3 July 2017Analysis

RRGs continue to demonstrate financial stability in Q1 2017

Risk retention groups (RRGs) continue to exhibit a 'great deal' of financial stability while providing specialised coverage to their insureds, according to a Demotech report of RRGs in the first quarter of 2017.

Furthermore, RRGs were collectively profitable through the first quarter of 2017, as they reported an aggregate underwriting gain of nearly $3.1 million.

They reported a net investment gain of $60.8 million and a net income of $51.5 million.

The report highlighted that RRGs have collectively reported a net income at each year-end since 1996.

RRGs reported over $1.5 billion of direct premium written in the first quarter of 2017, an increase of 4.2 percent over the first quarter of 2016.

They collectively reported approximately $902 of net premium written through the first quarter of 2017, a decrease of 3.8 percent over Q1 2016.

Since the first quarter of 2016, cash and invested assets, total admitted assets, and total liability all increased by 2.8 percent.

In this same period, RRGs increase policyholders' surplus by 2.6 percent, representing the addition of over $121 million to policyholders' surplus.

"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," said Douglas Powell, senior financial analyst at Demotech.

"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."

Liquidity - as measured by liability to cash an invested assets - was 71.6 percent in the first quarter of 2017.

The loss ratios for RRGs - the measure of an insurer's underlying profitability on its book of business - was 65.8 percent.

Powell continued: “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 premium written year over year. RRGs continue to exhibit a great deal of financial stability.”