Risk Retention Groups Report Strong Third-Quarter Financial Results

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

The report by Demotech, Inc., found that from third quarter of 2020 to third quarter of 2021, RRGs' cash and invested assets increased 13.3 percent, while total admitted assets rose by 12.6 percent.

In all, risk retention groups' policyholder surplus increased by $537 million, according to the report. "The level of policyholders' surplus becomes increasingly important in terms of difficult economic conditions by allowing an insurer to remain solvent when facing uncertainty," the Demotech analysis said.

While RRGs reported a total underwriting loss of $87.7 million during the third quarter of 2021, that loss was low compared to their net investment gain of $489.1 million, resulting in net income of $378.1 million, according to the Demotech report. That third-quarter net income was sharply higher than the $299.2 million RRGS posted during the second quarter of 2021.

"Based on reported financial information, RRGs have a great deal of financial stability and remain committed to maintaining adequate capital to handle losses," the Demotech report said.

Risk retention groups are a special type of group captive that Congress first authorized under legislation 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.

Then, in 1986, Congress, responding to sharply rising premiums in the traditional market, expanded the law to allow RRGs to write all casualty coverages except workers compensation.

Currently, there are 236 RRGs, according to the Risk Retention Reporter.