RRGs Financially Stable Despite Q1 Underwriting Losses: Demotech

July 19, 2012

First quarter 2012 reported financial information indicates risk retention groups continue to exhibit financial stability. RRGs reported a $10 million net underwriting loss collectively, however, they also reported $49.8 million net income for first quarter 2012, according to an analysis by actuaries at Demotech Inc.

The combined ratio for first quarter 2012 was 88.1 percent, an improvement over the first quarter last year when it was 90.6 percent.

“[T]he reported underwriting losses are not indicative of a continuing trend. In fact, the first quarter results of RRGs indicate that these specialty insurers continue to exhibit financial stability,” Demotech commented in its report.

In other findings, Demotech reported the following:

  • Assets and policyholders surplus continued to increase at a quicker rate than total liabilities. Since first quarter 2008, short-term assets have increased 36.8 percent and total admitted assets have increased 29.5 percent. More importantly, Demotech said, policyholders surplus has increased 64.3 percent during this time, while total liabilities have only increased 13.5 percent.
  • Liquidity, as measured by liabilities to cash and invested assets, for first quarter 2012, was approximately 76.2 percent. A value less than 100 percent is considered favorable as it indicates that there was more than $1 of net liquid assets for each $1 of total liabilities. This also indicates an improvement for RRGs collectively over for first quarter 2011 as liquidity was reported at nearly 80 percent.
  • Leverage, as measured by total liabilities to policyholders surplus, for first quarter 2012, was approximately 150 percent. Demotech said it prefers companies report leverage of less than 300 percent. This indicates an improvement for RRGs collectively over first quarter 2011 as leverage was reported over 161 percent.

The full report “Analysis of Risk Retention Groups – First Quarter 2012,” is available at www.demotech.com.

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