Risk retention groups (RRGs) continued to collectively provide specialised coverage to their insureds while remaining financially stable despite political and economic uncertainty in 2018, according to a report by Douglas Powell, senior financial analyst at Demotech.
In Demotech’s ‘analysis of RRGs year-end 2018’, Powell suggested that reported financial information revealed that the structures have a great deal of financial stability and remain committed to maintaining adequate capital to handle losses.
Additionally, Powell emphasised that the unique ownership structure of RRGs, in which ownership is restricted to the policyholders, may be a driving force in their strengthened capital position.
According to the report, RRGs were domiciled in 21 jurisdictions in 2018, with Vermont commanding the largest market share, housing 82 RRGs.
The next biggest domiciles were South Carolina (34) and the District of Columbia (32), followed by Hawaii (16) and Nevada (16).
Medical professional liability (claims-made) was the dominant primary line of business for RRGs, with the report showing that 49.8 percent of RRGs reported it as their primary line of business.
The next largest primary lines of business were other liability claims (17 percent), commercial auto liability (14.5 percent), other liability (occurrence) (12.8 percent), medical professional liability (occurrence) (4.3 percent) and all other lines (1.7 percent).
The report reveals that, collectively, RRGs reported a year-on-year increase of 14.1 percent in direct written premium through year-end 2018, rising to nearly $3.3 billion.
Net written premium (NPW) also rose by 6.9 percent in comparison to 2017, with RRGs reporting $1.7 billion through year-end 2018.
The report comments that the ratios pertaining to premium written appear to be conservative.
RRGs collectively reported adequate loss reserves at year-end 2018, evidenced by the one-year and two-year loss development results.
The report states that, in regards to RRGs, loss development ratios for 2018 would be viewed as favourable.
The report’s balance sheet analysis shows that cash and invested assets rose 19.1 percent and total admitted assets rose 17.9 percent from year-end 2017 to year-end 2018.
RRGs also collectively increased policyholders’ surplus 12.6 percent over the last year, which represents the addition of nearly $537 million to policyholders’ surplus.
Liabilities grew 21.8 percent over the same period.
Powell noted: “These reported results indicate that RRGs remain adequately capitalised in aggregate and able to remain solvent if faced with adverse economic conditions or increased losses.”
According to the report, the ratios pertaining to the balance sheet appear to be appropriate and conservative.
The report’s analysis of income statement reveals that RRGs were collectively unprofitable with regards to underwriting results in 2018.
They reported an aggregate underwriting loss of $14.1 million for the year, however, these losses were offset and RRGs collectively reported a net investment gain of $222.4 million and net income of $171 million.
The loss ratio for RRGs fell last year, from 77.2 percent in 2017 to 76.6 percent in 2018, as did expense ratio, down to 24.4 percent in 2018 from 24.6 percent in 2017.
The combined ratio also decreased, down to 101 percent from 101.7 percent the previous year.
The report notes that the ratios pertaining to income statement analysis appear to be appropriate.
Powell said that the results of RRGs from 2018 “indicate that these specialty insurers
continue to exhibit financial stability”.
He added: “Despite political and economic uncertainty, RRGs remain financially stable and continue to provide specialised coverage to their insureds.”
“It is important to note again that while RRGs have reported net income, they have also continued to maintain adequate loss reserves while increasing premium written year-over-year.”
He concluded: “RRGs continue to exhibit a great deal of financial stability.”
