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The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance

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The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance explores the challenges presented by today's business and economic upheaval, as well as the hardening insurance market, and what it means for the captive insurance industry.

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Demotech Releases Second Quarter 2017 Financial Analysis of RRGs

Green "Stability" button on computer keyboard
September 26, 2017

Demotech has released its Analysis of Risk Retention Groups—Second Quarter 2017, which reports on the overall financial performance of risk retention groups (RRGs). The rating company's senior financial analyst, Douglas Powell, has concluded that "RRGs remain financially stable despite underwriting losses."

The following are some specifics pulled from the analysis.

  • Since the second quarter of 2016, RRG policyholder surplus has remained stable, with a 0.1-percent increase.

  • RRGs' liquidity in terms of the carried reserves remains conservative, based upon a calculated 214.6-percent cash and invested assets to loss and loss adjustment expense reserves ratio.

  • Leverage for all RRGs combined (total liabilities to policyholders' surplus) was 149.8 percent. Demotech prefers individual RRGs to report leverage of less than 300 percent.

  • The 92.6-percent combined ratio—the loss ratio (73.5 percent) plus the expense ratio (19.1 percent)—was within a profitable range.

  • $1.9 billion of direct premium written (DPW) reflects a decrease of nearly 1 percent over the second quarter of 2016. $1.1 billion of net premium written (NPW) reflects a decrease of 7.1 percent over second quarter 2016.

  • DPW to policyholders' surplus ratio was 83.4 percent, while NPW to policyholders' surplus ratio was 48.6 percent.* The analysis notes that an insurer relying heavily on reinsurance will have a large disparity in these two ratios. This includes individual RRG company financial results.

*These ratios have been adjusted to reflect projected annual DPW and NPW based on second-quarter results.

Captive.com readers should also read "Governance Standards Checklist for RRGs and Captives" and "Captive Industry and Risk Retention Group Auditing Challenges Discussed."

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