Quality of Title Insurer Earnings is now Quantifiable

COLUMBUS, Ohio, March 5, 2018 /PRNewswire/ -- Year-end 2017 statutory financial information has been compiled and submitted to the National Association of Insurance Commissioners.  Industry analysts and prognosticators will soon be publishing their discussions of the relative adequacy of loss and loss adjustment expense (loss and LAE) reserves and the balance sheet strength of Title underwriters.  The adequacy of loss and LAE reserves is a critical determinant of the solvency of insurers; however, loss and LAE adequacy affects the quality of reported pretax statutory earnings as well.  As such, Demotech introduces SPEQUELLAE, (spuh – kwell – uh), the first service to independently measure and identify the quality of pretax statutory earnings reported for a calendar year. Our SPEQUELLAE service is based upon self-prepared carrier information. 

The SPEQUELLAE service is an acronym created by Demotech:

Statutory
Pretax
Earnings
Quality
Using
Emerging
Loss
Loss Adjustment Expense
Estimates.

Demotech will update its SPEQUELLAE service on an annual basis as carrier managements re-evaluate earlier loss and LAE estimates.  The quality of Title underwriter pretax statutory earnings reported over the period 2011 through 2015, re-evaluated as of December 31, 2016, is available at www.demotech.com. The SPEQUELLAE service using a re-evaluation of previous L&LAE for the year-end 2017 financial statements will be available in May 2018. 

Demotech's SPEQUELLAE service measures the impact of adverse loss and loss adjustment expense reserve development, self-reported by an insurer, on the carrier's initial report of statutory pretax earnings.  An index from our SPEQUELLAE service of 100 or higher indicates that management has historically been obsessed with the integrity of its reported pretax statutory earnings and that emerging estimates of loss and LAE reserves affirm the integrity of management's initial estimates of loss and LAE reserves.

An index from the SPEQUELLAE service that is below 100 indicates the degree to which the reported statutory pretax earnings in previously reported periods were overstated due to the under-estimation of loss and LAE reserves.

According to Douglas A. Powell, Senior Analyst, Demotech, "This metric will be extremely useful in evaluating profitability, as it provides a means to analyze underwriter income as it relates to loss reserve development. Based on SPEQUELLAE scores, in the aggregate, Title underwriters have demonstrated a fundamental understanding of the importance of adequate loss and LAE reserves."

Sharon M. Romano Petrelli, CPCU, AIAF, ARC, Vice President and Co-founder, Demotech, went on to state, "The introduction of our SPEQUELLAE index for Title underwriters provides a basis for evaluating the relative quality of pretax statutory earnings.  The higher the SPEQUELLAE index, the higher the realization of the reported income.  Carriers that properly estimate their loss and LAE reserves annually realize 100% of the statutory pretax income that they previously reported.  These carriers should be rewarded."

A webinar featuring a discussion of SPEQUELLAE as well as the introduction of the year-end 2017 SPEQUELLAE index for P&C, Title, and  Health insurers is scheduled for May 23 at 2:00 PM Eastern. Registration for the webinar is required. Register at this link: https://demotech.webex.com/demotech/onstage/g.php?MTID=e30b64f085fb2a5bf09d7c7e87327180c.

About Demotech, Inc.

Demotech, Inc. is a financial analysis firm specializing in evaluating the financial stability of regional and specialty insurers.  Since 1985, Demotech has served the insurance industry by assigning accurate, reliable, and proven Financial Stability Ratings^® (FSRs) to Property & Casualty insurers and Title underwriters.  Demotech's philosophy is to review and evaluate insurers based on their area of focus and the execution of their business model rather than solely on financial size.  Visit www.demotech.com for more information.

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SOURCE Demotech, Inc.