Quality of Insurer Earnings Now Quantifiable Through Demotech’s New SPEQUELLAE

Mar 14, 2018

Calling it “the first service to independently measure and identify the quality of pretax statutory earnings reported for a calendar year,” Demotech has introduced “SPEQUELLAE.”

According to Demotech, the acronym is pronounced “Spuh-kwell-uh” and is based on self-prepared carrier information.  SPEQUELLAE stands for:








Loss Adjustment Expense


Demotech explains that it will update its SPEQUELLAE service on an annual basis as carrier managements re-evaluate earlier loss and LAE estimates.  The quality of property and casualty 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.

“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 reserves (loss and LAE).  Clearly, the adequacy of loss and LAE reserves is a critical determinant of the solvency of insurers.  However, loss and LAE adequacy also affects the quality of reported statutory earnings,” Demotech said in its news release.

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 on the integrity of its reported pretax statutory earnings,” Demotech said.  “An index from our SPEQUELLAE service of 100 or higher indicates that emerging estimates of loss and LAE reserves affirm the integrity of management’s initial estimates of L&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,” Demotech added.

According to Joseph L. Petrelli, President and Co-founder, Demotech, “Loss and loss adjustment expense reserve adequacy favorably impacts more than the solvency of a carrier, impacting earnings as well.  Although some carriers are large enough to under-estimate loss and LAE reserves and remain solvent, under-estimation of loss and LAE impacts the quality of their statutory pretax income.”

Petrelli went on to state, “The introduction of our SPEQUELLAE index for P&C carriers provides a basis for evaluating the quality of pretax statutory earnings using management’s emerging loss and LAE estimates from prior periods.  The higher the SPEQUELLAE index, the higher the realization of the reported income.  Carriers that get their loss and LAE reserves right realize 100% of the statutory pretax income that they previously reported.  These carriers should be rewarded.”

Demotech is inviting public participation in a webinar featuring a discussion of SPEQUELLAE as well as the introduction of the year-end 2017 SPEQUELLAE index for Property and Casualty, 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.