The Not Unreasonable Podcast

Joe Petrelli is Disrupting Rating Agencies

June 26, 2018 David Wright Season 1 Episode 22
The Not Unreasonable Podcast
Joe Petrelli is Disrupting Rating Agencies
Show Notes Transcript

My guest this week is Joe Petrelli, the founder and CEO of Demotech, a rating agency based in Columbus, Ohio. This interview was a particular delight for me, folks, because I've finally found a real example of classic Clay Christensen Disruption in Insurance. Demotech has been quietly disrupting what he calls "the legacy rating agencies" for decades.

THIS is what real disruption looks like:

  • Underserved, low end market? Check.
  • Looks like a 'toy' product that no serious player should consider? Check.
  • Slowly creeping upmarket against all odds? Yep.

That's disruption kids. And he did it at least two more times with Florida Homeowners and Title insurers. Astonishing. Joe should be an insurance innovation celebrity.  

youtube: https://youtu.be/O0T-t1wz-DI
show notes: https://notunreasonable.com/2018/06/26/demotech-is-the-disruptor-with-joe-petrelli/

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David Wright:

My guest today is Joe Petrelli. Joe is the president and co founder of demo tech or ad agency based in Columbus, Ohio. Joe is an actuary by training. And prior to founding demotech, in 1985, he was employed by the Insurance Services Office nationwide and agway insurance company. Joe, welcome to the show.

Joe Petrelli:

Thank you, David.

David Wright:

So I'm gonna jump right into it right to what I think is the heart of what really interests me about your business. rating agencies are underwriting organized and underwriting organizations, like insurers. And I think they both have slightly adversarial relationships with their clients. So insurance buyers want cheaper insurance and rated companies want higher ratings, the easiest path to winning more business would clearly be to just give cheaper business and give, as your friend insure and just give higher ratings. Everybody, if your rating agency now both those paths are close, because that would Doom the business in the future? I think. So I'm wondering if you agree with that. And two, how would rating agencies distinguish themselves in a competitive environment?

Joe Petrelli:

Well, maybe I'd take that second one first, if I may, about distinguishing themselves. Demo tech, I think has four characteristics that that I have not seen with the legacy rating agencies, thought leadership, insurance expertise, long tenured credentialed professionals, and transparency. And I'll spend a little bit of time on each of those autonomy. On the thought leadership, we were actually the first company to review and rate independent regional insurance companies, the legacy rating agencies back in the late 80s, the legacy rating agencies would rate a small independent company if it was part of a large group. But there was no one reviewing and rating independent regional and specialty companies. And we heard that from Fannie Mae and Freddie Mac, but smaller companies, they had been doing those sorts of analyses on their own, to qualify a company for offering homeowners insurance coverage in the in the secondary mortgage marketplace, selling off the the mortgage of the home that was insured. And so that's where we got involved. So sorry to interrupt you, but the insurance company would then own the mortgage, the insurance company, that was the homeowners insurance company would would insure a home

David Wright:

Oh, and get credit for it, and how and to get credit

Joe Petrelli:

for Fannie and Freddie, they could sell it to their sellers or services would sell it and collateralize it, you had to be rated by a certain level company. And they they would do the independent regional companies themselves, right. Okay. They didn't want to do that anymore horse. And at that point in time, they contacted the legacy rating agencies, who would not rate the independent, regional specialty company. So we got to

David Wright:

these companies had no rating like a mutual company. And because you know, what's amazing is I think that these days as being kind of the bread and butter for, let's say, an A and best, you know, a regional Mutual Insurance Company. That's all they've got. And they've been around for a long time, but they're very small. I mean, were those guys also excluded from this? Or is this mostly newer organizations?

Joe Petrelli:

Now? It was it was a independent, smaller, independent companies. So all of them were not rated. And actually, at that point in time I in July of 1990, I actually after we've been approved by Fannie and Freddie and 89 and 90, I actually had a conversation with Arthur J. Schneider, the second president, Chairman, CEO, largest shareholder of AM Best,

David Wright:

because little Do we know invest is a family business. That is,

Joe Petrelli:

yeah, it is a privately held company. As are we. But anyway, the the conversation I had with Arthur J. Schneider, the second was they never wanted to rate the smaller companies. And that was his,

David Wright:

because he would think that's where the rating agency would offer the most value. Right, because the smaller companies are the ones perhaps are less certain the big huge companies, it's I don't know. Well, we'll get to that.

Joe Petrelli:

Well, I think actually, I'll transition to a right now. Because I think that's maybe I think the second the second of the competitive advantages, the demo tech is or insurance people. First, they got into the insurance ratings business. So we understand the statutory accounting, we understand the conversion, a gap, we understand the importance of pricing and loss reserving. And, and then I think, hand in hand with that. Our third competitive facet is that we have credentialed professionals. And they've been with demo tech a long time, you don't have to babysit your demo tech analysts, the senior team at at demo tech myself, Sharon Romano Petrelli, Bob Warren Barry Kessler, our chief ratings officer, between the four of us we have 140 years of experience with insurance companies and we have 16 College. edge degrees and professional credentials. So you don't have to babysit us. We understand the the industry. And we've worked with companies in every state, every line of business on the PNC and the title underwriter side. And so we're very comfortable looking at smaller companies, because we understand reinsurance. And we also understand that you can be a bantamweight champion. in IE, you're not necessarily going to be putting the same ring with the heavyweight champion. So we like the idea of, of expertise at different levels. And I think maybe the last thing that I see is a competitive The fourth thing I see is a competitive advantage for us is what I would call transparency. In the sense that, number one is transparency of the people you're dealing with. Myself, or Barry, our chief ratings officer, Bob, Warren, Sharon, whoever it might be, you're dealing with an experienced person who understands the insurance business. And the other aspect that I think is important on transparency is that we will always be able to point to a company's historical financial statements, whether their annual statements, quarterly statements, independent audit, loss, reserve opinion, pricing analysis, whatever it is, we're going to point to something in their own information that determines Why or why not they did not receive a rating, we're not going to hide behind a black box, we'll be able to point to their financial statement that they prepared and say, here's the relationship that's gone, sour, or south, it might be you've gone from being properly reserved, to being inadequately reserved. And that's shown on the one and two year development that you've produced in your five year historical summary in your annual statement, or in part x of your quarterly statement. So it's always about the company's produced its financial statements, and we're analyzing them. And we're always able to point to that. And I think that's very helpful to the companies, that we're not making something up. We're not projecting something necessarily what we are reviewing and analyzing their own data, we actually read footnotes and interrogatory, and go through the financial statement, and many times, we'll have a company ask us, where did you get that information? And we'll say, well, that's you interact exactly right. Yes, exactly. David, we say, you know, it's interrogatory 17, you know, paragraph B? And we'll just tell them where we found it.

