Risk Retention Groups (RRGs) remain financially stable and continue to provide specialized coverage to their insureds in the third quarter of 2018, despite the economic and political uncertainty, according to a report by Douglas Powell, a senior financial analyst at Demotech.
A review of the reported financial results of RRGs by Powell revealed they retain a great deal of financial stability and remain committed to maintaining adequate capital to handle losses.
The report showed that Since third quarter 2017, cash and invested assets (1.1 percent), total admitted assets (1.3 percent), and policyholders’ surplus (4.2 percent) all increased. Over the same time period through third quarter 2018, RRGs collectively decreased liabilities 0.6 percent.
The increase in policyholders’ surplus represents the addition of $202.4 million while trimming some liabilities.
“These reported results indicate that RRGs are adequately capitalized in aggregate and able to remain solvent if faced with adverse economic conditions or increased losses. 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,” the report said.
It also noted that RRGs collectively reported nearly $2.8 billion of direct premium written (DPW) through third quarter 2018, a slight decrease of less than 1 percent over third quarter 2017. RRGs reported nearly $1.5 billion of net premium written (NPW) through third quarter 2018, a decrease of 9.5 percent over third quarter 2017.
In regards underwriting gains and losses, RRGs collectively were unprofitable through third quarter 2018 as RRGs reported an aggregate underwriting loss of $66.7 million. RRGs reported a net investment gain of $205.9 million and a net income of $132.3 million. RRGs have collectively reported a net income at each year-end since 1996. The combined ratio through third quarter 2018 was 100.1 percent.
The report stated: “Despite political and economic uncertainty, RRGs remain financially stable and continue to provide specialized 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. 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.”
Risk Retention Group, Demotech, Third Quarter Results 2018, North America