Risk retention groups (RRGs) saw cash and invested assets, total admitted assets and total liabilities all increase in Q2 2019, according to an analysis report by Douglas Powell, senior financial analyst at Demotech.
The report revealed that from Q2 2018 through to Q2 2019, RRGs collectively increased policyholders’ surplus by 26.6 percent, representing the addition of nearly $1.1 billion to policyholders’ surplus.
Powell explained that these reported results indicate that RRGs are adequately capitalised in aggregate and able to remain solvent if faced with adverse economic conditions or increased losses.
He said: “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.”
RRGs collectively reported nearly $2.1 billion of direct premium written (DPW) through Q2 2019, an increase of 29.9 percent over Q2 2018.
Results also showed that RRGs reported $1.2 billion of net premium written (NPW) through Q2 2019, an increase of 25.8 percent over Q2 2018.
The DPW to policyholders’ surplus ratio for RRGs collectively through Q2 2019 was 80.4 percent. The NPW to policyholders’ surplus ratio for RRGs through Q2 2019 was 48 percent.
On the underwriting results, the report suggested that RRGs collectively were unprofitable through Q2 2019 as RRGs reported an aggregate underwriting loss of $103 million.
In addition, RRGs reported a net investment gain of $251 million and a net income of $136.4 million.
The loss ratio for RRGs collectively, as measured by losses and loss adjustment expenses incurred to net premiums earned, through Q2 2019 was 84.9 percent.
Meanwhile, the expense ratio, as measured by other underwriting expenses incurred to net premiums written, through Q2 2019 was 18.8 percent. The combined ratio, loss ratio plus expense ratio, through Q2 2019 was 103.7 percent. This ratio measures an insurer’s overall underwriting profitability. A combined ratio of less than 100 percent typically indicates an underwriting profit.
For RRGs collectively, the ratios pertaining to income statement analysis appear to be appropriate, within ratios remaining within a profitable range.
Powell concluded: “Despite political and economic uncertainty, RRGs remain financially stable and continue to provide 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.”
He added: The results of RRGs indicate that these specialty insurers continue to exhibit financial stability. 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. RRGs continue to exhibit a great deal of financial stability.”