RRG 03 Premium Projected To Swell To More Than $1.7 Billion
The 16th annual survey of risk retention groups conducted by the Risk Retention Reporter reveals a remarkable surge of RRG formations in 2003, reflecting use of the Liability Risk Retention Act by commercial insureds who are finding liability insurance coverages increasingly unavailable and unaffordable in the traditional marketplace.
Risk retention groups are forming at three times the rate at which they formed last year. The business area in which the lion's share of new RRGs have formed is health care.
The RRR survey reveals that RRG annual premium for 2003 is projected to grow to $1.725 billion, an increase of $460.4 million (36.4 percent) over 2002 premium, which grew 34.0 percent from 2001.
Premium increases are projected for almost all business areas, with health care in the lead
with an almost 55 percent increase.
Almost 90 percent of RRG premium projected for 2003 ($1.513 billion) continues to be generated by three dominant business sectorshealth care, professional services, and government & institutions.
Other business areas that are also projected to produce substantial premium are property development ($86 million) and manufacturing & commerce ($54.3 million).
The projected premiums for the transportation and environmental areas are about equal--$34.4 million as compared to $32.9 million.
RRG formations in the last two years have been focused in five business areas--environmental, government & institutions, health care, property development, and transportation--with the greatest number of new RRG formations in the health care sector.
The number of RRGs operating at some time during 2003 as of September totals 127 as compared with 90 at the end of 2002 and 79 in September 2002.
RRG formations so far this year, already at 37, exceed the 21 RRGs that were formed during all of 2002.
The health care sector accounts for 31 out of 37 formations, with 19 RRGs insuring hospital health systems and/or affiliated physicians; six RRGs insuring individual physicians or physician groups; and six RRGs insuring long-term care facilities, including nursing homes and assisted living facilities.
The remaining six RRGs provide coverages in a variety of business areas, including software developers, roofing manufacturers, contractors, propane dealers, homebuilders and loggers.
Overall RRG premium growth of $460.4 million for 2003 reflects premium from both new RRG formations, which totals $158.7 million (dominated by health care with $143.8 million), and existing RRGs, accounting for the $301.9 million remainder of the increase.
Premium projections for 2003 reveal an upward momentum that has been absent for the last 12 years. It is notable that almost all business sectors project premium growth.
While there were no RRG retirements in 2002, five RRGs have retired so far this year. The five retired RRGs came from two business sectors: health care (4 RRGs) and professional services (1 RRG).
Of the five retired RRGs, one converted to an admitted insurer (Professional RRG), one never became operational (Northeastern Pennsylvania RRG Inc.), and three were declared insolvent and placed in liquidation (American National Lawyers Insurance Reciprocal, RRG, Doctors Insurance Reciprocal, RRG, and The Reciprocal Alliance, RRG)
(Note: National Warranty was deleted from RRR listings after the survey.)
In a more detailed analysis of RRG premium development, general business areas are subdivided into subcategories. Changes in the premium in these RRG subclassifications often reflect where RRGs are forming and retiring.
Contractors, where 2003 premium is projected to almost double, reveals the largest increase, to $45.0 million from 2002 premium of $23.0M. Two new RRGs formed in this business subcategory in 2003--Contractors Insurance Co. of North America Inc., A RRG and Contractors Liability Insurance Co., A RRG. Given the distressed state of the contractors market, more RRGs in this category can be expected to form in 2004 and future years.
The hospitals & affiliates subcategory is projected to grow substantially, increasing 62.2 percent in 2003 to $637.9 million from 2002 premium of $392.4 million. The number of RRGs in this subcategory has more than doubled since last year's survey, increasing to 35 from 17.
Physicians and nursing homes are also projected to see substantial premium gains. Physicians, in which seven new RRGs formed in the last year, is projected to have a 38.6 percent increase in premium, to $184.2 million from 2002 premium of $132.9 million. Nursing homes, with six new groups licensed in 2003--the first to ever form under the Act--project premium of $12.6 million, which can be expected to increase significantly in the coming years, as these RRGs begin full operations and new ones form in this area.
Substantial 2003 premium gains of 42.2 percent are projected for the trucking category, with premium increasing to $30.5 million from $21.5 million. Although no RRGs formed in this category since last year's survey, American Trucking and Transportation Insurance Co., RRG, formed in the latter part of last year, projects substantial 2003 premium, with the other RRGs in this area. OOIDA RRG and National Independent Truckers Insurance Co. RRG, also projecting 2003 premium gains.
While the attorneys and architects & engineers areas have no new RRGs, both project substantial premium gains for 2003. Three RRGs in the attorneys area--Attorneys' Liability Assurance Society Inc., A RRG, Attorneys Insurance Mutual RRG Inc., and Attorney's Liability Protection Society Inc.--all project substantial 2003 premium increases.
Of the two RRGs in the architects & engineers subcategory, one--Architect and Engineers Insurance Co., A RRG--projects an 80 percent increase for its 2003 premium.
