Risk retention group 2005 premium grows 11.5% to $2.4 billion

Despite the softening property/casualty market, commercial insureds who find liability insurance unavailable or unaffordable, as well as those who desire stability and control of their liability programs, continue to utilize the Liability Risk Retention Act as an alternative to the traditional insurance market.

Risk retention group 2005 annual gross written premium grew to $2,449.1 million, an increase of $252 million or 11.5 percent compared to 2004 annual premium of $2,197.1 million. While the rate of increase has slowed in the last two years, reflecting the softening property/casualty market, RRG premium continues its double digit percentage increases. RRG premium has almost doubled since 2002.

Since year-end 2001, the number of RRGs has risen by more than 150, bringing the total number of RRGs to 238 as of September 2006.

RRG formations have increased this year, with the launching of 26 new RRGs since the beginning of 2006 through September compared with 21 during the same period last year. Premium generated by these entities can be expected to continue an upward trend, as existing RRGs expand their scope of operations and new RRGs continue to form.

Policyholder surplus for RRGs also increased with 2005 totals of $1,424.4, a gain of 21 percent from 2004 policyholder surplus of $1,177.2 million. When the number of RRGs are broken down by 2004 and 2005 ranges of policyholder surplus, RRGs in the $10 million to $30 million range showed the largest increase, with the number of RRGs increasing to 22 from 15. (Policyholder surplus is the sum remaining after all liabilities are deducted from assets — essentially an insurer’s net worth.)

Health care leads in formations

Fifty-eight new RRGs have formed from January 2005 to September 2006, with 34 formations in 2005 and 25 from the beginning of this year through September 2006.

Of these 58 RRG formations, three business areas account for the greatest numbers of formations: health care (34); property development (11); and transportation (7).

Drilling down to sub-areas, in health care, physician RRGs account for the greatest numbers (17); followed by hospital and affiliates (8); nursing homes (7); HMOs (1); and medical benefits (1).

In property development, contractor RRGs account for the greatest (10), with one RRG in home services.

In transportation, trucking RRGs (3) and commercial vehicle RRGs (3) formed in equal numbers, with one RRG in messenger services.

Other business areas accounting for formations during the period are: government and institutions (1); manufacturing and commerce (3); leisure (1); and professional services (1).

Contractor RRGs

RRGs providing liability coverages for contractors account for a significant portion of 2005 premium growth.

ProBuilders Specialty Insurance Co., RRG has now moved into the premium range of RRGs writing over $100 million, with 2005 premium of $103.2 million versus $70.4 million in 2004. Contractors Insurance Co. of North America Inc., a RRG has also entered a new premium range, with 2005 premium of $31.2 million versus $13.3 million in 2004. Similarly Allegiant Insurance Co. Inc., a RRG has entered a higher premium range, with 2005 premium of $17.7 million versus $7.1 million in 2004. United Contractors Insurance Co. Inc., a RRG, which formed at the end of 2004, entered the $10 million to $30 million range in 2005, with premium of $14.6 million.

Reinsurers insuring RRGs

More than 100 reinsurance companies provide reinsurance to one or more of the 226 RRGs profiled in the 17th annual edition of the just published Risk Retention Group Directory & Guide, 2006. Twenty-five of these reinsurers reinsure three or more RRGs, with Lloyd’s of London syndicates again coming in first as the reinsurer of more than 40 RRGs.

Increased growth predicted

The Annual Risk Retention Reporter Survey of RRG Premium & Insureds projects substantial RRG growth in 2006 and numbers of insureds. The comprehensive survey will be published in the October 2006 issue of the RRR.

Karen Cutts is the managing editor and publisher of the Risk Retention Reporter. RRR and its related publications provide in-depth news and analysis for insurance professionals and insurance buyers involved with risk retention groups, purchasing groups, group captives in U.S. domiciles, and related alternative group buying arrangements. Web site: www.rrr.com.

Topics Excess Surplus Pricing Trends Reinsurance Contractors