Risk retention groups (RRGs) continue to collectively provide financial stability and remain committed to maintaining adequate capital to handle losses, according to a review by Demotech.
Since Q2 2010, cash and invested assets increased 61.4 percent across the sector and total admitted assets increased 43.7 percent.
From the same point through to Q2 2014, RRGs collectively increased policyholders’ surplus 56.1 percent. This increase represents the addition of nearly $1.5 billion to policyholders’ surplus, according to the review.
During this same time period, liabilities increased 35.9 percent.
These reported results indicate that RRGs are adequately capitalised in aggregate and are able to remain solvent if faced with adverse economic conditions or increased losses.
RRGs reported nearly $900 million of net premium written (NPW) through Q2 2014, an increase of 16.3 percent over Q2 2013.
However, RRGs collectively reported nearly $1.5 billion of direct premium written (DPW) through Q2 2014, a decrease of 13.4 percent over Q2 2013.
The DPW to policyholders’ surplus ratio for RRGs collectively through Q2 2014 was 72.1 percent, down from 101.3 percent at Q2 2013.
The NPW to policyholders’ surplus ratio for RRGs through Q2 2014 was 43.3 percent and also indicates a decrease over 2013, as this ratio was 45.3 percent.
Douglas Powell, senior financial analyst at Demotech, commented: “Despite political and economic uncertainty, RRGs remain financially stable and continue to provide specialised coverage to their insureds.”
“The financial ratios calculated based on the reported results of RRGs appear to be reasonable, keeping in mind that it is typical and expected that insurers’ financial ratios tend to fluctuate over time.”
While RRGs have reported net income, they have also continued to maintain adequate loss reserves while increasing premium written year-over-year, which, according to Demotech, shows "a great deal of financial stability".
