Regulation of Lancet Indemnity RRG by Nevada Raises Questions and Concerns

Transcription

1 A Special Reprint from Regulation of Lancet Indemnity RRG by Nevada Raises Questions and Concerns By Chris to pher Diemel, Man ag ing Ed i tor, Risk Re ten tion Re porter Lancet Indemnity Risk Retention Group, Inc. (Lancet or the Company) is a Nevada-domiciled risk retention group that provides medical profes sional liability to multi-practice physi cians and medical groups, or at least it did, through August 1, 2018 the last day the State of Nevada Department of Business and Industry Division of Insurance (the Division) allowed Lancet to renew policies under a regulatory order. That order detailed the Division s mandates regarding Lancet s decision to enter voluntary run-off. The Risk Retention Reporter's interest in the financial condition of Lancet was triggered by an exami nation of the Company's 2017 annual statement in which surplus of $412,098 was reported, a figure below Nevada's capital and surplus requirement of $500,000 for associ ation captives, a designation than includes RRGs. As a result, an in-depth review of Lancet was conducted which raised questions about whether the run-off of the company is in the best interests of policy holders. Financials for Lancet for the 2017 Fiscal Year were filed after April 13, 2018 which was when financials for the Risk Retention Group Directory & Guide were received from the NAIC. The Risk Retention Reporter did not get final confir mation on the figures until July 11, That day an was sent to the Division inquiring as to the status of Lancet and whether the Division had acted to either liquidate or rehabil itate the group. On July 24th, a public infor mation officer with the Division sent along an Order Suspending Certif icate of Authority (the Order). The Order does not take a position on Lancet s solvency, but instead states suspension of a certif icate of authority is required during a run-off process and is one of the remedies available to the Division when an insurer s capital and surplus is in a state of impairment. As per the Order, Lancet was in super vised run-off as of June 1, 2018 and was permitted to renew policies through August 1, However, the concept of run-off carries positive conno ta tions, of claims paid and obliga tions met of solvency. It is unclear if Lancet meets those criteria. Analysis of Lancet s year-end filings for 2017 and 2016 and its quarterly filings through the first two quarters of 2018 revealed that problems with the RRG extended far beyond its dimin ished surplus, raising questions as to how the company found its way to such a compro mised position. Regulators are the final arbiters of solvency and it is the regulators respon si bility to step in if a company finds itself in a position that endangers policy holders. That respon si bility carries special weight for risk retention group domiciles, given that non-domiciliary states are preempted from exercising regulatory authority over RRGs that do business in their state. Non-domiciliary states can step in if they feel an RRG is in a hazardous condition, but Lancet s financials deteri o rated quickly, and it remains unclear if those states in which it has done business were aware of its financial condition. What follows is an in-depth review of Lancet s condition, conducted through thorough exami nation of the company s public filings with the NAIC and inter views with risk retention group regulators, captive managers, and other service providers. Many states have laws that prevent regulators from disclosing or producing documents relating to an insurer s RBC ratio. Thus, questions with regulators were phrased in a general manner to establish how different regulatory tools are used to effec tively regulate insurers. Furthermore, the specific RBC ratios mentioned in the article were calcu lated by the Risk Retention Reporter utilizing the annual state ments filed by Lancet. Although there are protections in the NAIC Model Law for the release of RBC ratios, the Risk Retention Reporter deter mined that those ratios were an essential component of Lancet s financial situation. The Order and Lancet s 2018 Opera tions The Risk Retention Reporter has reached out to the Nevada Division multiple times regarding Lancet. The Division s most recent statement, ed to the Risk Retention Reporter on September 18, 2018 by a public infor mation officer for the division, follows: Thank you for contacting the Nevada Division of Insurance ( Division ) with your inquiry regarding Lancet Indemnity Risk Retention Group, Inc. ( Lancet ). Every risk retention group in every state is subject to financial oversight, which provides controls and guard rails. The Division suspended Lancet s certif icate of authority on June 1, Please see attached Order Suspending Certif icate of Authority ( Order ). The Order explains that Lancet placed itself into voluntary run-off and, as a result, Nevada suspended its certif icate of authority. Pursuant to the Order, Lancet was prohibited

