A decrease in the number of risk retention groups (RRGs) in 2014 has not affected the financial strength of the segment, according to financial analysis firm Demotech.
Despite reports of 19 RRG retirements in 2014, dropping the total number to 238, Demotech’s analysis of reported financial information showed that policyholders’ surplus increased 72.5 percent, or over $2 billion, while liabilities increased about 60 percent over a five-year period.
“These results, and a liquidity ratio of 65.7 percent during [Q3 of 2014], indicate that RRGs are adequately capitalised and able to remain solvent if faced with adverse economic conditions or increased losses,” said Douglas Powell, senior financial analyst for Demotech.
JLT Towner Insurance Management partner Len Crouse commented: “While some RRGs dissolved to take advantage of very low commercial rates, those that remain understand all of the benefits of alternative risk financing, not just pric.”
“These financial stability results prove that, as a group, risk retention groups are well run.”
