In-Depth Analysis from Pinnacle: RRG Benchmarking and EAD Case Studies

Pinnacle Actuarial Resources has released two comprehensive reports this year: the 2024 Risk Retention Group Benchmarking Study and the Risk Distribution—Expected Adverse Deviation (EAD) Case Studies. These reports provide critical insights into risk retention group (RRG) performance and innovative solutions for addressing risk distribution challenges in captive insurance. If you missed these earlier releases, now is the time to revisit them for their actionable findings. 

The 2024 Risk Retention Group Benchmarking Study reveals that RRGs continue to demonstrate robust financial stability. According to Pinnacle, RRGs remain better capitalized than the broader insurance industry, with a consistent net premium-to-surplus ratio. The report highlights a growing market share for medical professional liability, increasing from 14.3 percent in 2013 to 20.6 percent in 2023. It also notes premium growth across key lines, such as commercial auto liability and other liability, driven in part by new formations in these sectors. The study underscores a rebound in underwriting net income for RRGs in 2023, following a sharp dip in 2022, signaling the resilience of these entities. 

The Risk Distribution—Expected Adverse Deviation (EAD) Case Studies focus on an actuarial approach to assessing and enhancing risk distribution. Pinnacle defines the EAD ratio as a key metric to measure the reduction in loss variability. The report outlines several case studies, including one where a group captive for 10 trucking companies successfully lowered its EAD ratio by pooling severity layers of risk. Another case highlights how combining high-frequency, low-severity inland marine coverage with low-frequency, high-severity named storm coverage reduced the EAD ratio from 73.0 percent to 20.8 percent. 

Pinnacle also explores how reinsurance structures can enhance risk distribution. For example, in a reinsurance pool of six enterprise risk captives (ERCs), a quota-share reinsurance model lowered the EAD ratio for each participant below the critical 30 percent threshold, enabling them to qualify as insurance entities. The case studies demonstrate the EAD model's versatility in evaluating single-parent captives, group captives, and ERC pools, offering practical solutions for a range of risk profiles. 

Both reports emphasize the importance of tailoring insurance solutions to specific risk characteristics. For RRGs, the focus is on leveraging strong capitalization and premium growth to maintain market stability. For captives exploring risk distribution, Pinnacle's EAD methodology serves as a diagnostic tool for structuring effective insurance programs. 

For more details, the full reports provide extensive data and case study analyses and are available for download on thePinnacle website.