David Wright:

And so how about how about with a startup? So one thing that I noticed from your corporate history, I don't want to walk me blue is we're gonna go backwards a little bit through the timeline, that's totally fine. like jumping around a little bit in this show, that you got a call from the Florida office of insurance regulation, I think it was or you were contacted by them after this would be after Andrew or a few years after Andrew, because it's called legacy rating agencies wouldn't rate startups. And this would be a situation where you don't have any financial information to go on. And you can see why somebody would be hampered by that lack of information. Can you tell the story about that? That must been a big moment for demo tech?

Joe Petrelli:

Sure. Sure. Let me just give you a few dates. We were approved for hazard insurance companies to be acceptable to Fannie Mae. In May of 89. We were approved by Freddie Mac in I think, January of 1990. So a demo tech rating at a certain level would qualify the homeowners insurance company to insure the real property that was the collateral to a mortgage. Yep. So that facilitates a source of business for homeowners insurers, yes. Yeah. It is big source of business for homeowners insurers, and it's something that, you know, up until that point in time, no one, no one had been approved by Fannie or Freddie. Really, I think they would make the case that they, they I think the terminology they used was they accepted, am best. They approved us because we went through a process. And we were actually just in terms of history. We were actually approved. Before standard Poor's Moody's and Fitch,

David Wright:

what was that process? Like? process invented? You're the first one through you guys are the guinea pigs? Yes, very much. So I wanted to have a process. What where'd that all come from?

Joe Petrelli:

You know, well, I alright. I do know, the, what we were told and the two folks that coordinated a needed champ at Fannie Mae and Eloqua. At Freddie Mac, I'll never forget those names. They had contacted I think just the am best company about doing the ratings of independent regional companies invested indicated they didn't want they didn't want to do it. They'd indicated it was impossible or for whatever reason, they wouldn't do it. And we got drift to that. So we developed a process internally that we thought would be effective in discerning between financially stable and financially troubled insurance companies heavily dependent on a review of their reinsurance because they're smaller, independent companies. And so we submitted that to Fannie and Freddie in, they don't talk to each other. So we had an internal due diligence at Fannie Mae. And then they sent our process out to a independent insurance consultant. And then we had an internal due diligence at Freddie Mac, and then they sent our process out to their internal or external consultant. So we had for due diligence is internal and external and Fannie internal and external at Freddie and we were finally we were approved. And by Fannie and Freddie they, and then they indicated that and that was close to 30 years ago now. And but but the process was very reinsurance intensive. Because you had to measure not just as

David Wright:

most of the capital in those companies, it's right that they rented.

Joe Petrelli:

Exactly, I mean, you in what we we develop the terminology early on, we call it quality and quantity of reinsurance the quality being the companies you purchase it from, and the quantity being Did you buy the right type? And if you did, did you buy enough of it? But yeah, very much. So companies that would, and and the other thing that we've we noticed over time early on with smaller companies, they, they tend to buy I don't want to say more than enough, but they tend to buy enough so they can sleep well. Yeah, most smaller companies are risk averse, they very much are there, exactly. They play what we call a back game, I mean, that they they protect their surplus first. And they'll make money later. And they are very much risk averse. And what we've done over time is we've we've actually we look at the transactions, we look at the process, and we look at the business model of the insurance company and the reinsurer becomes a partner in I'll put that in air quotes. But these smaller companies cannot exist without the relationship with their broker, whether it's beach or whoever it might be, and or with their reinsures. And they need to do that. They know that. And you'll find that many of these small companies have been around forever. We have clients that we rate today that their date of incorporation is prior to civil war. Wow.

David Wright:

Yeah, yeah. A long time.

Joe Petrelli:

Yeah. Yeah, we've got 1837 I think might be our oldest client. But

David Wright:

an interesting contrast to you know, you guys at that time, we're a fairly new company, we're so this might have been the dawn of your your organization's function as a rating agency when you got that approval from Fannie and Freddie, or were you were we doing before that?

Joe Petrelli:

Well, prior to that? We were doing probably some straight up actuarial work. Okay. You know, pricing last reserving. But I think we've also we also looked at public entity liability insurance pools over time, we've done financial due diligence on them, we were actually issued some public entity, like self funded liability insurance pool ratings.

David Wright:

It's interesting. So so moving over to you never intended to be a radiation. See, this was you put your shingle out doing actuarial consulting work? Is that how demotech started?

Joe Petrelli:

Yeah, we actually we drove we got drawn into it. And by the opportunity by the opportunity,

David Wright:

yeah, there was any good businessman.

Joe Petrelli:

There was a gap in the market and and the legacy rating agencies, I mean, the truth of matter is that for them, you know, they were they were dealing with the larger publicly traded worldwide

David Wright:

carriers and a lot of money. Bobby fees. Yeah. Well,

Joe Petrelli:

I, you know, I wish, I don't know. But I guess the case. But I think, you know, we looked at as we look at both the PNC as well as the life and health industry, if you look at it as a, from a from a size perspective, there's about 2600 companies that report data on the property casualty side to the FDIC. And there's about 1600 on the life and health side. And the numbers, the percentages are almost identical on on the PNC side of the 2600 400 companies, which is about 15% of the companies by count, right. 85% of the premium. Yeah, right. And so you've got 85% of the companies by count competing for 15% of the premium. Yeah. And so we went after the 85% by count competing for 15% of the underserved market. Yeah, yeah. And so and the legacy rating agents I I think we're you know, focused on the upper end of the margin amazing

David Wright:

in and that's that would have been your your bread and butter, your own bread and butter as an actuarial consulting firm because those are the ones who need the statement of actuarial opinion who need all that consulting work that you were selling, so they were already your customer base? A lot of these folks I would think is that right?

Joe Petrelli:

What they could have been But we right now we sort we segregate, we don't. We've got over 400 companies that we work with, on a ratings perspective, and we have about 60 that we do consulting for. So you could look at maybe 460 470 clients, and I can say, you know, less than 1% of them. Maybe not even 1% of them, but that would be five, we basically do one service or the other. And so we never do both. If we do both, it's very rare. And like I say, if we do, there might be two or three out of almost 500. And we disclose that both on our website, and on in our report.

David Wright:

Sure. Because that could be a potential conflict, couldn't it? It could, right. So you're saying you want a better rating? Why don't you buy this all this really high price consulting services from me? You know, I'm not saying you do that. But there's perception, right can be powerful.

