Risk Retention Group Benchmarking Study€¦ · 1 • Fellow of Casualty Actuarial Society (FCAS)...
Transcript of Risk Retention Group Benchmarking Study€¦ · 1 • Fellow of Casualty Actuarial Society (FCAS)...
March 21, 2019
Robert J. Walling, FCAS, MAAA, CERA
Erich A. Brandt, FCAS, MAAA
Gregory W. Fears Jr., ACAS, MAAA, ARM
Risk Retention Group Benchmarking StudyPublished January 2019
1
• Fellow of Casualty Actuarial Society (FCAS)• CAS Board of Directors 2015-17
• B.S. Secondary Math Education – Miami University 1987
• 2017-19 Captive Power 50• ICCIE Instructor
About the Presenters
Robert J. Walling IIIPrincipal
Pinnacle Actuarial Resources, Inc.
2
• Fellow of the Casualty Actuarial Society
• Graduate of Illinois State University
• 22 years of experience, primarily in commercial lines
• Reserving studies for:• Insurance companies (SAO and financial exams)
• Captive insurance companies
• Self-insured entities
• Extensive experience reviewing industry financial statement data and associated trends
• Experience in workers’ compensation, liability lines, medical professional liability and commercial automobile
About the Presenters
Erich A. BrandtSenior Consulting Actuary
Pinnacle Actuarial Resources, Inc.
3
Gregory W. Fears Jr.Consulting Actuary
Pinnacle Actuarial Resources, Inc.
• Associate of the Casualty Actuarial Society
• Associate in Risk Management (ARM)
• B.A. Mathematics – Carthage College
• 18 years of experience, primarily in
commercial lines
• Reserving studies for:• Insurance companies (SAO and financial exams)
• Captive insurance companies
• Self-insured entities
• Public entities
• Funding recommendations for emerging coverages
• Experience reviewing industry financial
statement data and associated trends
• Risk margin modeling
About the Presenters
4
• Overview
• Data Used
• Intended Use
• RRG Demographics
• Capitalization
• Operating Results
• Trends and Benchmarks
– Premium
– Loss & LAE
Presentation Outline
5
• Risk Retention Group (RRG)
– Risk Retention Act (RRA) of 1986
• “Federal legislation passed in 1986 that authorized the formation of purchasing groups and group self-insurance programs for certain types of liability exposures. According to the Act, members of risk purchasing groups (RPGs) and risk retention groups (RRGs) must be engaged in similar or related businesses or activities.” from www.irmi.com
• RRG Benchmarking Study - Technical Approach
– Using RRG annual statement data pulled from A.M. Best
– Data as of December 31, 2017
– Calendar or accident years 2008 through 2017
Introduction
6
• Income Statement - net income, net underwriting income, policyholder surplus
• Statement of Cash Flows - net investment income
• Statutory Page 14 - direct premium and loss data
• Schedule P – loss and expense data, net earned premiums, one- and two-year loss development values
• Underwriting and Investment Exhibit - net written premiums, investment data
• Insurance Expense Exhibit - premium and loss data, expense data
• A.M. Best General Information - state of domicile, Best's Financial Strength Rating
• Annual Statement Assets Page - asset data
Annual Statement Data Used
7
• Comparison of RRGs to Total U.S. Property & Casualty (P/C) Industry
– Total U.S. P/C Industry (Industry) is all Schedule P lines of business (LOB)
• RRGs are different than the Industry
• Provide trends and benchmarks for RRGs
Intended Use
8
• Number of RRGs
– As of 12/31/17
– “As was”
• Direct written premium (DWP) growth
– Over $3 billion in 2017
• Domiciliary States
– By number of RRGs
– By average RRG DWP
• Line of business mix
– Medical professional liability (MPL)
– Other liability (OL)
– Commercial auto liability (CAL)
RRG Demographics
9
Total RRG Growth – Premium (000s) and Number
0
50
100
150
200
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total RRG Growth
Premium # of RRGs
*Figure III.A
10
Total RRG Growth – Premium (000s) and Number - “as was data”
