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7 October 2021

Risk retention groups weather storms

Risk retention groups (RRGs) continue to enjoy solid financials supported by robust investment returns, according to analysts Demotech.

Its second quarter analysis shows strengthening balance sheets, with a $770.1 million increase in policyholder surplus, up 14.3% against the same period last year. Total admitted assets increased by the same amount, while cash and invested assets increased 14.7%.

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

Liquidity, as measured by cash and invested assets to liabilities, for the period was 145.3%. The loss and loss adjustment expense reserves to policyholders’ surplus ratio, meanwhile, was 92.5%.

“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 capitalised,” the report states.

That stability is despite unprofitable underwriting results in the second quarter, with an aggregate underwriting loss of $68.5m. MCIC Vermont, the specialty insurance company for medical professional and general liability insurance coverage, reported a $110.8

million underwriting loss to the end of the second quarter. The Attorneys’ Liability Assurance Society, however, reported a $42.6 million underwriting gain.

In total, 111 RRGs reported gains, while 123 reported an underwriting loss year-to-date.

However, RRGs collectively reported a net investment gain of $385.3m. Only 71 RRGs reported a net investment loss, with the largest – from the National Transportation – $2.7m. As a result, the net income for RRGs was $299.2m.

RRGs collectively reported $2.6 billion of direct premium written through the second quarter and $1.6 billion of net premium, increases of 15.8% and 17.9%, respectively, over the figures for the same period last year.

“Despite political and economic uncertainty, RRGs remain financially stable while providing specialised coverage to their insureds,” the report concludes.

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