Risk retention groups (RRGs) can continue to collectively provide specialised coverage to their insureds while remaining financially stable, according to Demotech.
Douglas Powell, senior financial analyst at Demotech, said in a report on RRGs’ financial status that they have a great deal of financial stability and remain committed to maintaining adequate capital to handle losses.
During the last five years, cash and invested assets, total admitted assets and policyholders’ surplus have increased at a faster rate than total liabilities.
Since the end of 2011, cash and invested assets increased 70.2 percent and total admitted assets increased 58.4 percent.
More importantly, over a five-year period from the end of 2011 to the end of 2015, RRGs collectively increased policyholders’ surplus 55 percent.
Powell said this increase represents the addition of more than $1.6 billion to policyholders’ surplus. During this same time period, liabilities increased 60.8 percent.
These results indicate that RRGs are adequately capitalised in aggregate and able to remain solvent if faced with adverse economic conditions or increased losses, according to Powell.
Underwriting gains and losses have taken a hit, however, with RRGs collectively failing to be profitable in 2015.
RRGs reported an aggregate underwriting loss for 2015 of $58.7 million, a decrease from 2014, although they achieved a net investment gain of $330 million, which beat the previous year.
The loss ratio for RRGs collectively, as measured by losses and loss adjustment expenses incurred to net premiums earned, through to the end of 2015 was 79.6 percent, a decrease from 2014, when the loss ratio was 131.5 percent.
Despite political and economic uncertainty, RRGs remain financially stable and continue to provide specialised coverage to their insureds, according to Powell.
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.
Powell said the results of RRGs indicate that these specialty insurers continue to exhibit financial stability and noted that while RRGs have reported net income, they have also continued to maintain adequate loss reserves while increasing premium written year over year.
Powell believes that RRGs continue to exhibit a great deal of financial stability.
