Risk Retention Groups Report Financially Stable Third Quarter 2020 Results.

AuthorPowell, Douglas A.

* A review of the reported financial results of risk retention groups (RRGs) reveals insurers that continue to collectively provide specialized coverage to their insureds while remaining financially stable. Based on reported financial information, RRGs have a great deal of financial stability and remain committed to maintaining adequate capital to handle losses. It is important to note that ownership of RRGs is restricted to the policyholders of the RRG. This unique ownership structure required of RRGs may be a driving force in their strengthened capital position.


From third quarter 2019 to third quarter 2020, cash and invested assets increased 4.8 percent and total admitted assets increased 5.4 percent. RRGs collectively reported a 3.2 percent increase to policyholders' surplus. This represents a $167.8 million year-over-year increase to policyholders' surplus. The level of policyholders' surplus becomes progressively important in times of difficult economic conditions by allowing an insurer to remain solvent when facing uncertainty.

Liquidity, as measured by cash and invested assets to liabilities, for third quarter 2020 was 147.3 percent. A value more than 100 percent is considered favorable as it indicates that there was more than a dollar of net liquid assets for each dollar of total liabilities. In evaluating individual RRGs, Demotech, Inc. prefers companies to report leverage of less than 300 percent. Leverage for all RRGs combined, as measured by total liabilities to policyholders' surplus, for third quarter 2020 was 144.8 percent.

The loss and loss adjustment expense reserves (loss reserves) to policyholders' surplus ratio for third quarter 2020 was 94.7 percent. The higher the ratio of loss reserves to surplus, the more an insurer's stability is dependent on having and maintaining reserve adequacy.

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 and able to remain solvent if faced with adverse economic conditions or increased losses.


Since RRGs are restricted to liability coverage, they tend to insure medical providers, product manufacturers, law enforcement officials and contractors, as well as other industries with professional liability.

RRGs collectively reported over $3.1 billion of direct premium written through third quarter...

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