Report Finds Risk Retention Groups Posted Solid Second-Quarter Results

Risk retention groups (RRGs) are reporting very good financial results for the second quarter of 2021, according to a new report.

The report by Demotech Inc. found risk retention groups' cash and invested assets rose 14 percent in the second quarter of 2021 compared to the second quarter of 2020, while total admitted assets rose 14.3 percent.

In all, RRGs' policyholder surpluses increased by $770.1 million. That increase in surplus "becomes increasingly important in times of difficult economic conditions by allowing an insurer to remain solvent when facing uncertainty," the Demotech analysis noted.

While RRGs reported a total underwriting loss of $68.5 million during the second quarter of 2021, that loss was significantly overshadowed by a net investment gain of $385.3 million, resulting in net income of $299.2 million. That is significantly higher than the $178.4 million in net income RRGs reported for the first quarter of 2021.

Risk retention groups received $1.6 billion in net written premiums during the second quarter of this year, a 17.9 percent increase from the same period a year ago.

"RRGs have a great deal of financial stability and remain committed to maintaining adequate capital to handle losses," the report noted.

RRRs are a specialized type of group captive that were first authorized under legislation Congress passed in 1981. Under that law, RRGs, which were allowed to operate in any state after meeting the licensing requirements of the state where they were domiciled, could only write product liability coverages for policyholder owners.

Five years later, Congress, responding to soaring premiums in the traditional market, expanded the law to enable RRGs to write all casualty coverages except workers compensation.

Currently, there are 226 RRGs, according to the Risk Retention Reporter.