13 December 2021

Risk retention groups stable despite losses

Risk retention groups (RRGs) remain financially stable despite political and economic uncertainty, according to Demotech. The analysts third quarter review of RRGs’ (groups where ownership is restricted to the policyholders) shows cash and invested assets increased 13.3% while total admitted assets were up 12.6% compared to the same time last year.

RRGs collectively reported a 9.7% increase to the policyholders’ surplus, equivalent to $537 million.

“The level of policyholders’ surplus becomes increasingly important in times of difficult economic conditions by allowing an insurer to remain solvent when facing uncertainty reported financial result,” the analysts  write.

Liquidity, as measured by cash and invested assets to liabilities, for the third quarter of 2021 was 145.9%, with anything over 100% showing more than a dollar of net liquid assets for each dollar of total liabilities.

“Regarding RRGs collectively, the ratios pertaining to the balance sheet appear to be appropriate and conservative. These reported results indicate that collectively RRGs remain adequately capitalized,” the report notes.

Despite this, RRGs underwriting was unprofitable through the quarter, with an aggregate reported underwriting loss of $87.7m. The largest loss was again, as in the second quarter, from  MCIC Vermont, the specialty insurance company for medical professional and general liability insurance coverage, which reported a $140.6m underwriting loss. The Attorneys’ Liability Assurance Society reported a $45.7m gain – the biggest profit.

In total, 108 RRGs reported an underwriting gain while 120 reported an underwriting loss year-to-date, compared with 111 and 123, respectively, at the end of the second quarter.

Net investment gains continued to offset this, with an aggregate increase of $489.1m to the end of the third quarter, again led by the Attorneys’ Liability Assurance Society ($193.4m). Only 78 RRGs reported a net loss – against 147 reporting a net gain – through those reporting a loss were up slightly from 71 in the second quarter.

The combined ratio, through the third quarter 2021 was 105.6% on $3.7 billion of direct premium written (up 15.9% over third quarter 2020)

“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 analysis concludes. “The results of RRGs indicate that these specialty insurers continue to exhibit financial stability.”