2 from writing new premium as of June 1, The Order did allow Lancet a limited window (until August 1, 2018) during which it could renew certain existing business. Please see the Order to review additional restric tions placed on Lancet as a result of the suspension. While the Division under stands that there is interest in this carrier, the Division is required to hold some infor mation confi dential under NRS 679B.190 and 679B.285 which limits what infor mation we can share. The statement stresses that Lancet s certif icate was suspended due to the Company's decision to enter voluntary run-off. The Company s dimin ished surplus and RBC ratio of 18.6%* in its 2017 annual filing are not mentioned by the Division, though that may be due to Nevada laws that limit infor mation that the Division can share. The Order does provide guard rails for the run-off process. The statement from the department already refer enced that Lancet cannot write new business after the Order, and could only renew policies through August 1, Furthermore, the order states that Lancet shall continue to service existing business and that Lancet s officers may not remove funds from the Company at any time without the commis sioner s prior written approval. Lancet is also barred from withdrawing funds from its bank account or other depos i tories, investing or lending funds or assets, trans ferring any of the Company s property, incurring any new debts or obliga tions not related to the payment of claims, canceling any policies except for nonpayment, merging or consol i dating with any other company, entering into a new reinsurance treaty or contract, or signing any new service contract without the prior written approval of the commis sioner. Lancet was also required to submit to the Division the 2017 audit report and a proposed run-off plan by June 12, Neither of those documents has been made available. The Risk Retention Reporter expressed concerns with the runoff process to the Division in late July due to the impaired state of Lancet s surplus and inquired as to updates on how the process was progressing. The Division responded that it was working directly with the involved entities but we would not provide updates to the general public on this matter. The Risk Retention Reporter also reached out to Lancet s officers and its captive manager Risk Services, inquiring on whether the company would have the capital necessary to pay claims. Risk Services had no comment. However, Lancet Treasurer and COO Anthony Maniscalco did respond stating that The Board of Directors for Lancet worked diligently to find a solution to this matter, but the adverse devel opment from 2014 and before could not be overcome. In our plan for the run-off the Board believes there will be suffi cient funds to settle all claims and is working towards that goal. Maniscalco also stated that "insurers have been apprised of the status" of the company, though no further details were provided. In June 30th, 2018 quarterly statement Lancet reported losses (unpaid) of $6,104,344 and loss adjustment expenses of $5,782,166, which with unearned premiums of $2,404,557 and other items gave Lancet total liabil ities of $14,496,011. In that same quarterly report Lancet reported surplus of $580,387. Lancet saw a capital infusion due to the commu tation of the majority of its reinsurance policies effective May 1, 2018, which appears as negative ceded premiums earned, and took net premiums earned for Lancet up to $6,662,336 in June 30, 2018 quarterly statement. The commu tation is, however, a one-time cash influx. Total under writing deduc tions for Lancet in the June quarterly statement were $5,517,680, giving the Company a net under writing gain of $1,144,656. However, after federal and foreign income taxes incurred of $1,449,180, Lancet experi enced negative net income of $146,176 in the June statement. Direct incurred losses for Lancet in the June quarterly statement were low at $80,008. That figure was $2,570,100 year to date in If incurred losses in 2018 begin trend towards 2017 levels it could have an impact on Lancet's surplus. Table 1:Selected Statis tical Data for Lancet Indemnity Risk Retention Group, Inc. * Year ended Dec. 31 (Financial Data in $) Gross Premiums Written 8,774,337 11,989,675 12,263,154 12,516,368 Net Premiums Written 