Risk Retention Groups (RRGs) continued to exhibit financial stability and reported an increased net income in the third quarter of this year, according to a report by Douglas Powell, senior financial analyst at Demotech.
Powell’s report, which analysed RRGs in Q3 2018, revealed that, despite political and economic uncertainty, collectively they are continuing to provide specialised coverage to their insureds while remaining financially stable.
The report showed that, as in the two preceding quarters, RRGs were collectively unprofitable through Q3 and reported an aggregate underwriting loss of $66.7 million.
RRGs reported a net investment gain of $205.9 million and a net income of $132.3 million, which was up from $78.3 million in Q2.
The loss ratio for RRGs collectively was 77.8 percent, the expense ratio was 22.3 percent and the combined ratio was 100.1 percent.
Powell noted that the financial ratios, which are calculated based on the reported results of RRGs, appear to reasonable, keeping in mind it is typical and expected that insurers’ financial ratios tend to fluctuate over time.
Cash and invested assets (1.1 percent) and total admitted assets (1.3 percent) both increased since Q3 2017, while liabilities decreased 0.6 percent.
Over the same period, policyholders’ surplus rose 4.2 percent, representing the addition of $202.4 million while trimming some liabilities.
These results emphasise 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 $2.8 billion of direct written premium in Q3 2018, a slight drop of less than 1 percent over the same period the year before.
They reported nearly $1.5 billion of net written premium in the third quarter of this year, an increase of 9.5 percent over the same period the year before.
Powell commented: “In regards to RRGs collectively, the ratios pertaining to premium written appear to be conservative.”
“It is important to note again that while RRGs have reported net income, they have also
continued to maintain adequate loss reserves while increasing policyholders’ surplus written year over year.”
He concluded that the Q3 results showed RRGs continue to “exhibit a great deal of financial stability”.