Joe Petrelli:

There is perception I think are actually it kind of works. The other way around is we we actually have a lot of determination letter from the actual board for conduct and discipline that basically indicates that we should disclose on our site and in our reports. And what we've done instead is we've actually gotten to the point where there's next to no one that we do both.

David Wright:

Yeah, it's just yeah, it's cleaner.

Joe Petrelli:

It's easier. It really is. And, and the truth of the matter is, if a company has a bad balance sheet, is that much you could do for them, no matter what it is, whether it's a statement of actuarial opinion, whether it's a pricing recommendation, whether it's a rating, per se, I mean, so So part of our business model has been to only finalize ratings on companies that we can help. So if a company has a poor financial rating from us, we will submit what we call a preliminary financial stability rating, and it'd be a low preliminary financial stability rating. But the only companies that we really would envision finalizing a preliminary rating would be the ones that we could actually help them, because we've identified them as strong.

David Wright:

So you don't need a rating if the rating is not good.

Joe Petrelli:

Yeah, exactly. I mean, we think there's enough folks out there, that kind of chasing the chasing the companies or pushing them to the bottom, it's not our business model Plus, the other thing, you you will you see, and I'm sure it's the same way in all industries, is if you don't have a client that's financially sound and knows what they're doing, and is a good company to begin with. It's a time burner, there's not enough money in the world to work with a poor company, it just burns so much of your time and effort, and they have so many problems. So our business model is find good companies that are either unrated or underrated by the by the legacy rating agencies, and then work with them to to help them grow.

David Wright:

And one other area, I noticed that you moved into a gap was title insurance. And that happened in the early 90s as well. I don't know if that was one of the dates you mentioned there but maybe talk a little bit about what the opportunity was there and what you did about it.

Joe Petrelli:

Title underwriters at the time that we got involved and just to give you a little history 1986 I did my MBA research project on title insurance was gone.

David Wright:

Why?

Joe Petrelli:

I love the first one that comes to my mind. No Well I I've always been fascinated by title insure

David Wright:

it isn't it is a weird, weird business, isn't it?

Joe Petrelli:

Very much so but you know the thing about it that it's it's a one time premium. It's a policy that is effectively a retrospective policy, because it says on this day that you're buying your house, we've looked backwards, it's actually the real property. It's not even about the house, we've looked backwards. And as of today, your title to this property is as presented, so it's clean what they would call a marketable title. And so as I was fascinated by it, and was fortunate to have a client at the time, that was a title underwriter as well as a PNC company they had in their in their family. Okay, and so I got interested in it and people always obsessed with the low loss ratios. But it's a very it's an industry that's actually shooting for zero loss ratio.

David Wright:

Yeah, because he wrote a paper on that as well right saying the communication problem of talking about title insurance results, maybe summarize the concluding we touched on it there, but

Joe Petrelli:

well, but I think you know, basically what you have with with a title underwriter is that they will, they will spend all their money, fixing the problems and identifying the problems on a retrospective basis so that you will have on the day you purchase your home a marketable title. And so that they'll go in and you know, people think it's You know, just a matter of figuring out, well will prorate the property taxes between the buyer and the seller will pay off the old mortgage. There's a lot of other things that are just fascinating things you'll find errors, AG, IRS, that may or may not be listed. You know, and again, if you look back in, you know, the 20s 30s 40s 50s 60s, I mean, people would, you know, maybe have a child out of wedlock, and you got an heir to the property that doesn't exist and nobody's taking, you know, nobody's taken credit for and, and things like that happen, you'll find there was a picture one time of a property that had railroad tracks on all four sides of it. And it was, it was basically unaccessible. And somebody bought it sight unseen. And the the, the title underwriter, you know, disclosed all that in the in the deed that you've got to have four rights of way to get to your own property. Just strange things like that. Yeah, it's really an interesting business.

David Wright:

And so why do they need you? Why do they need a financial strength rating? If there's no loss ratio, what, where do you fit in? They're not

Joe Petrelli:

well, and we started rating the industry in 1992. In 1994, the secondary mortgage marketplace to protect the purchasers of collateralized mortgage obligations at Fannie and Freddie and secondary mortgage marketplace said, you have to have a title underwriter that's financially stable, so they'll be around to pay the claim. And so it became a requirement in the secondary mortgage market wasn't for that.

David Wright:

No, it was that it was a big moment for the title industry. It was, wow, they did a big moment about 15 years later.

Joe Petrelli:

Not Right, right. When when, when the bottom fell out, I'd say one quick story about title industry as it was a big moment for them. But they did not like the idea of people looking at the title industry, who were from outside the title industry. Okay, yep, I actually registered for attending one of their annual meetings, and back in the early 90s, to kind of introduce myself and walk around to say hi, and they actually refunded my money, they actually contacted me and said, We don't want to hear that. And I said, well, it's fine. So, you know, it was actually it was quite ironic. But yeah, it's now it's become an accepted part of it. And there's a fair number of companies,

David Wright:

they let you in the meetings now.

Joe Petrelli:

That's right, I get to go. But the industry is consolidated. And why when you look at the cost of an independent audit cost of a statement of actuarial opinion, and there's multiple companies that were within one family, and a lot of those have consolidated the industry's gone from about 110 companies in a very orderly fashion, down to less than 45. Wow. So but it's, it's, again, it's just a fascinating industry. And we again, it was part of our thought leadership, we were there first. And now we

David Wright:

found open a market and yet we did

Joe Petrelli:

yeah. And and, and the nice part about it is we also again, keeping consistent with our our own business model, we are the only ones that rate the entire industry from the biggest down to the smallest. We've done that since 1992. So it's not just the big companies being raided by demo tech is the regionals as well. And we have a very elaborate and ongoing quarterly review process that has been very successful in terms of discerning between solvent and solvent.

David Wright:

So let's pick the story back up to Florida. Okay. So what you did you get a call you get a letter, you probably realize there was an issue there. Because you saw the hurricane smash into Miami. Okay, what was going through your mind you know, dead you've been lobbying them? What happened?