5,416,032 17,225,449 8,417,070 6,427,621 Net Income (3,221,055) (4,215,779) (26,575) (676,545) Total Admitted Assets 16,464,480 22,738,229 19,245,336 19,072,275 Total Liabil ities 16,052,382 18,221,005 14,180,527 14,303,148 Losses (Unpaid) 6,203,237 7,397,517 4,558,229 3,611,879 Loss Adjustment Expenses (Unpaid) 4,772,216 4,326,663 3,585,070 4,429,590 Surplus as Regards Policy holders 412,098 4,517,225 5,064,809 4,769,127 *Note 1: Lancet s RBC will be addressed at length later in the article. Note that an RBC ratio of 18.6% indicates that a company is at the mandatory control level. Note 2: The financial data for Lancet are shown as published in the 2018 Risk Retention Group Directory and Guide in Lancet s profile. Lancet filed their fiscal year (FY) 2017 NAIC reports late and the FY 2017 data were not included in the RRG Profile sent to Lancet and the captive manager for their review in June Lancet responded that they now had the FY 2017 data and provided that so that we could make a revision. However, the Risk Retention Reporter did not notice at the time that there had also been updates to FY 2016 data. The Risk Retention Reporter only became aware of this in September 2018 when we were reviewing financials for this article. As a result of the FY 2016 revision, surplus in that year falls to $2,453,054 as discussed in more detail in the main body of the report.

3 The Basics The severity of Lancet s financial condition first became apparent in the afore men tioned surplus of $412,098 in its 2017 Annual Statement. Surplus is one of eight financial metrics the Risk Retention Reporter includes in the profiles of active RRGs in the yearly Risk Retention Group Directory & Guide. The selected statis tical data for Lancet from the Directory & Guide is included in Table 1. Beyond the dimin ished surplus, other red flags include the negative net income of $4,215,779 in 2016 and of $3,221,055 in 2017, for a two-year total of $7,436,834. The surplus, in addition to falling below the statutory minimum of $500,000 for associ ation captives in Nevada, is low in comparison to Lancet s net premium for 2017 of $5,416,032. Although ratios vary from domicile to domicile, many regulators like to see a surplus to net premium ratio at least of one to four. In conver sa tions with the Risk Retention Reporter other regulators stressed the impor tance of surplus. It would be a huge deal if a company fell near or below the minimum statutory capital and surplus, which in many cases is far lower than the capital and surplus required by the RBC formula said Sean O Donnell, Director of Financial Exami nation Risk Finance Bureau, District of Columbia Department of Insurance, Securities and Banking. If a company reported the minimum, or below the minimum capital and surplus in a quarterly or annual yellow book, we would take immediate action to have them infuse money or we would look into other immediate actions to take such as a cease and desist order. Through the first two quarters of 2018 Lancet has paid in $199,098 in surplus adjust ments, which, with net unrealized capital gains of $115,168, offset negative net income of $146,176 through that same timeframe, and increased surplus to $580,387 to close out the second quarter of The comment from O Donnell also points towards another tool regulators have to measure solvency RBC. RBC Trouble Before jumping into discussion on Lancet's RBC ratios an overview of RBC is necessary. Risk Based Capital ( RBC ) estab lishes the minimum amount of capital for an insurance company to support its overall business opera tions in consid er ation of its size and risk profile, its downward movements serve as a good early warning system, said Advantage Insurance Vice President Christina Kindstedt. Before NAIC and state insurance depart ments imple mented the RBC ratio in 1993, a state regulator would have to petition the courts before it could take corrective actions. A state regulator can now act when an insurer triggers one of the four RBC inter vention levels. The regulatory actions start when the insurer s RBC drops below 200% and intensify as the RBC ratio keeps its downward movement. The RBC formula is also organic, with adjust ments made when necessary. A lot of thought went into [RBC], there are tweaks made every year. The formula was developed partly by studying companies that have gone insolvent over the past 50 years. The study of these companies identified what caused these companies to go insolvent, said O Donnell. The RBC Action Levels Action levels for RBC trigger when an insurers RBC ratio hits certain thresholds, where the RBC ratio is company s capital and surplus in the annual statement divided by the RBC value. The various levels are as follows: 1)The company action level event occurs when the RBC ratio falls below 200% but remains at or above 150%. At this level the company is required to put together an RBC plan that is filed with the commis sioner of insurance. 