Risk Retention Groups (RRGs) remained financially stable in the second quarter of 2018, despite political and economic uncertainty, according to a report by Douglas Powell, senior financial analyst at Demotech.
Powell’s report, which analysed risk retention groups in Q2 2018, revealed that RRGs are continuing to collectively provide specialised coverage to their insureds while remaining financially stable.
The report showed that, as in Q1 this year, RRGs were collectively unprofitable through Q2, reporting an aggregate underwriting loss of $37.1 million–due to a reported net investment gain of $127.3 million and a net income of $78.7 million.
Powell commented: “RRGs have collectively reported a net income at each year-end since 1996.”
The loss ratio for RRGs was 78.5 percent, while the expense ratio was 18.2 and the combined ratio was 96.7 percent.
Powell suggested that the ratios relating to income statement analysis “appear to be appropriate … moreover, these ratios have remained within a profitable range”.
Cash and invested assets (2.9 percent), total admitted assets (2.3 percent), and total liabilities (0.6 percent) have all increased since Q2 2017.
Over the same period, RRGs collectively increased policyholders’ surplus by 4.9 percent, representing an addition of nearly $228 million.
These results suggest that RRGs are adequately capitalised in aggregate and are able to remain solvent if faced with adverse economic conditions or increased losses.
According to Powell, the level of policyholders’ surplus “becomes increasingly important in times of difficult economic conditions by allowing an insurer to remain solvent when facing uncertain economic conditions”.
“Regarding RRGs collectively, the ratios pertaining to the balance sheet appear to be appropriate and conservative.”
He added: “Based on reported financial information, RRGs have a great deal of financial stability and remain committed to maintaining adequate capital to handle losses.”
“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.”