Joe Petrelli:

Not at all i Andrew hits Florida. August in 1992. property market, residential property insurance market in Florida is devastated. If you go back to the good old days, there was the Department of Insurance in Florida and I think also the fire marshal was Thomas. Tom Gallagher was the Commissioner of insurance and I've spoken to him over the past 20 some years we've been operative in Florida and he will say he had to liquidate 22 or more companies from Andrew. Yeah. So Andrew as hard market for your kids. Oh, it was it he he'll tell you he says property underwriting property companies went under automobile companies went under. We had over 20 insolvencies in the next couple

David Wright:

years amazing about that if I Why am I interrupting just as something occurred to me You take it, you know, historical cat losses, let's say Andrew, and you say inflation adjusted, you know, Irma, or whatever. Maria is bigger than Andrew is like, that's the wrong way. Looking at it right market impact adjusted, those are just non non factors. Yeah. liquidating 20 something companies. I don't care how big the storm was. That was a big event.

Joe Petrelli:

Yeah. Yeah. I mean, and I think if somebody were actually able to look back in have in 1992 have it in here we would, we'd have to be 2026 years later, we'd have to look at that. But the truth of matter is, that was because companies were just under reinsured. Right, it really was, because I'm told those were the early days when,

David Wright:

you know, we didn't have cat models. I mean, we kept forgetting cat models, they couldn't pull our stuff on a map and save Oh, it's all in the same, you know, with two counties that are next to each other. There's simpler things even they get

Joe Petrelli:

modeling. But I mean, this is when you know, the sophistication that we have today versus then in the reinsurance side, it just didn't exist and cut was just under reinsured. So they set up what was called the the Florida residential property casualty jayway. And that became the largest residential property insurer in the state. And sometime in 1995 96, the state of Florida Legislature introduced a bill to depopulate, the JPA, the joint underwriting authority, and that the they picked up all this business because they picked up all this business. They didn't want it, they want to get it back to me private, whatever

David Wright:

it happens again. Big problem.

Joe Petrelli:

We will, I'll be glad to touch on that one. When Was there one we get through this, but they called they basically the Florida Bankers Association, amended the legislation to depopulate the J ua, they were going to set up startup companies, they were going to incentivize them to to capitalize companies and take business out of the out of the J way. And the Florida Bankers Association attached an amendment that said but new companies have to be acceptable to the secondary mortgage marketplace, so we can sell their mortgages. Okay,

David Wright:

right. Wait a minute, I know what to do about that. And

Joe Petrelli:

well, I will be honest, I we were approved in 89 and 90, so that, you know, this is six years later, we got a call from woman's name was Madeline mcgucken, in government and industry relations, and she called us on behalf of Commissioner Gallagher. And I am smart enough to know that we were not the first call. So I would respectfully suggest that the legacy rating agencies declined the opportunity. Wow, why and Ella Kwan, who was the gentleman who had done our review at Freddie Mac, I remember aliquam calling me and saying you're going to get a call from Madeline mcgucken. At the Florida Department of Insurance, and I want you to take that call. And I want you to talk with her because I think you might be able to help us out. And she called me and said Eloqua on at Freddie Mac said we got to get these companies accepted by the secondary mortgage marketplace. And he said if I called Joe petrolia demo tech, he'd figure out a way to help us do it. Right. And and I think that when again, going back to our our initial involvement with Fannie and Freddie with independent regional specialty companies, it was all about the reinsurance. And in a cat prone area, like Florida, it's all about the reinsurance. Yep. And and so we leveraged again leveraged our own knowledge of industry knowledge and our own familiarity with reinsurance. And we assisted in the takeout companies that had. And we've been there since we I think the demo tech rated companies in Florida probably have anywhere from 60 to 70% of residential property market. And and those are, which is a higher percentage than we have countrywide with our other 350 plus companies that are not in Florida.

David Wright:

So let's be charitable to your competitors for a sec. Okay. reinsurance is pretty normal thing. And you mentioned it a few times as really an important piece of your capability and what distinguishes us knowledge and ability to evaluate reinsurance as part of the capital structure of a company. Did the other just not get it? Did they were with a just an oversight? I mean, cuz you can understand reinsurance, right. I mean, it's not that I mean, it's it's complicated enough, but somebody can develop the capability if it's that important. What What did they miss?

Joe Petrelli:

Well, I mean, I I don't know. I can't speak with a certainty to that. But I would speculate that if you're in the insurance industry, and you've been brought up in the insurance industry, the analysis of reinsurance is, is an extension. Have your general knowledge base, whereas you could be an analyst have a good be a very good analyst of airlines bonds and stocks, you could be a very good analyst of distillerie bonds and stocks. And you're never going to see anything like reinsurance. So I think the difference between financial analysis and insurance, financial analysis is credential insurance professionals, which devil Tech has on staff? I mean, I so I don't know why invested, presumably. Well, funny thing

David Wright:

because they're an insurance focus.

Joe Petrelli:

I can't speak to it as dead. But But I mean, I can just go back to 1990. And my, my conversation with Arthur J. Schneider, the second where he said we didn't want to rate small companies. Yeah. And so what you had in Florida, by definition, was small companies. And and so I don't know if that's why they did it. And I can't speculate on the app. And but I know that if you're

David Wright:

not running a small company, so we go the logic, then you have less experience working with reinsurance. And so maybe it's something you're just not I mean, if that was a philosophical position of theirs, and since they've no doubt, reverse that, I mean, they do rate all kinds of companies. Now, as far as I know, you can correct me if I'm wrong, they will have built up that capability. Yeah, maybe in response to your success?

Joe Petrelli:

Well, I mean, he there that that's maybe for another podcast, I could tell you a story there. But I won't. I will say this, though, I think the other thing you have to be familiar with, with not just startup companies with smaller companies, you have to be familiar with underwriting guidelines, you have to be familiar with claims procedures and processes, you have to have some sense of the formality or informality of their pricing. Policy provisions, whether or not they're using standard policies, or they have got sub limits built into policies, their investment opportunities, the importance of the reinsurance to the overall equation, I think is exaggerated with the smaller companies. Yeah, because it is a critical component of their financial stability. And from our perspective, I mean, if you look at a small company, and they're all from our perspective, it's sort of a matter of, if you took them, I'll use State Farm as a reference because they're the biggest company. But if you're not six zeros, off of state farms balance sheet and income statement, and you had the same proportionality in the balance sheet and the income statement, you'd still have a fine company, it just wouldn't be as big, but the proportionality would be there. And so the reinsurance gives that smaller company that still financially sound with integrity in its balance sheet, it gives them the ability to not have to get those extra six zeros in the balance sheet and income statement to be able to compete in the marketplace.