2)The regulatory action level event occurs when the company s RBC ratio falls below 150% but remains at or above 100%. At this level the regulator has the company put together an RBC plan or a revised RBC plan. The regulator may also perform exami na tions or analyses deemed necessary. 3)The autho rized control level event occurs when a company s RBC ratio falls below 100% but remains at or above 70%. At this level the regulator may take control of the company if the commis sioner deems it in the best interest of the policy holders and creditors of the insurer and the general public. 4)The mandatory control level event occurs when the RBC ratio falls below 70%. At this level the commis sioner is required to take control of the insurer. The commis sioner may forego action for up to 90 days if commis sioner finds there is a reasonable expec tation that mandatory control level event may be elimi nated within the 90-day period. In addition, if a company is already in run-off and writing no new business, the commis sioner may allow the company to continue in super vised runoff. There are circum stances where a company could have an RBC event triggered even if the RBC ratio is above 200%, such as reporting a combined ratio of greater than 120%.

4 The NAIC website describes RBC as a tripwire system that gives regulators clear legal authority to intervene in the business affairs of an insurer that triggers one of the action levels specified in the RBC law. Lancet s RBC ratio in the annual statement for 2017 was 18.6%, far below the mandatory control level of 70%. However, it is unclear when the Nevada Division became aware of Lancet s impaired RBC. The timeline matters as there are windows of action when it comes to the enforcement of RBC triggers. For example, a regulator can defer action on a company in the mandatory control level if the regulator believes that circum stances causing the insurer to be at the level will be gone within 90 days. A regulator can also decide to keep a company in supervised run-off even if they trigger the mandatory control level for RBC. However, RBC is just one measure of a company s capital adequacy and Demotech, Inc. was aware of negative trends with Lancet as early as February Demotech withdrew the Financial Stability Rating (FSR) of A, Excep tional, assigned to Lancet Indemnity Risk Retention Group, Inc. effective February 23, 2018, said Bob Warren, a client services manager at Demotech. Prior to this action, Demotech and the company had been discussing our concerns regarding enhancing the financial stability of the company. As the level of adverse loss reserve devel opment and the reported level of surplus were not consistent with maintaining a Financial Stability Rating at the A level, we withdrew the FSR. The Nevada Division, like all regulators, would have also had access to the quarterly state ments for Lancet. Furthermore, Lancet was coming off a year with a negative net income of $4,215,779 a red flag for a company with only $4,517,663 in surplus. The company should have been on the radar. Surplus deteri o ration was apparent in the 2017 quarterlies. Through the first two quarters of 2017 Lancet experi enced a surplus decline of 27.0% that took surplus down to $3,299,344 from $4,517,225 at year end 2016, as per the quarterly statement filed with the NAIC on June 30, The surplus levels then increased to $3,473,146 in the quarterly statement filed on September 30, The September 2017 quarterly statement also revised the 2016 year end surplus downwards to $2,453,054 from the previ ously reported $4,517,225. That revision plays an important part in the RBC ratio story for Lancet. In the 2016 annual statement Lancet reported an RBC ratio of 305.7%, a figure well above the company action level of 200%. That ratio then fell to 18.6% in the 2017 year end annual statement, a precip itous decline. However, the RBC ratio for 2016 was later adjusted to 166.0% when Lancet filed its 2017 financials due to the revision of the 2016 year end surplus first made in the September 2017 quarterly statement. An RBC ratio of 166.0% in 2016 would have placed the RRG at the company action level. The reason for the 2016 surplus adjustment was a change to the Company's federal and foreign income taxes incurred and it demon strates that company financials at the end of 2016 may have been shakier than initially reported. This may have hampered