RRGs Continue to Exhibit Profitability and Financial Stability in 2011

News provided by

Demotech, Inc.

Apr 30, 2012, 08:49 ET

COLUMBUS, Ohio, April 30, 2012 /PRNewswire/ -- In reviewing the financial stability of risk retention groups for 2011, one should get the impression that these are a group of insurers with a great deal of financial stability.  In analyzing the reported results of RRGs, Demotech, Inc. made the following observations:

  • Assets and policyholders surplus have increased for the 12th consecutive year.  During this time, policyholders surplus has increased more than 367 percent, going from approximately $686 million in 2000 to more than $3.2 billion in 2011.
  • Liquidity, as measured by liabilities to cash and invested assets, for 2011 was approximately 69 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 2010 as liquidity was reported at over 72 percent.
  • Leverage, as measured by total liabilities to policyholders surplus, for 2011 was approximately 136 percent.  This also indicates an improvement for RRGs collectively over 2010 as leverage was reported over 146 percent.
  • In comparison to the $7.7 billion in total net admitted assets for 2011, policyholders surplus accounted for approximately 43 percent of that reported amount.  Losses and loss adjustment expenses accounted for approximately 39 percent of total net admitted assets.
  • RRGs have continued to report net income since 1996 as well as profitable underwriting results since 2004 despite the continued difficult economic conditions. In fact, direct written premiums decreased from 2010 to 2011.  In looking further, it appears that as revenue for RRGs has become stagnant, so have expenses and losses.  By the end of 2011, the decrease in year-over-year direct premiums written was approximately 1.9 percent.

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Analysis of Risk Retention Groups - Year-End 2011 contains commentary provided by Karrie Hyatt, Managing Editor, Risk Retention Reporter and Robert Myers, Jr., Partner, Morris, Manning & Martin LLP as well as Douglas Powell, Senior Financial Analyst, Demotech, Inc.

The full report, Analysis of Risk Retention Groups Year-End 2011, is available at www.demotech.com.

Demotech Understands and Actively Supports Risk Retention Groups

Demotech understands the unique structure and opportunities that RRGs bring to the Property and Casualty industry. In our working relationship with analysts as well as government entities and business associations, Demotech is often called upon for our expertise and perspective.

Today, more than any time in recent history, insureds, agents and constituents need to have independent verification of financial stability. Since Demotech's rating methodology is based upon a review and analysis of insurance fundamentals, focused specialists, such as RRGs, are not penalized for operating under restrictions or constraints that limit product line diversification.

SOURCE Demotech, Inc.