David Wright:

So but it tends to be the case, though, that it's it's not it's not obvious, I suppose that just because somebody has small buys lots of reinsurance. I mean, it feels like there's there's still maybe this is your whole point is that there's certain kinds of risks associated with that. And the one that comes to mind is reinstatement premiums, right. So let's say you're a catastrophe prone writer, and you buy a bunch of cat Xs, a loss, you know, we're throwing a lot of jargon here, this would be, you know, the capital required to write in Florida, let's say, or Texas or the Northeast, and then you don't realize that you you know, have this sort of contingent, you're not going to get all the limit, because you have to prepay the the reinstated cover after the event happens. And then you you lose a ton of surplus and you have to recapitalize it that that's an example of perhaps a blind spot. Sorry, go ahead.

Joe Petrelli:

No, I think you're exactly right. I think what what we've done at demo tech to mitigate some of these situations, we look at the vertical and the horizontal programs of the companies. And we will require certainly reinstatement protect premium protection. But I think we're looking at it, we will also limit a company's maximum net retention on a pre tax basis. So we're going to tell a company, you can't do more than say 10 or 15% of your surplus, as your net retention right on the first event. And on the second event, if we're the same season, it'll be a smaller percentage, because theoretically, they will now have a smaller surplus. So the cost of reinsurance becomes a critical driver. Because we're going to have not we're going to make the the smaller companies they're gonna have to buy an awful lot of it not and they have to buy down to a relatively low retention and concurrently by up to a vertical limit that is acceptable to us. So in Then that's just the first event, there's gonna be multiple events after that. And we're always looking at what might be the annual aggregate. we're much more concerned, I think with a small company, we're much more concerned with a series of storms in the same season than we are. We're certainly interested in the Vertical Limit, but a series of storms in the same season, season is appreciably more, could be appreciably more devastating. And just, for example, in the 2017, season demotech had four property writers that wrote in the Commonwealth of Puerto Rico. And obviously, they were devastated by this, the storms in the fall of 2017. Every one of the companies we worked with in Puerto Rico, every one of the companies we work with countrywide, survived 2017. Viva, even the one to four in Puerto Rico, that wrote in Puerto Rico. So I mean, buying enough reinsurance is what the modeling that's out there. And and I think the tools that the reinsurance brokers bring to the table. And I think that the sophistication that's developed, to a large extent within the state of Florida, I think we're approaching the point where some companies can look at the purchase of reinsurance, it's approaching a science, it's no longer an art.

David Wright:

What What do you think about this, because we're in the weeds a little bit, if you don't mind, just carrying on for a second, another thing that came across recently, not in relation, actually, to a company that's rated by organization, but generally the idea of a parental help or guarantee. And we had, I had a reinsurance client that has a fairly thinly capitalized company, but they have other organizations within called the ecosystem, which are all have the same ownership. And they say, well, we capitalize this insurance company, if something goes wrong, when you think about those situations, you must come across that pretty frequently.

Joe Petrelli:

We, we've seen that we've had different points in the past, we've had assurances about certain things of that nature. And we've actually had kind of a mixed response, we've had some very well known international names that have made assurances of that type. And then at the last minute, they've not come through. So what we've done is we've we're educable, we've evolved over time. And I think in the current situation, and then there would be maybe the last five, six years to date. We're much less tolerant of that, that right. And we're more inclined to see the money come in. As matter of fact, one of the things that we prepared and and we've yet to release, but we're we're close, we've actually prepared a PowerPoint that the scribes to the investment community. Yeah, some of the key differences between statutory accounting and gap accounting, okay.

David Wright:

Yeah, yeah. Cuz a gap doesn't wander in here, and then start paying policy fees up front. Yep. Or whatever. Yeah,

Joe Petrelli:

yeah. And you're right. And what we've seen is that investment people, I mean, to look at the rate of return, whether it's on assets or net worth, the more thinly capitalized the company, the better the rates of return. Sure. And I think from our perspective, that

David Wright:

denominator, the ratio goes up. That's right. Well, you know,

Joe Petrelli:

yeah, and our philosophy is, you know, what, why don't you put the money in now. And, and we'd rather see it now. So we're, we're much less tolerant in 2018, than we have been in the past.

David Wright:

Interesting. That actually touches on another area that I was really interested to get into with you, which is the idea of who are the stakeholders that you serve? And so what's interesting to me about rating agencies is on the one hand, you'll have the company which pays the fee, right? So rating your rating from us, you're gonna pay a fee for that. But then a company doesn't themselves actually need it. Right? They're taking it and they're giving it to others, right? So you'll have certain perhaps they're going to be a vendor or a supplier for somebody, for example, have any and Friday come to mind. You'll have investors, maybe you'll have agencies, agents that's producing the business for this company that wanted who would you say are the most important stakeholders in what you're really serving, if you know what I mean, and then kind of like a social sense?

Joe Petrelli:

That's a great question, David. I think from my perspective, we we focus on the insurance company functionality First, we think you're an insurance company first. And so therefore, your your primary stakeholders or maybe your initial stakeholders would be your producers, your claimants, your employees, your reinsurers state of domiciled the regulators. I think investors from our perspective If someone's investing in an insurance company, we think they should understand what an insurance company is. And and there will be claims from time to time. And the reason people's life has less risk is because the insurance company's taken on that part of it. So we think the investment pieces an important piece, however, we think the first thing a company has to do is be properly reserved, have high quality assets behind that backing those claims have high quality and quantity of reinsurance and keep their financial leverage at an at an acceptable level so that they're positioned to succeed. So we think if you've got a good business model, the right pricing the right reinsurance the right people, the right plan, that if you know what you're doing, you're eventually gonna make money. But we don't expect an insurance company to make money every quarter every you know, year over year, this quarter better than last quarter. No, that's not the nature of the business. And we've actually sent out press releases to that effect. And in prior periods several years ago, when when the Midwest had tornado after tornado and hail storm after hailstorm. The some of the publicly traded companies first press release you saw was they were apologizing to their investors that these storms had impacted their quarterly earnings. And we think insurance companies should be proud of rebuilding homes, rebuilding businesses and paying claims.