0
50
100
150
200
250
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total RRG Growth
Premium # of RRGs
11
Number of RRGs and Average Size by Domiciliary State
*Figure III.B.1 & III.B.2
0
10
20
30
40
50
60
70
80
90
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
Ave
rage
RR
G S
ize
by
DW
P (
00
0s)
Co
un
t o
f R
RG
s
Average RRG Size by DWP Count of RRGs
12
RRG 2017 DWP by LOB ($Millions)
3.6 1.1 9.2 1.1 0.7
301.1
1,081.6
1,785.8
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2,000.0
Workers'Compensation
Products Liab Fidelity Boiler &Machinery
Warranty Commercial AutoLiability
Other Liab (Total) MedicalProfessional
Liability
$M
illi
on
s
RRG 2017 DWP by Line of Business
*Figure III.C.1
13
RRG Direct Written Premium (000s) by Risk State
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Top States by Direct Written Premium
*Figure III.C.2
14
MPL DWP (000s) by State
-
100,000
200,000
300,000
400,000
500,000
600,000
RRG Top 10 States by MPL DWP
*Figure VI.B.3
15
CAL DWP (000s) by State
-
10,000
20,000
30,000
40,000
50,000
60,000
RRG Top 10 States by CAL DWP
*Figure VI.B.6
16
Mono-line RRG Writers
Line of Number % of
Business of RRGs Total
CAL 27 12%
OL 48 21%
MPL 102 45%
Total 226
*Mono-line is defined as: over 90% of DWP in one LOB
17
• Comparison of RRGs to U.S. Property & Casualty (P/C) Industry
– Ratio of net written premium (NWP) to Surplus (S)
• RRGs lower than the Industry
– Risk based capital ratio (RBC)
• Mono-line RRGs roughly 4.0 – 5.0
– Leverage ratios
• RRGs lower than the Industry
RRG Capitalization
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Net Written Premium to Surplus Ratio
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net Written Premium to Surplus Ratio
Total RRG Industry
*Figure IV.A.1
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Direct Written Premium to Surplus Ratio
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Direct Written Premium to Surplus Ratio
Total RRG Industry
*Figure IV.A.2
20
Mono-line RRG RBC Ratios by Year
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
RBC Ratios by Year
CAL MPL Other
*Figure IV.B
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Net Leverage Ratio
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net Leverage Ratio
Total RRG Industry
*Leverage Ratio = (NWP/Surplus) + (Net Losses + LAE + Unearned Premiums)/Surplus
*Figure IV.C
22
• Comparison of RRGs to Total U.S. P/C Industry
– Net income to NWP ratios
• RRGs are decreasing
– Underwriting vs. investment income
• Cyclical
• By line of business (LOB)
– Accident year (AY) combined ratio
• RRGs higher than the Industry
– Calendar year (CY) combined ratio
• RRGs by LOB
RRGs Overall Operating Results
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Net Income to Net Written Premium Ratio
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net Income to Net Written Premium Ratio
Total RRG Industry
*Figure V.A.2
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Total U.S. P/C Industry Net Income Breakdown as % of Surplus
*Figure V.B.1
16.54%
2.88%8.20%
8.50% 4.14%7.46%
12.03% 11.63%10.07%
7.41% 5.79%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total U.S. P/C Industry Net Income Breakdown % of Surplus
Net Investment Gain (Loss) Net Underwriting Gain (Loss) Label of Total %
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Total RRG Net Income Breakdown as % of Surplus
*Figure V.B.2
15.37%16.21% 16.03%
14.63%
12.43%11.82%
9.90%
6.58% 6.22%
4.98%
7.08%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total RRG Net Income Breakdown % of Surplus
Net Investment Gain (Loss) Net Underwriting Gain (Loss) Label of Total %
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MPL RRGs Net Income Breakdown as % of Surplus
*Figure V.B.4
17.16%
20.14%
18.58% 17.97%
15.23%14.19%
11.26%
9.35%7.81%
5.28%
7.48%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MPL RRG Net Income Breakdown % of Surplus
