Financial Stability Ratings ® and Florida’s Property Insurance Market Demotech, Inc. February 4, 2010

 Incorporated in 1985, Demotech, Inc. is a financial analysis and actuarial services firm that provides Financial Stability Ratings ® (FSRs) to the Property & Casualty and Title insurance industry.  Demotech was the first company to have its rating process formally reviewed and accepted by: ◦ Fannie Mae (1989) ◦ Freddie Mac (1990) ◦ HUD (1994 & 2005)  1996 ◦ Worked with Florida Department of Insurance to develop FSRs for Florida “take out” insurers to depopulate the residual market.  2005 ◦ Accepted by HUD for rating Professional Liability insurers of long term care facilities.

 In 1996, when the State of Florida, the Florida Department of Insurance (now OIR), and the secondary mortgage marketplace needed a rating solution, they contacted Demotech, Inc.  We developed a procedure to review and rate start-up insurance companies.  Our procedure met the needs of the State of Florida, insurance agents, insurance companies, consumers and was acceptable to the secondary mortgage marketplace.

 Biographical information on principals and key employees  Summaries of the duties of key personnel  Business plan  Pro forma financial statements  Catastrophe modeling analysis  Underwriting guidelines  Initial rate, rule and form filings  Investment guidelines  Claims department procedures and practices  Management and administrative agreements  Reinsurance information  Marketing and sales materials  Producer contracts  Any other information necessary to familiarize Demotech with the company and its operations Florida Domiciled Start-up Insurers Data Reviewed

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

 Demotech data call ◦ Exhibit A ◦ Illustrative tower graph  Aggregate retentions and impact of multiple events  Provision for reinstatement of reinsurance coverage  Probable maximum loss  Catastrophe modeling ◦ Parameters/switches ◦ Particular model utilized  Florida Hurricane Catastrophe Fund (FHCF) ◦ Company liquidity relating to FHCF funding ◦ Company decisions regarding TICL  Financial stability of reinsurer  Changes or modifications to book of business

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

DemotechAM BestS&PMoody'sFitch Total1,1163, Source: An Examination of Insurer Financial Strength Ratings Southern Risk and Insurance Conference - November 2009

Is there agreement in terms of insurers considered to be secure? Firms Rated Secure by Demotech Not SecureSecure% Agree Best % S&P % Moody's43088 % Fitch13197 % Source: An Examination of Insurer Financial Strength Ratings Southern Risk and Insurance Conference - November 2009

 Demotech does appear to rate a group of insurers that is different from those generally rated by other rating agencies.  Controlling for differences in the sample of firms each agency rates, there is some consistency between factors impacting Demotech ratings and other agencies (especially AM Best). Source: An Examination of Insurer Financial Strength Ratings Southern Risk and Insurance Conference - November 2009

Source: A.M. Best Co.'s Impairment Rate and Rating Transition Study dated May 1, 2009; complement of page 4, Exhibit 2. Demotech, Inc.’s Serious About Solvency updated for data as of 12/31/2008.

Source: A.M. Best Co.'s Impairment Rate and Rating Transition Study dated May 1, 2009; complement of page 4, Exhibit 2. Demotech, Inc.’s Serious About Solvency updated for data as of 12/31/2008.

Source: A.M. Best Co.'s Impairment Rate and Rating Transition Study dated May 1, 2009; complement of page 4, Exhibit 2. Demotech, Inc.’s Serious About Solvency updated for data as of 12/31/2008.

 We have been part of the solution to the Florida property insurance situation since 1996  Demotech’s track record on long-term solvency – Florida and countrywide – is enviable  We plan to be a part of the solution for years to come