enviable.  Demotech is no longer a new idea. Our efforts have been validated by independent studies.  We will be part of the solution for years to come and look forward to solving any issues that you need to address. 21