10 October 2014Actuarial & underwriting

RRGs remain financially stable: Demotech

Risk retention groups (RRG) in the US have remained financially stable throughout the second quarter of 2014 and remain committed to maintaining adequate capital to handle losses.

This is according to specialist agency Demotech’s analysis of RRG’s in the second quarter of 2014.

Overall, US RRGs reported nearly $900 million of net written premiums, an increase of 16 percent over the second quarter of 2013.

However, the combined ratio, loss ratio plus expense ratio, through second quarter 2014 was 100.2 percent, a deterioration compared with 93.3 percent in the second quarter of 2013.

The financial metrics and ratios have been materially impacted by a contribution agreement of an RRG in the first quarter 2014. Attorney’s Liability Assurance Society (ALAS) entered into a contribution agreement with its parent, ALAS Investment Services (AISL).

According to the filed first quarter 2014 statement of ALAS, as a result of the transaction, “loss reserves historically ceded by (ALAS) to the parent…were reassumed by the company.”

More than $2 billion in total assets and more than $1.5 billion in total liabilities were contributed to ALAS. The most significant liability assumed by ALAS was $1.2 billion of loss reserves. The net capital contribution of this transaction was more than $513 million.

Douglas Powell, senior financial analyst at Demotech, said: “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.

“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.”