David Wright:

And so you see yourself in this case, as an interpreter of the insurance, I suppose the results of the insurance industry on beat for for these different stakeholders who that might not themselves understand that, you know, say a producing agent or somebody, you know, we use applying a service there,

Joe Petrelli:

our philosophy would be that the producer, the claimant, the insured are pretty much in the same boat, the producer, the insured and the claimant all want a good good coverage. Very little claims friction in terms of getting a meritorious claim presented and paid. And if the insurance company makes money, that's fine. But an insurance company doesn't have to make money on every transaction, or even every quarter to be a successful insurance company. I mean, we had situations again, going back to using the Midwest as an example and even northern Texas area at Oklahoma. We had companies a few years ago that had on precedented hail, and tornado and wind. And they just lost the most they could they had an aggregate on top of everything, but they lost like close to a third of their surplus. We had their financial plans before in the after we knew they could lose up to a third of their surplus. We saw all that. And we also saw that by the end of that calendar year, they would replace through earnings if nothing else have they were replaced that surplus because of this, the way their seasonality their book of business throughout the year and everything else we have in there with those companies. And every one of them, there were no additional storms, every one of them bounce back. So you had a situation where they lost a third of their surplus. Fortunately, they were extremely well capitalized to begin with. But from our perspective, we knew that going in, we knew what their aggregate was, we knew what their their net retention was under the worst case scenario. We knew their management, we knew their pricing flouse philosophy, we knew who the reinsurers were, we knew the type of program they had. And we had essentially said, yeah, if that happens, we're gonna hang in there with you. And then it did happen. And we hung in there with them. And it's because their insurance companies first and consistent with our own internal philosophy, because they knew what they were doing. And they had the right quality and quantity reinsurance today their surplus position stronger than it was three or four or five years ago when that happened, because they know what they're doing. And I think this idea of earnings and earnings quality, we've actually come up with an index on that that we recently introduced. And the idea we call it a quella is statutory pre tax earnings quality using emerging loss loss adjustment expense estimate. And we think the first thing an insurance company should do is put up adequate reserves. We don't want to pressure them into trying to earn a certain return because we I think we all know it Have an insurance company needs to earn$10,000 more, the way to get it is to reduce your ibnr by$10,000 or to reduce loss reserves by $10,000. That's not the answer. So have an have a balance sheet with integrity. Have a business model that works. Have a consistent reading a reinsurance program that's consistent with your business model have high quality reinsurers doing that. And if you know what you're doing, you will eventually make money.

David Wright:

Do you coming back to this stakeholders idea just for one sec. Do you think of them as targets for? I know what the right word is? Call it a promotional work? That's the right word or, or the need to explain to them what you do, why you do it, and why you're as good as somebody else? Or better? Do you actually focus on them communicating efforts on them to talk about demo tech and what you're doing? I'm talking about, let's say agents, or let's say, I'm not sure who else I would think about, you know, maybe tpas or whoever the people are that would convince them could then be able to help convince insurers that they should use you as well. Do you talk about do you talk to them to the groups directly,

Joe Petrelli:

we speak a fair amount. We speak to state different state associations are active in and realtors, we try to get out talk to regulators. We've started publishing the demo tech difference, to get get our philosophy and who we are out to as many people as we can our quarterly magazine. One of the things that we've done from day one, day one we publish on our website has been there since 1989. For each of our rating categories, our top categories a double prime, our second category is a prime, a SS since substantial, M is in moderate, and L is in license, we have fairly limited number, we have six primary rating. And we assigned each of those ratings, a probability of survival 18 months after we withdraw the rating. So So for a double prime, it's we said a double prime 100% of the companies we raid a double prime will survive at least 18 months after we withdraw that rating. At least 99% of the A primes, at least 97% of the A's, at least 95% of the SS and at least 90% of the AMS after, if we withdraw the rating, and it goes from rated unrated, you got at least 18 months, and those are the survival percents. In terms of what we do to show people the we have confidence in our ratings. We have self published our record from 1989 to date annually updating it. And this last year, year end 2016. We're in the process of getting a 2017 update. We retained two distinguished professors, both of whom had worked with the National Association of insurance commissioners, Robert Klein was their economist for years, and he's been at the Michigan insurance Bureau. He's a Georgia State University, Dr. Robert Klein. And Dr. Michael Barth is I think, assistant dean at the at the Citadel, he's another PhD. He's also cpcu he was at the FDIC and developed was actively involved in development of risk based capital for the IC. So we got two distinguished insurance professionals. We gave them every one of our ratings from 1989 to date, and said, here's who we think went under, here's when we think they went under. And it was over over 40 to 40 42,000 iterations. And we said check them, check our math. And they did it. And they published the report in February of 2018. And they basically said we hit our marks every year from 1989 to date.

David Wright:

Cool, and worship, worship and link up to that podcast notes.

Joe Petrelli:

Well, I will you're certainly welcome to do that. I mean, and these are two distinguished gentlemen whose whose whose vetoes are thicker and longer than than the report but but the point is they they know what they're doing. And they we actually had a little bit of a discussion about the methodology for doing it. And when they did our, our the analysis of ours they did it based on survive failure rates, and then one minus the failure rate gives you the survival rate. They actually used what they thought was a more conservative calculation. And then some that are in use by other legacy rating agencies. And I said, Do what you think's the right thing. And we still hit all our marks for 29 years in a row on every one of those ratings. So I think if if you're an agent, or or your, or even a reinsurance broker, I think that they should not assume that the rating of the legacy rating agencies is is what they think it is. Because they've they've, I think that there's been a people have created a myth about what ratings actually do. But this this report that was done by doctors, Barth, and Klein, they actually thought it was so unique and unprecedented. They actually sent a copy of it to every department of insurance, saying this never been done before in academia, that no one's ever no rating agencies ever said, you know, here's what we did. here's, here's what the rating was, here's when we revise it. Here's when the company went under. It was the first time ever, and we're pleased, I mean, that we now have two distinguished gentlemen who have who verified this on our behalf. What one

David Wright:

of the things I want to get at, and I guess that was a version of this topic, but let's hit it again, is what what holds you back from growing from doing yet more companies? And maybe if you can, as a lead into that, say what the footer of your email says? on no competition? No more nopalea?

Joe Petrelli:

Well, yeah, I mean, our my email, it's a, kn o w. Competition, and old monopoly. And oh, competition, kn o w monopoly, I think there is a functional monopoly. In the insurance ratings business. I think it's been there for a long period of time. And, you know, we we fight that on a daily basis, because it's embedded everywhere. And I use the term functional monopoly. It's actually, I took that from a note that I forget the gentleman's name, but he was a vice president named Best when he was corresponding with the Securities and Exchange Commission, he used the term functional monopoly, to describe a situation where 97% of the business was written by three companies. And, and so I think, to the extent that one entity reviews and rates 98% of the premium volume in the world, that I can use their own term functional monopoly. But I don't know that anything actually holds us back. I think there's a fair number of companies out there that are, are, are have learned maybe to live without a rating, because they don't want to go through the time and expense of the process with with the legacy rating agencies. I think if we're US based only Hawaii, Alaska, Commonwealth, Puerto Rico, the 48, mainland states. And we've had, we're up over 400 companies. And I think it's ironic that when you look at when one looks at some of the other legacy rating agencies in the United States, that our count is, is about as strong as theirs is as high as theirs is. The difference between our count and their count is, is that if you net out companies that are dual rated by another legacy rating agency, we actually have the highest count of uniquely rated companies. We're second to 2am best in the United States in terms of uniquely rated companies by count the good folks at standard Poor's Moody's and Fitch, they rate perhaps as many companies, maybe even more, but they're effectively dual rated companies. We're at we're adding a large number of small companies. But I think we're, we're open for growth, if that's the question, I think, from our perspective, there is a need in a competition for a need for competition, particularly among the smaller company because I think there is a very distinct bias against independent regional and specialty companies, particularly if they're small and they're mutual. I think that the ratings will show that then that, that there's a whether it's, whether it's based on the fact that you should be diversified geographically or product line or whether it's based on something more formulaic, I don't know. But again, from from a practical perspective, if you look at the The composition of the insurance industry on the PNC side 2600 companies report data to the FDIC, approximately 1400 of them about 51 52%. Right? in one state, or one line. So you've got 1400 out of 2600 that are in one state or one line. And so we can talk about diversification. But, again, by percentages, we're not a diversified industry. We're an industry that focuses on niches. And that niche can be a state, or that niche can be a line of business. And, again, we we respect the fact that companies can be specialists in a state or in a line of business. And we don't think that the diversification element is as important as other people think it might be other other legacy rating agencies think it might be and we think, again, going back to the reason they can come smaller companies can do that. It's because they have protected themselves.

David Wright:

They're buying the diversification from somebody else

Joe Petrelli:

through reinsurance, exactly. I mean, they're buying the protection. Yeah. And I mean, at the same time, if you look at reinsurance, and you made the great point earlier, you're you're buying capital, but concurrently, you're limiting your risk on the lack of diversification. And and, again, if companies know what they're doing, I we don't see the need for an overly aggressive diversification.

David Wright:

Okay, let me let me so let me play devil's advocate. Now. I, I don't necessarily believe this, but it's an interesting argument, I think. So actually, the the business monopoly, this is a business which is naturally monopolistic. And and I'll use a term from called the tech strategy world network effects is the reason why and when a network effect is, is that the value of an organization increases with the square of the number of people who are in it. So Facebook, classic example, right? Where if you're in a social network, if you just you and I are in a social network, it's worth so much. But if both of our families are and all of our friends are, the value of that work increases massively, much more than just the number of people in it. And as best you can think of them or a dominant rating agency of any sort, are benefiting from the fact that they are the standard. And you can only be the standard if you get over that hump in the network of all the people that agree on that together. And they kind of collectively want a monopoly in some sense, because it's just too hard to have two standards, because it's more valuable to them. When there's one way to think about that argument.

Joe Petrelli:

I guess I think that the I don't think much of it personally. But I would say that there's a fair number of people that the insurance is very that are evidently buying into it. Right. But but I think it's fascinating to me, because if we took that same discussion, and we said there should be but one reinsurance company in the world, or there should be one architect who designs insurance company home offices, or there should be one rug manufacturer who sells to insurance companies, people would say that's ridiculous. However, if we get into the area of insurance company ratings, all of a sudden, what would have been ridiculous for any other discipline? seems to be something that's reasonable

David Wright:

is nothing different. Were insurance regulation. Is there? Well,

Joe Petrelli:

I mean, I think the regulatory part of it One of the fascinating things I think that there has been, and I say I think there's been some rethinking on the part of some regulators, and I say that not the regulator in terms of the department's of insurance, per se, but the National Conference of insurance legislators has passed a model act. That does two things, it number one, it reinforces that the states are in charge of the business of insurance, and no one else. And the second thing that they said in their model act was that one of the ways to show that the states are in charge is that there should be more competition amongst the insurer rating agencies. So it's starting to get the attention. And I think I've read some articles that have indicated I think there was an article in Missouri bar magazine, that was authored by Charles chamness, who the President of namic and it was a few years ago and he talked about the fact there's really there's no requirement to be read that this is a company choice. And some companies like to be rated some companies don't and, and that the rating agency that the company selects, should be the one that the company feels is is more comfortable with whether it's their, their process or their people or their procedures. And so I mean, from my perspective, the idea that one size fits all. It makes little sense to me. One size rating agency fits all companies. And I think that when we look at what we did, in with title underwriters back in 1992, to be thought leaders, with regional and specialty companies back in 1989 1990, what we did in in Florida, in 96, we were able to step in, and assist not just consumers, but the companies and the brokers and the the lenders, the bankers. And, and part of it is because we're ready. And I think, from my perspective, when you look at an insurance company, at the end of the day, what you want is an insurance company that can pay a claim. And so from our perspective, we're foot we're going to continue to focus on survival rates of the companies that we review and rate, they're very favorable, they compare extremely well to legacy rating agencies. And I think, you know, eventually, after having done this for 29 years, I say eventually, I think that that's the way you grow the critical mass. And I think that it's as much a factor of what we're doing at demo tech. But I think the other thing that's happening, and I'm not familiar with the idea of the network process that you discussed, but from our perspective, the other thing that's happening is that the legacy rating agencies are doing, are making changes and doing things and maybe re examining themselves too. And I think part of that part of what the marketplace will see at the end of the day is that it's it's about our effectiveness and about what we could do for them. But it's also about the fact that we we a demo tech probably better positioned to understand them immediately. Because we've got CPAs on staff that have been the CFOs of insurance companies, we've got people on staff, they've been on the boards of insurance companies that are no longer there, that people on staff, they've been in the Board of Governors of the Chartered property casualty underwriters Association for eight years. And we've got people that that have been doing financial analysis and insurance, financial analysis for 3040 years. So I think at some point, while I understand the idea about you know, the bigger, bigger is better, we continue to grow. In terms of count. Word, we're at over 400. Now, last year, at this time, we were probably 350. So we're picking up almost a company a week. And and part of that's happening, you know, over an extended period of time when the title industry, which we've been an integral part of has shrunk from over 100 to less than 50, we still continue to add to count. So I hear you, I appreciate it, and a boy is listening that would want to, to explore, explore helping us grow that number, so we get increased that square. I'm in, you know, the