In the educational institutions subcategory, United Educators Insurance, A Reciprocal RRG, projects an almost 25 percent increase for 2003 premium.
In the nonprofit 501(c)(3) subcategory, the one RRG classified in this area--Alliance of Nonprofits for Insurance, RRG--projects a substantial 2003 premium increase of 116 percent.
In summary, there has been a remarkable surge of RRG formations in 2003, reflecting the challenges faced by commercial insureds who are finding liability insurance coverages increasingly unavailable and unaffordable in the traditional market.
Risk retention groups are once again forming in a diverse range of business areas, reversing a trend observed from 1997 to 2001 when 60 percent of RRG formations were in the manufacturing & commerce area, providing contractual liability for extended service contracts.
In addition to health care, new RRGs have formed in environmental, providing liability coverages for manufacturers of underground storage tanks and loggers; manufacturing & commerce, providing liability coverages for financial institutions and software developers; and property development, providing liability coverages for contractors.
With the current hard market showing little sign of easing, coupled with the loss of fronting carriers, liability insurance will continue to be increasingly unaffordable and unavailable, spurring the formation of new RRGs.
Trends observed in this year's survey will continue, with new RRGs forming in health care to provide medical malpractice and professional liability coverages to physicians, hospitals, nursing homes and related health care providers; in transportation to provide commercial auto liability and related coverages to the trucking industry; in property development to provide liability coverages for builders and contractors; and in manufacturing & commerce to provide contractual liability coverages for debt cancellation contracts and similar agreements, as well as activities related to intellectual property and Internet-related risks.
With 15 states having enacted captive laws under which RRGs can form, RRGs now have a wider choice in domicile selection. If proposed amendments are enacted to the Liability Risk Retention Act, broadening the scope of RRG coverage to all lines of commercial insurance including property, but not workers' compensation, formation of an even greater number of RRGs will occur. While the amendments have gained support from various quarters, they have not, as yet, been introduced into Congress this year.
Potential RRGs will face challenges in securing reinsurance at affordable rates, although those with strong business plans and sufficient capitalization will be the most attractive candidates. Another challenge for potential RRGs will be raising capital. Notwithstanding these challenges, growth of RRGs can be expected to continue their upward trend.
As RRGs came to the rescue in the crisis of the mid-1980's, so are they now providing a needed alternative for United States business insureds in these times of challenge.
Karen Cutts is managing editor and publisher of the "Risk Retention Reporter" a monthly newsletter based in Pasadena, Calif., that she founded shortly after passage of the 1986 Liability Risk Retention Act.
The 16th annual survey of risk retention groups conducted by the Risk Retention Reporter reveals a remarkable surge of RRG formations in 2003, reflecting use of the Liability Risk Retention Act by commercial insureds who are finding liability insurance coverages increasingly unavailable and unaffordable in the traditional marketplace.
Risk retention groups are forming at three times the rate at which they formed last year. The business area in which the lion's share of new RRGs have formed is health care.
The RRR survey reveals that RRG annual premium for 2003 is projected to grow to $1.725 billion, an increase of $460.4 million (36.4 percent) over 2002 premium, which grew 34.0 percent from 2001.
Premium increases are projected for almost all business areas, with health care in the lead
with an almost 55 percent increase.Almost 90 percent of RRG premium projected for 2003 ($1.513 billion) continues to be generated by three dominant business sectorshealth care, professional services, and government & institutions.
Other business areas that are also projected to produce substantial premium are property development ($86 million) and manufacturing & commerce ($54.3 million).
The projected premiums for the transportation and environmental areas are about equal--$34.4 million as compared to $32.9 million.
RRG formations in the last two years have been focused in five business areas--environmental, government & institutions, health care, property development, and transportation--with the greatest number of new RRG formations in the health care sector.
The number of RRGs operating at some time during 2003 as of September totals 127 as compared with 90 at the end of 2002 and 79 in September 2002.
RRG formations so far this year, already at 37, exceed the 21 RRGs that were formed during all of 2002.
The health care sector accounts for 31 out of 37 formations, with 19 RRGs insuring hospital health systems and/or affiliated physicians; six RRGs insuring individual physicians or physician groups; and six RRGs insuring long-term care facilities, including nursing homes and assisted living facilities.
The remaining six RRGs provide coverages in a variety of business areas, including software developers, roofing manufacturers, contractors, propane dealers, homebuilders and loggers.
Overall RRG premium growth of $460.4 million for 2003 reflects premium from both new RRG formations, which totals $158.7 million (dominated by health care with $143.8 million), and existing RRGs, accounting for the $301.9 million remainder of the increase.
Premium projections for 2003 reveal an upward momentum that has been absent for the last 12 years. It is notable that almost all business sectors project premium growth.
While there were no RRG retirements in 2002, five RRGs have retired so far this year. The five retired RRGs came from two business sectors: health care (4 RRGs) and professional services (1 RRG).