the effec tiveness of the RBC tripwires in the case of Lancet. When asked if it s common for an RBC ratio to deteri orate from above 300% to below the mandatory control level over the course of a year Sandy Bigglestone, Director of Captive Insurance at the Vermont Department of Financial Regulation (Vermont DFR), said That would be unusual and alarming. At the Vermont DFR, we typically see RBC ratios remain stable unless under writing opera tions take a turn for the worse, and action on our part would be expected unless the company has already commu ni cated with us and taken action to remedy the situation. At mandatory control level RBC, action is required on the part of the Commis sioner, including regulatory control unless the Commis sioner deems receiv ership to not be in the best interest of the policy holders and creditors of the company and the public. In addition, action would not be necessary if the RRG corrected the RBC results within 90 days. RBC is merely a regulatory tool to be used at the judgement of the Commis sioner. This is how we use RBC in Vermont, but we are not opining on laws and regula tions, or regulatory approaches, of juris dic tions other than Vermont, which may differ. That sentiment was echoed by Advantage Insurance Vice President Christina Kindstedt who said It s extremely unusual to have the RBC ratio deteri orate so fast in such a short time span. The purpose of having four RBC inter vention levels is that regulators can step in before the ratio becomes so low that the insurer can t be salvaged. When the ratio drops below 200%, regulators can and should immedi ately require remedial measures to bring the ratio back up or at least stabilize it. In other words, the ratio s downward changes would give regulators and the insurer time to react. So, how did Lancet barrel through all four levels of RBC triggers in the span of a year and what other tools did the Nevada Division have to determine the financial condition of the company? The Management and the Actuary Two key reports filed with the annual statement are the Manage ment s Discussion and Analysis (MDA) and the Statement of Actuarial Opinion (Actuarial Opinion). Together the documents provide an internal and external review of the company. The MDA is the manage ment s assessment of the financial position of their company, while the Actuarial Opinion provides the viewpoint of a third party. Regulators can use these documents to get a clearer picture of a company s financial health. Both the MDA and the Actuarial Opinion for Lancet that were filed with the 2017 annual statement state that the Company s RBC ratio is within the mandatory control level. Robert W. Van Epps, the author of the Actuarial Opinion for Lancet and an actuary for Financial Risk Analysts, wrote that In 2017 the company suffered high losses that, along with other accounting items, reduced capital to under $500,000, resulting in a Mandatory Control Level deter mi nation in its 2017 Risk Based Capital calcu lation. September 2018 Risk Retention Reporter

5 The MDA makes a similar statement regarding RBC but also states that the Company currently has a Corrective Action Plan in consid er ation with the Nevada Division of Insurance to increase surplus by approx i mately $4,000,000. If executed the plan would increase surplus to around $4,500,000, near 2015 levels. However, as of the June 2018 quarterly statement very little progress has been made towards that goal, as surplus was reported at $580,387 just above the Nevada Division s statutory minimum, and with Lancet now in run-off it is unclear what avenues remain for capital infusions. Ratios are another key aspect of both the MDA and the Actuarial Opinion. The MDA reported an expense ratio of 45%, a loss ratio of 94%*, and a combined ratio of 140% for 2017 on a US GAAP basis. The loss ratio is the ratio of losses and loss adjustment expenses to earned premium. This ratio gives the percentage of premium dollars that goes to pay losses and related loss expenses, said Bigglestone. The combined ratio is the sum of the loss ratio and the expense ratio and measures profit ability but usually doesn t include investment income, so it s really a measure of overall under writing results. A combined ratio over 100% usually indicates a lack of profit ability, however longer tail lines of business could support a ratio greater than 100%. We usually benchmark a ratio of 110% for profes sional liability lines. The expense ratio for Lancet, while on the high end, is on par with other risk retention groups. The expense ratio does, however, become an issue when the loss ratio alone is approaching 100%. In the 2017 annual statement, some