Ratings agencies play an important role in insurance policy placement and regulation. The best known insurance rating agencies are AMBest, Moody, Fitch and Standard & Poors. However, the ratings agency that is drawing the most attention these days in the property insurance market, especially in the state of Florida, is Demotech.

Demotech, based in Ohio, was formed in 1989 to provide financial stability ratings to the property & casualty insurance industry. After Hurricane Andrew in 1992 upended the property insurance market, insurers realized that worst case loss scenarios needed to be accounted for in their rates, reinsurance, capital and surplus. Financial stability ratings like those provided by Demotech became more vital tools for regulators, producers and policyholders to assess the financial condition of an insurer. In addition they fill a need to rate insurers that are unrated by the larger ratings firms either because they have declined to be rated by the larger ratings services (some of the larger agencies operate on a pay to rate basis), because of their smaller size or limited territory of operations; this is the case with many of the Florida property insurers.

When an insurer is downgraded by Demotech, it is often taken as a sign of financial troubles at the insurer, and a leading indicator of possible regulatory actions such as consent orders, rehabilitation orders or liquidation proceedings being issued or forthcoming.. This was true in 2021 and 2022 with the downgrades by Demotech preceding various insurers being put under consent orders, entering run-off, non-renewing policies,or pulling out of the state(s). Multiple insolvencies were declared in Florida and Louisiana. Demotech has recently indicated that at least 17 Florida property insurers are facing possible downgrades, and the newly created Property Insurer Stability Unit in their first report has indicated that 27 property insurers have been referred to the unit.