Net Investment Gain (Loss) Net Underwriting Gain (Loss) Label of Total %
27
CAL RRGs Net Income Breakdown as % of Surplus
*Figure V.B.5
17.64%
11.28%
19.90%
24.60%
6.88%-0.58% -1.24% -23.65% 1.89% -12.33%
-27.40%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
CAL RRG Net Income Breakdown % of Surplus
Net Investment Gain (Loss) Net Underwriting Gain (Loss) Label of Total %
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Trade Basis Net Combined Ratio - AY
60%
70%
80%
90%
100%
110%
120%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Trade Basis Net Combined Ratio
Total RRG Industry
*Figure V.C
29
RRG Combined Ratio - CY
50%
75%
100%
125%
150%
175%
200%
225%
2010 2011 2012 2013 2014 2015 2016 2017
Combined Ratio (RRG) - Calendar Year
MPL Other Liab CAL Total
*Figure V.D
30
• Comparison of RRGs to Total U.S. P/C Industry
– Premium growth
• Overall: both RRGs and Industry increasing
• By LOB:
– MPL: RRGs increasing while Industry decreasing
– CAL: both RRGs and Industry increasing, but RRGs more rapidly
– NWP / DWP ratios:
• RRGs lower ratio, retain less risk than the Industry
– Market share: All lines and by LOB (using DWP)
• Overall RRGs market share is increasing
RRG Premium Trends and Benchmarks
31
Total Premium Growth
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2007 - 2008 2008 - 2009 2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017
Total Premium Growth
RRG Industry
*Figure VI.A.1
32
MPL Premium Growth
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2007 - 2008 2008 - 2009 2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017
Medical Professional Liability Premium Growth
RRG Industry
*Figure VI.A.2
33
CAL Premium Growth
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
2007 - 2008 2008 - 2009 2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017
Commercial Auto Liability Premium Growth
RRG Industry
*Figure VI.A.5
34
RRG vs. Industry NWP/DWP
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
RRG vs Industry for All Lines
RRG NWP/DWP Industry NWP/DWP
*Figure VI.C.1
35
MPL RRG vs. Industry NWP/DWP
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Medical Professional Liability RRG vs Industry
RRG NWP/DWP Industry NWP/DWP
*Figure VI.C.2
36
CAL RRG vs. Industry NWP/DWP
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Commercial Auto Liability RRG vs Industry
RRG NWP/DWP Industry NWP/DWP
*Figure VI.C.5
37
MPL RRG vs. Industry Market Share
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Medical Professional Liability RRG to Industry Comparison
RRG DWP Industry DWP RRG % of Market by DWP
*Figure VI.D.2
38
CAL RRG vs. Industry Market Share
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Commercial Auto Liability RRG to Industry Comparison
RRG DWP Industry DWP RRG % of Market by DWP
*Figure VI.D.5
39
• Comparison of RRGs to Total U.S. P/C Industry
– AY Loss & LAE ratios: All lines and by LOB
• RRGs increasing while Industry is relatively stable
• MPL increasing for both
– CY Loss & LAE ratios: All lines
• RRGs increasing while Industry is relatively stable
• RRG spike in 2014 related to one RRG merger
– Adverse Development: All lines and by LOB
– Loss Development Patterns
• RRGs have slower loss development than the Industry
RRG Loss and LAE Trends and Benchmarks
40
Total Loss & LAE Net AY Loss Ratio
60%
65%
70%
75%
80%
85%
90%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Loss & LAE Net Loss Ratio
Total RRG Industry
*Figure VII.A.1
41
MPL Loss & LAE Net AY Loss Ratio
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
110.00%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MPL Loss & LAE Net Loss Ratio
Total RRG Industry
*Figure VII.A.3
42
CAL Loss & LAE Net AY Loss Ratio
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
110.00%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
CAL Loss & LAE Net Loss Ratio