specific expenses did seem elevated for an RRG of Lancet s size including salaries of $584,281, a program management expense of $345,937, and printing and stationary spending of $84,346. While cutting back on some of those expenses may not have kept Lancet from hitting the mandatory control level for RBC on the annual statement, it could certainly have prevented the Company s surplus from falling below the Nevada Division s statutory minimum of $500,000. The MDA notes that loss ratio improved by 26% in 2017 and that improvement was a reflection of improved devel opment in the more recent policy years. A 94% loss ratio is still high, stressing the severe losses the Company experi enced in A combined ratio above 120% can trigger a regulatory event even if the RBC ratio is above 200%. In 2016, Lancet nearly hit 120% on loss ratio alone, and with the expense ratio for 2016 the company reported a combined ratio of 140% to close out There were certainly warning signs regarding Lancet for the Nevada Division as early as the 2016 annual statement. The MDA also expresses optimism based on case strength ening conducted by Lancet in 2017 noting that It is the Company s expec tation that due to there being fewer open claims with less outstanding exposures and with stronger IBNR, that further adverse devel opment is signif i cantly less likely. The Actuarial Opinion throws cold water on that optimism. Even with case strength ening, however, open claims in older years continue to settle at levels above the estab lished case reserves. There are still a meaningful number of open claims on older years, wrote Van Epps. Both the MDA and the Actuarial Opinion are frank on Lancet s impaired financial condition. The ratios in the reports also show that adverse devel opment at Lancet was apparent in the 2016 annual statement. The Nevada Division clearly had access to regulatory tools outside of RBC that pointed towards problems at the Company. However, given the Company s deteri o ration over the course of 2017 in regards to both surplus levels and RBC it remains unclear what actions, if any, were taken to stabilize the company. Reinsurance Exposures According to Anthony Maniscalco, Treasurer and COO of Lancet Indemnity Risk Retention Group, Inc., Lancet Indemnity has commuted all reinsurance treaties effective May 1, 2018 with the exception of the company s awards made and extracontractual coverages. The commuted Lloyd s agreement capped Lancet s exposure at $200,000 according to the 2017 MDA. It is worth noting that the Statement of Actuarial Opinion for that same calendar year stated that Lancet s maximum net retained loss is $250,000. It is unclear if the discrepancy was due to miscommunication between the actuary and Lancet's management. The article will be using the $200,000 in the MDA from this point onward. Lancet made a similar decision in 2016, when it cancelled its reinsurance agreement with Tri Star Re, Inc., which reversed all previ ously ceded premiums and losses according to the 2017 MDA. Tri Star Re was a pure captive 100% owned by Lancet and formed to insure the $50,000 excess of $150,000 per claim. Like Lancet, Tri Star was a Nevada-domiciled captive. In 2017, Tri Star was fully dissolved. However, according to the 2017 MDA the cancel lation of the Tri Star agreement had a detri mental effect on Lancet s income and balance sheet. From the 2017 MDA: The cancel lation of the Tri Star Agreement made a signif icant contri bution to the loss experi enced in the current year. Through the un-ceding of premium totaling $6,851,984 and the un-ceding of losses totaling $10,541,418, the cancel lation created a pre-tax opera tional loss of $3,689,434, increased the Company s NOL [net opera tional loss] by $1,254,408 and left a net loss of $2,435,026. However, the commu tation of the agreement with Lloyd s differs signif i cantly from the cancel lation of the Tri Star agreement. Lancet was subject to the entirety of Tri Star s premium and losses due to its position as the parent company. In contrast, Lancet received compen sation of ~$3,000,000 from Lloyd s, and as a result Lloyd s is exempt from most of its reinsurance obliga tions moving forward. Due to the commu tation all treaties with the exception of the awards made and extracontractual coverages, Lancet now has higher exposure to claims, but the Risk Retention Reporter was unable confirm the specifics of Lancet's reinsurance before press. In response to questions regarding Lancet's reinsurance, Maniscalco stressed that most of Lancet's policies have limits of $250,000. Nonetheless, the impor tance of reinsurance protection was stressed in the statement of actuarial opinion.

