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Demotech Releases Third Quarter 2017 Financial Analysis of RRGs

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February 13, 2018

Demotech has released its Analysis of Risk Retention Groups—Third 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 have a great deal of financial stability and remain committed to maintaining adequate capital to handle losses."

The following are some specifics pulled from the analysis.

  • Since the third quarter of 2016, RRG policyholder surplus has increased modestly, with a 2.5 percent increase.

  • RRGs' liquidity in terms of the carried reserves remains conservative, based on a calculated 213.5 percent cash and invested assets to loss and loss adjustment expense reserves ratio.

  • Leverage for all RRGs combined (total liabilities to policyholders' surplus) was 151 percent. Demotech prefers individual RRGs to report leverage of less than 300 percent.

  • The 94.6 percent combined ratio—the loss ratio (74.7 percent) plus the expense ratio (19.9 percent)—was within a profitable range.

  • $2.8 billion of direct premium written (DPW) reflects an increase of 3.5 percent over the third quarter of 2016. $1.7 billion of net premium written (NPW) reflects an increase of 1 percent over third quarter 2016.

  • DPW to policyholders' surplus ratio was 76.2 percent, while NPW to policyholders' surplus ratio was 45.6 percent.* The analysis notes that an insurer relying heavily on reinsurance will have a large disparity in these two ratios

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

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