RRGs Report Increase to Surplus and Underwriting Profit Through 3rd Quarter

Columbus, Ohio – January 22, 2013:  According to third quarter 2012 reported financial information, risk retention groups continue to exhibit financial stability.  In analyzing the reported results of RRGs, Demotech, Inc. made the following observations:

  • Assets and policyholders surplus have continued to increase at a quicker rate than liabilities.  Since third quarter 2008, short-term assets have increased 39.5 percent and total admitted assets have increased 31.1 percent.  Policyholders surplus has increased 73.4 percent during this time, while total liabilities have only increased 10.7 percent.
  • Liquidity, as measured by liabilities to cash and invested assets, as of third quarter 2012 was 68.4 percent.  A value less than 100 percent is considered favorable as it indicates that there is more than $1 of net liquid assets for each $1 of total liabilities.  This also was an improvement for RRGs collectively over third quarter 2011, as liquidity was reported at 74.6 percent.
  • Leverage, as measured by total liabilities to policyholders surplus, as of third quarter 2012 was approximately 132.4 percent.  Demotech prefers companies to report leverage of less than 300 percent.  This indicated an improvement for RRGs collectively over third quarter 2011, as leverage was reported at 155.2 percent.
  • The combined ratio, as measured by loss ratio plus expense ratio, through third quarter 2012 was 90.5 percent. This indicated an improvement for RRGs collectively over third quarter 2011, as the combined ratio was reported at 92.9 percent.
  • A nearly $43.9 million net underwriting gain was reported by RRGs collectively through third quarter 2012.  Also, RRGs collectively reported a $185.2 million net income for the first nine months of 2012.

 

The financial ratios calculated based on the third quarter results of the various lines of business for RRGs appear to be reasonable.  In looking further, RRGs have collectively reported a net underwriting gain at each year-end since 2004 and a net income at year-end each year since 1996.  The third quarter results of RRGs indicate that these specialty insurers continue to exhibit financial stability.

Analysis of Risk Retention Groups – Third Quarter 2012 contains commentary pertaining to RRGs provided by the following industry professionals:

  • Douglas Powell, Senior Financial Analyst, Demotech, Inc.
  • Ken Barrett, Managing Director, Besso Re
  • Sandy Elsass, Chairman, National Risk Retention Association
  • Josh Magden, Vice President of Insurance and Institutional Marketing, Sage Advisory Services
  • David Provost, Deputy Commissioner, Captive Insurance, Vermont Department for Financial Regulation.

 

The full report is available at https://www.demotech.com/pdfs/papers/2012_3q_update_rrgs.pdf.