Total RRG Industry
*Figure VII.A.4
43
Loss & LAE Net CY Loss Ratio
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Loss & LAE Net Loss Ratio
Total RRG Industry
*Figure VII.B.1
44
CY Net Loss and LAE to NWP
49.3%39.5% 34.5%
26.6%34.8% 36.7%
43.0%
121.2%
69.0%60.4% 56.1%
19.3%
17.8%20.8% 32.5%
27.3% 23.2%
23.9%
27.6%
19.4%23.9%
23.1%
4.0%
3.7% 4.1% 4.0%4.8% 4.8%
4.0%
3.6%
3.4% 4.2%3.8%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net Loss and LAE to Net Written Premium
Total Net Losses Total DCC Total A&O
*Figure VII.C.1
45
Total 1 Year Development as % of Prior Year Surplus
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total 1 Yr Dev as % of Prior Year Surplus
RRG Industry
*Figure VII.D.1
46
RRG 1 Yr Dev as % of Prior Year Surplus by LOB
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
RRG 1 Yr Dev as % of Prior Year Surplus by LOB
OL CAL MPL Total
*Figure VII.D.2
47
Comparison of RRG Versus Industry 1 Year Development
1 Year Development ($000's)
Commercial Auto Liability Medical Professional Liability
Year Industry RRGs Top 5 RRGs Year Industry RRGs Top 5 RRGs
2007 (741,883) (9,754) (5,063) 2007 (1,970,305) (78,554) (17,678)
2008 (443,667) (8,562) (822) 2008 (2,308,180) (141,008) (32,465)
2009 (389,670) (12,148) (4,116) 2009 (2,099,842) (111,152) (25,446)
2010 (829,735) (11,362) (5,350) 2010 (2,401,561) (116,091) (15,015)
2011 (324,929) (4,497) (1,113) 2011 (1,963,011) (125,762) (18,159)
2012 541,090 (4,046) (2,540) 2012 (1,834,629) (149,895) (18,899)
2013 708,638 (4,944) (785) 2013 (2,107,626) (103,949) (23,602)
2014 784,252 8,537 5,751 2014 (728,069) 810,479 897,064
2015 1,655,510 7,268 7,013 2015 (1,372,380) (127,580) (37,417)
2016 1,858,619 19,290 21,373 2016 (888,864) (60,420) (23,953)
2017 1,632,406 47,875 42,968 2017 (1,088,260) (151,800) (6,080)
48
CAL RRG 1 Year Development
-10%
0%
10%
20%
30%
40%
50%
60%
(20,000)
-
20,000
40,000
60,000
80,000
100,000
2013 2014 2015 2016 2017
CAL RRGs - 1yr Adverse Development
1yr Development Prior YE Surplus IRIS #11
Calendar Year*Includes SpiritCommercial Auto RRG
CAL RRG 1 Year Development
49
CAL RRG 1 Year Development
-10%
-5%
0%
5%
10%
15%
20%
(10,000)
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2013 2014 2015 2016 2017
CAL RRGs - 1yr Adverse Development
1yr Development Prior YE Surplus IRIS #11
Calendar Year*Excludes SpiritCommercial Auto RRG
CAL RRG 1 Year Development
50
RRG vs. Industry CAL Reported Incurred Loss Development
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
12 24 36 48 60 72 84 96 108 120
Per
cen
t o
f U
ltim
ate
Months of Maturity
RRG vs Industry CAL Reported Incurred Loss Development Factors
RRG Incurred Industry Incurred
CAL RRG 1 Year Development
*Figure VII.E.1
51
RRG vs. Industry CAL Reported Incurred Loss Development
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
12 24 36 48 60 72 84 96 108 120
Per
cen
t o
f U
ltim
ate
Months of Maturity
RRG Incurred Industry Incurred Trucking - Slow Trucking - Medium Trucking - Fast
52
RRG vs. Industry MPL-CM Reported Incurred Loss Development
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
12 24 36 48 60 72 84 96 108 120
Per
cen
t o
f U
ltim
ate
Months of Maturity
RRG vs Industry MPL CM Reported Incurred Loss Development Factors
RRG Incurred Industry Incurred
CAL RRG 1 Year Development
*Figure VII.E.2
53
• Overview
• Data Used
• Intended Use
• RRG Demographics
• Capitalization
• Operating Results
• Trends and Benchmarks
– Premium
– Loss & LAE
Conclusion
54
Questions
55
Join Us for the Next APEX Webinar
56
• We’d like your feedback and suggestions
• Please complete our survey
• For copies of this APEX presentation
• Visit the Resource Knowledge Center at Pinnacleactuaries.com
Final Notes
Commitment Beyond Numbers 57
Thank You for Your Attention
Erich A. Brandt, FCAS, MAAA
309.807.2320
Gregory W. Fears Jr., ACAS, MAAA, ARM
309.807.2316
309.807.2311
Robert J. Walling, FCAS, MAAA, CERA