David Wright:

what I what I love about and I met Amanda actually mentioned this earlier, I forgot about it. But it's back in this comment is what you are actually is interesting is what are we the technical classic definition of a disruptive innovator. Because this guy Clay Christensen, who is his Harvard professor who wrote a book and an article called the innovators dilemma, and his point there is there such a thing as a disruptive and it's the word disruption all over the place these days, right. But he meant it in a very specific way. And one of the ways in which he meant it was to say that when you have a company that we have an overlooked customer base, and a new entrant can come in and serve that overlook customer base and then move up market. That's the progress that a disruptive innovator takes. And he has all kinds of interesting examples. steel mills, network drives, all kinds of neat things. And that is what you're doing well, I'll put up a link to that as well. And that's something that a lot of people say they want to do, and very, very hard to pull off. So you know, congratulations on that. One, I want to I want to maybe close because we're running out of time here on this idea of the process that you go through and and that is the standards you apply to to anoint something acceptable or not. Right. So you have these conventions I think of in the business you take, for example, the one in 100 cat event, right, which is a made up number for every company, because one it's a made up number because there's never happened to the portfolio itself. But it's also made up in the sense of the scenario that they're modeling is invented as well within the cat model. And then there are certain standards for it's called one or two year reserve releases. And you mentioned that before and there's in every in every potential risk category of an insurance you'll have these rules of thumb or quantitative rules that you apply. And sometimes you might change what that rule is, right? So the model might change or whatever changes. And I'm wondering how you how you know, when the time is right to do that, because if you think about if you if you overdid it, think about that scenario, right? Where you violated the expectations too strongly of your constituents, right? And you said, actually, we're going to require you to go to the one of the 1000. Now on your catastrophe events, and then everybody, you know, too bad. If you're, if you don't meet that, then you don't get our rating anymore, and you're off. And you think that's the right thing to do. How do you make a decision to do that? What is the Is it a gut? I mean, how do you how do you know when you've gone too far if you want to JB ambassador's famously changing their rating model right now, that's an interesting process to observe. That's hard to do, is I'm sure you're watching that too. How do you guys do that?

Joe Petrelli:

Well, I'll answer it, you know, certainly from from demo Tech's perspective, I think we were, we believe that the regulatory process and their entire had the Departments of insurance and talk about risk based capital on talking about Iris ratios, and talking about the market conduct exams and talking about financial examinations, we believe that the regulatory process at the states is, is an excellent baseline. And we think that when companies have an opportunity to get high scores, if you will, again, scores and air quotes, and pass those examinations. But we think that the insurance industry is scrutinized by so many independent professionals, before you ever get to a rating agency. You've got the regulator's out there, you've got independent auditors out there, you've got public transparency, in terms of Iris results, and RBC results. So from our perspective, we think that companies, companies are already doing many of the things that a rating agency might want to ask them to do, for example, enterprise risk management, own risk and solvency assessments. These are imposed on them, what one of the things that we try to do is to draw

David Wright:

a best practice

Joe Petrelli:

best practice, yeah, we try to look at the company's thing. And we'll tell the companies that don't just put that actuarial report on a shelf, use it, it's not just about satisfying a regulation that actually is trying to get you information. Same thing with your independent auditor, don't just say, Well, yeah, we got our own our own qualified opinion, clean opinion. And we're good to go. Oh, why don't you read it, read the footnotes, read the management letter. Same thing with your own management, discussion and analysis, don't just write it for the sake of getting it done. make it meaningful to the regulator incorporated in your, your enterprise risk management. So I mean, this idea, I mean, the other thing we joke at Dell tech, we get around internally, we say, you know, we'll have a company approached us it's unrated. It's been around since 1862. And we always say, well, kind of like their chances making it another year. I mean, when you look at some of the companies that are out there, that and again, they're smaller, they might only be in, you know, 15 counties in a state. But when you look at some of the companies that have been around answering the bell, quarter after quarter, year after year for 100 years, or more, what is it that anybody can do for them or give them insights on I think what you really have to do is get them to step away from the day to day and, and say, Don't look at this Orsa or the CRM as a regulatory requirement. Look at it as a way of you to tell your story, because you've been answering the bell consistently, for well over 100 years, this is your opportunity to really to rise and shine, you should be embracing this not pushing back against it. So I think that it really is a matter of finding good companies that are maybe feeling like a regulation is an additional burden on them that they don't need, and educating them to the point where they say, Oh, wait a minute, you mean I can get this sort of information and insight out of this regulatory requirement. So it's really a little bit of an opportunity for the companies to be to be a little more forward thinking because I think we all tend to be focused on you know, kind of the, what's urgent, as opposed to what's important. And I think from my perspective, that's one of the things that we like to do with the company is let them know that we're there to assist them and and sometimes, you know, it's not a deposition. This should be a collaborative discussion, because we're trying to find out more About You, so that we can assist you put your best foot forward. Because I mean, I again, I look at it from, from the perspective, there's no companies out there that have been around 7580 100 125 years that don't know what they're doing. I don't care what industry you're in.

David Wright:

So two more questions. One, I should have asked at the beginning where the name demo tech comes from. We just quickly address that. Where did that come from? Okay,

Joe Petrelli:

well, alright, keep in mind that we were incorporated in 1985. And back then demo tech was kind of a funny name. But But now you've got names like alphabet, Google, Yahoo, Bing, that maybe aren't as funny.

David Wright:

But yeah, check in there. That's very modern.

Joe Petrelli:

That was what we were actually we were the first insurance disrupter, we actually had the audacity to take on what was an effective functional monopoly. But that the the demo tech is actually a short name, for a longer name, we have a name, save that it's demographics, technologies, Incorporated. And the idea in 1985, was that eventually, demography and technology will drive everything. And so we had done one tech major, which was the short name,

David Wright:

you know, I think demography is one of the more under valued or underrated sources of change in the world. It really is. I mean, I remember listening to a talk a few years ago by a demographer, I suppose, who said, every single year, everybody gets one year older. And we we are still working on actually profound implications of that for society, for economics, for history, for geography, for everything else. Well, so last question. Who do you think is that is an audience or constituency out there a group of potential clients for your for you that that need you the most? Like, what are the ones that are most interesting to you right here, think, man, if you guys just understood what we were doing? It would improve your life?

Joe Petrelli:

That's a great question. I think our target market, if you will, is going to be smaller, independent companies, without access to capital that have a high quality reinsurance program. And if they're property focused, that's fine. But if they're casualty focus, that's fine. I mean, I think for us, it's the smaller companies that don't have that independent and unlimited pocket book. They can dip into where they're, they're out there. They're playing on their own dime. They've got a business plan. They've got strong people. We'd love to talk to them.

David Wright:

Great. My guest today was Joe Petrelli Joe, thanks for joining me. Thank you, David. enjoyed it.