Risk retention groups (RRGs) remain financially stable and continue to provide specialised coverage to their insured, despite political and economic uncertainty, according to a report by Demotech’s senior financial analyst, Douglas Powell.
Powell’s ‘Analysis of RRGs: First Quarter 2018’ also found increases in cash and invested assets (2.2 percent), total admitted assets (2.5 percent), and total liabilities (0.7 percent) since Q1 2017.
Additionally, over the same time period, RRGs saw a collective increase in policyholders’ surplus of 5.5 percent, which represents the addition of almost $255 million.
Powell explained that these results “indicate that RRGs are adequately capitalised in aggregate and able to remain solvent if faced with adverse economic conditions or increased losses”.
Collectively, RRGs reported almost $1.5 billion in direct written premium in Q1 2018, a decrease of 0.5 percent from Q1 2017. Net premium written, however, was up 5.3 percent over Q1 2017, with RRGs reporting over $945 million in Q1 2018.
The ratios pertaining to premium written appear to be conservative.
The report revealed that in regards to underwriting gains and losses, RRGs were collectively unprofitable through Q1 2018 as they reported an aggregate underwriting loss of $53.5 million and a net income of $36.3 million.
Powell noted: “RRGs have collectively reported a net income at each year-end since 1996.”
The ratios relating to the income statement analysis appear to be appropriate and have remained within a profitable range.
Powell emphasised the importance of RRGs’ unique ownership structures, which is restricted to the policyholders of the RRG and could be “a driving force in their strengthened capital position”.
He concluded: “The results of RRGs indicate that these specialty insurers continue to exhibit financial stability.”
