Risk retention groups’ (RRGs) underwriting gains and losses were collectively profitable through Q1 2017, reporting an aggregate underwriting gain of nearly $3.1 million, according to a report from Demotech’s Douglas Powell.
The report, Analysis of Risk Retention Group First Quarter 2017, also found that RRGs reported a net investment gain of $60.8 million and a net income of $51.5 million.
RRGs’ cash and invested assets, total admitted assets and total liabilities all increased by 2.8 percent.
Since Q1 last year, RRGs have collectively increased policyholders’ surplus by 2.6 percent, representing an additional $121 million.
According to the report, the level of policyholders’ surplus becomes increasingly important in times of difficult economic conditions, allowing an insurer to remain solvent when facing uncertainty.
Liquidity, as measured by liabilities to cash and invested assets was 71.6 percent for Q1.
The report suggested that a value less than 100 percent is considered favourable, as it indicates that there was more than a dollar of net liquid assets for each dollar of total liabilities.
RRGs collectively reported over $1.5 billion of direct premium written through the first quarter 2017, an increase of 4.2 percent over Q1 2016. RRGs reported approximately $902 million of net premium written through first quarter 2017, a decrease of 3.8 percent over first quarter 2016.
The direct premium written to policyholders’ surplus ratio for RRGs collectively through Q1 2017 was 128.3 percent, while the net premium written to policyholders’ surplus ratio for RRGs was 76.7 percent for the first quarter.
The report said: “An insurer’s direct premium written to surplus ratio is indicative of its policyholders’ surplus leverage on a direct basis, without consideration for the effect of reinsurance. An insurer’s net premium written to surplus ratio is indicative of its policyholders’ surplus leverage on a net basis.”
It noted that an “insurer relying heavily on reinsurance will have a large disparity in these two”.
Concluding the report, Powell said: “Despite political and economic uncertainty, RRGs remain financially stable and continue to provide specialised coverage to their insureds.”
He added: “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. The results of RRGs indicate that these specialty insurers continue to exhibit financial stability."
