HUD to Accept Demotech’s ‘A’ Rating or Higher on Professional Liability Insurance Providers

February 7, 2005

The United States Department of Housing and Urban Development, Office of Multifamily Development (HUD) has approved Demotech, Inc. to provide rating services to captives, risk retention groups, smaller licensed regional insurance carriers and other risk sharing entities effective Jan. 31, 2005.

Under Notice H 04-15, HUD requires healthcare facilities to maintain sufficient professional liability insurance. This Notice requires insurance be obtained from an insurance company adequately rated by approved rating services. Effective Jan. 31, 2005, HUD will now accept professional liability insurance for a healthcare insurance provider with a Financial Stability Rating of “A” or higher from Demotech.

In its approval, HUD states, “Demotech’s strong emphasis on comprehensive risk management programs through the insurance provider and within the insured facilities is a major advantage of Demotech’s rating process.”

According to Demotech, the process will also include a comprehensive financial stability analysis, a review of operations and claim processing procedures of the insurer, a test of the quality of policyholders’ surplus, a review of risk management procedures and policies as well as other standard measures of stability and operations including an analysis of reinsurance.

A Financial Stability Ratings summarizes Demotech’s opinion as to the financial stability of an insurer regardless of general economic conditions or the phase of the underwriting cycle. Financial Stability Ratings are based upon statutory insurance accounting principles prescribed or permitted by the National Association of Insurance Commissioners (NAIC). For more than a decade, Financial Stability Ratings of ‘A’ or better have been accepted by the major participants in the secondary mortgage marketplace, including the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the United States Department of Housing and Urban Development (HUD).

Ratings for all rated companies can be viewed online at for free.

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