The amount of premium insured by risk retention groups (RRGs) has grown to more than $3 billion, according to Pinnacle Actuarial Resources’ 2018 RRG Benchmarking Study.
The study examined publicly-available RRG financial statement data as of year-end 2017 to provide analysis of key financial metrics and industry trends.
It reveals that RRG premium rose from just over $2 billion in 2008 to above £3 billion in 2017.
The number of RRGs has also grown steadily over the 10 year period, with figures from A.M. Best revealing there were a total of 226 by the end of 2017.
According to the study, there are now six states with 10 or more domiciled RRGs, with A.M. Best’s statistics showing that more than 60 percent of RRGs are domiciled in three states Vermont (37 percent), South Carolina (15 percent), and the District of Columbia (13 percent).
Vermont also led in terms of average RRG size in direct written premium (DWP) by domiciliary state, while New York, Pennsylvania, and California led in DWP by risk state.
In terms of DWP by line of business for US RRGs, medical professional liability ($1,785 million) was the largest written line, followed by other liabilities ($1,081 million), and commercial auto liability ($301 million).
Pinnacle’s study found that between 2007 and 2017, net income has been positive for both the industry and RRGs.
Net income as a percent of surplus had been decreasing for RRGs, until it saw an upturn in 2017.
According to the study, the ratio of underwriting income to surplus has been cyclical in nature over the 10 year period, with RRGs often running opposite of the industry.
The study added that the combined ratios for RRGs have been over 100 percent between 2013 and 2017.
In the study, Pinnacle emphasised that as premiums are insurance companies’ primary measure of top-line revenue, premium trends are key financial indicators.
The study shows that RRGs have had higher DWP growth over the four years prior to 2017 than the insurance industry.
During several years prior to 2017, the industry has retained 90 percent of its net written premium (NWP) as a percentage of DWP, while RRGs have retained around 60 percent of their DWP.
Pinnacle found that insurers’ primary expenditures are loss and loss adjustment expenses and are the primary driver of insurer profitability.
The accident year loss and loss adjustment expense ratios have been higher for RRGs than the industry between 2011 and 2017.
The ratios of underwriting expenses to DWP for RRGs have been consistent in the nine years prior to 2017.
Across all lines loss development on held reserves has been favourable for RRGs between 2010 to 2017.
The study also revealed that over several past calendar years prior to 2017, commission and brokerage expenses for RRGs as a ratio of DWP have risen, while taxes, licenses, and fees have been fairly flat.
Pinnacle noted that underwriting operations and income, investments and investment income are important secondary components of insurance company operations.
The study’s analysis of RRG asset mix and operating results showed that there was a noticeable growth in RRGs since 2014.
The study notes: “This is borne out in increases in both premium and assets. With the additional assets, there has been an increase in the amount invested in common stocks, thus generating
an increase in investment income.”