6 With respect to the gross reserves, the materi ality of adverse deviation as it relates to Company s surplus will depend on the Company s reinsurance protection. If the Company s reinsurance protection does not respond to adverse reserve deviation, such deviation could materially affect the company s surplus. Does the Nevada Division Have an Obligation to Take Further Action? There are many tools available to regulators, and any one metric does not, by itself, warrant action by a regulator. RRG regulators, for example, have some flexi bility when it comes to the enforcement of RBC. The way the model law was written, the biggest difference for RRG domiciles is that they have to apply RBC to RRGs, but there is an exception that says even if the RRG fails RBC the domestic regulator does not have to strictly enforce all provi sions of the RBC law if the RRG is otherwise in compliance with its business plan, said O Donnell. According to O Donnell, the model was written in that manner due to a number of successful risk retention groups that were heavily reinsured with an affil iated company. The domiciles were comfortable with these groups and they triggered the RBC ratios due to the way that the RBC formula weighs affil iated reinsurance. Vermont DFR Director of Captive Insurance Sandy Bigglestone stressed that RBC is just one tool for regulators and RBC alone would not warrant a regulator taking over a company. There are always other factors to consider. What is the level and structure of surplus? Is it decreasing, what are some trends that might be occurring? How are the claims devel oping? said Bigglestone. What avenues are available for additional capital infusions and what's the likelihood that they would have the means to do that? How responsive is the company working with us? We also look at the age of the company and do pricing compar isons to the market to see where the company may have fallen short. With the way RBC was imple mented for RRGs, the Nevada Division has some wiggle room, partic u larly if the division has a plan in place with Lancet. However, if that plan involves increasing surplus by $4,000,000, as mentioned in the 2017 MDA for Lancet, then it would appear that it has not been a success through June 30, As of now, Lancet is in run-off. However, even for companies in run-off, it may be necessary to later declare insol vency, and many aspects of Lancet's situation point towards serious financial impairment. Although an insol vency looks bad, there are good reasons for a regulator to seize control of the situation. Regulators make sure that all the policy holders are treated equally. If the regulator does not take it over large claims could be paid and there could be a couple of policy holders who get much more favorable treatment and leaving no money left for their remaining claimants or policy holders, said O Donnell. With most of Lancet s reinsurance protection gone as of May 1, 2018, the Company's exposure to large claims has increased, though the extent of that exposure remains unclear. Furthermore, now that Lancet is in run-off and has already commuted most reinsurance policies, there appear to be few avenues for additional capital infusion. Direct losses incurred for Lancet in the June 2018 quarterly statement were just $80,008. Year to date 2017 that value was $2,570,100. If losses begin to trend towards 2017 or 2016 levels surplus for company could be impacted. The situation could escalate quickly. This report has identified a number of concerning trends regarding Lancet from the Company's filings with the NAIC, some of which developed over a short period of time. The surplus and RBC ratio in particular deteri o rated at a rapid pace in Other concerns, such as a lack of capital influx due to the Company's run-off status and increased exposure due to the commu tation of the majority of the Company's reinsurance were recent devel op ments. As a result, it remains unclear whether run-off or receivership is in the best interest of Lancet's policy holders. Re printed from the September 2018 Risk Retention Re porter Vol ume 22, Num ber 9 RISK RETENTION REPORTER Published by INSURANCE COMMUNICATIONS, P.O. Box 50147, Pasadena, California (626) , fax: (626) ; info@rrr.com; URL - Copyright 2018 Risk Retention Reporter. The Risk Retention Reporter is published 12 times a year. Subscription Rates: One year: $495. September 2018 Risk Retention Reporter