Of the five retired RRGs, one converted to an admitted insurer (Professional RRG), one never became operational (Northeastern Pennsylvania RRG Inc.), and three were declared insolvent and placed in liquidation (American National Lawyers Insurance Reciprocal, RRG, Doctors Insurance Reciprocal, RRG, and The Reciprocal Alliance, RRG)
(Note: National Warranty was deleted from RRR listings after the survey.)
In a more detailed analysis of RRG premium development, general business areas are subdivided into subcategories. Changes in the premium in these RRG subclassifications often reflect where RRGs are forming and retiring.
Contractors, where 2003 premium is projected to almost double, reveals the largest increase, to $45.0 million from 2002 premium of $23.0M. Two new RRGs formed in this business subcategory in 2003--Contractors Insurance Co. of North America Inc., A RRG and Contractors Liability Insurance Co., A RRG. Given the distressed state of the contractors market, more RRGs in this category can be expected to form in 2004 and future years.
The hospitals & affiliates subcategory is projected to grow substantially, increasing 62.2 percent in 2003 to $637.9 million from 2002 premium of $392.4 million. The number of RRGs in this subcategory has more than doubled since last year's survey, increasing to 35 from 17.
Physicians and nursing homes are also projected to see substantial premium gains. Physicians, in which seven new RRGs formed in the last year, is projected to have a 38.6 percent increase in premium, to $184.2 million from 2002 premium of $132.9 million. Nursing homes, with six new groups licensed in 2003--the first to ever form under the Act--project premium of $12.6 million, which can be expected to increase significantly in the coming years, as these RRGs begin full operations and new ones form in this area.
Substantial 2003 premium gains of 42.2 percent are projected for the trucking category, with premium increasing to $30.5 million from $21.5 million. Although no RRGs formed in this category since last year's survey, American Trucking and Transportation Insurance Co., RRG, formed in the latter part of last year, projects substantial 2003 premium, with the other RRGs in this area. OOIDA RRG and National Independent Truckers Insurance Co. RRG, also projecting 2003 premium gains.
While the attorneys and architects & engineers areas have no new RRGs, both project substantial premium gains for 2003. Three RRGs in the attorneys area--Attorneys' Liability Assurance Society Inc., A RRG, Attorneys Insurance Mutual RRG Inc., and Attorney's Liability Protection Society Inc.--all project substantial 2003 premium increases.
Of the two RRGs in the architects & engineers subcategory, one--Architect and Engineers Insurance Co., A RRG--projects an 80 percent increase for its 2003 premium.
In the educational institutions subcategory, United Educators Insurance, A Reciprocal RRG, projects an almost 25 percent increase for 2003 premium.
In the nonprofit 501(c)(3) subcategory, the one RRG classified in this area--Alliance of Nonprofits for Insurance, RRG--projects a substantial 2003 premium increase of 116 percent.
In summary, there has been a remarkable surge of RRG formations in 2003, reflecting the challenges faced by commercial insureds who are finding liability insurance coverages increasingly unavailable and unaffordable in the traditional market.
Risk retention groups are once again forming in a diverse range of business areas, reversing a trend observed from 1997 to 2001 when 60 percent of RRG formations were in the manufacturing & commerce area, providing contractual liability for extended service contracts.
In addition to health care, new RRGs have formed in environmental, providing liability coverages for manufacturers of underground storage tanks and loggers; manufacturing & commerce, providing liability coverages for financial institutions and software developers; and property development, providing liability coverages for contractors.
With the current hard market showing little sign of easing, coupled with the loss of fronting carriers, liability insurance will continue to be increasingly unaffordable and unavailable, spurring the formation of new RRGs.
Trends observed in this year's survey will continue, with new RRGs forming in health care to provide medical malpractice and professional liability coverages to physicians, hospitals, nursing homes and related health care providers; in transportation to provide commercial auto liability and related coverages to the trucking industry; in property development to provide liability coverages for builders and contractors; and in manufacturing & commerce to provide contractual liability coverages for debt cancellation contracts and similar agreements, as well as activities related to intellectual property and Internet-related risks.
With 15 states having enacted captive laws under which RRGs can form, RRGs now have a wider choice in domicile selection. If proposed amendments are enacted to the Liability Risk Retention Act, broadening the scope of RRG coverage to all lines of commercial insurance including property, but not workers' compensation, formation of an even greater number of RRGs will occur. While the amendments have gained support from various quarters, they have not, as yet, been introduced into Congress this year.
Potential RRGs will face challenges in securing reinsurance at affordable rates, although those with strong business plans and sufficient capitalization will be the most attractive candidates. Another challenge for potential RRGs will be raising capital. Notwithstanding these challenges, growth of RRGs can be expected to continue their upward trend.
As RRGs came to the rescue in the crisis of the mid-1980's, so are they now providing a needed alternative for United States business insureds in these times of challenge.
Karen Cutts is managing editor and publisher of the "Risk Retention Reporter" a monthly newsletter based in Pasadena, Calif., that she founded shortly after passage of the 1986 Liability Risk Retention Act.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 10, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
