Risk retention groups (RRGs) collectively reported a slight increase to policyholders’ surplus in Q1 2022 while remaining financially stable, according to an analysis report by Douglas Powell, senior financial analyst at Demotech.
The report, which reviews reported financial results of RRGs for the quarter, finds that cash and invested assets for RRGs increased 4.2 per cent year-on-year, while total admitted assets increased 4.4 per cent.
However, RRGs collectively reported an increase of less than one per cent (US$6.3 million) to policyholders’ surplus. Powell notes that surplus levels are increasingly important in difficult economic conditions, as this allows insurers to remain solvent while facing uncertainty.
Loss and loss adjustment expense reserves to policyholders’ surplus ratio is at 100.1 per cent, according to the report.
Powell explains that a higher ratio means the insurer’s stability is increasingly dependent on having and maintaining reserve adequacy.
He describes that, collectively, ratios pertaining to the balance sheet are “appropriate and conservative”, indicating that RRGs remain adequately capitalised and able to remain solvent in the event of poor economic conditions or increased losses.
The report notes that collective underwriting results were unprofitable in Q1 2022, reporting an aggregate underwriting loss of $4.2 million, and a net loss of $5.2 million.
“Since RRGs are restricted to liability coverage, they tend to insure medical providers, product manufacturers, law enforcement officials and contractors, as well as other industries with professional liability,” the report says.
RRGs collectively reported $2.1 billion of direct premium written during the quarter, an increase of 7.9 per cent compared to Q1 2021. In addition, $1.4 billion of net premium written marks a year-on-year increase of 9.1 per cent.
Powell concludes: “Despite political and economic uncertainty, RRGs remain financially stable while providing 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. The results of RRGs indicate that these specialty insurers continue to exhibit financial stability.”
