As with other sectors of the insurance industry, the risk retention group market has seen a contraction in recent years as a result of the financial crisis, but it is expected to hold steady this year.
In 2009, RRG premium declined by 0.6 percent--from $2.57 billion in 2008 to $2.56 billion in 2009.
Feedback from RRGs indicates that premium for 2010 will be flat. In fact, if there is any movement at all in RRG premium this year, it may be a slight increase. The steadily increasing number of risk retention groups shows that RRGs are holding their own in this uncertain financial market.
RRG premium reached an all-time high of $2.63 billion in 2006, before it dropped to $2.55 billion in 2007.
To look at it from another angle, the median premium per RRG in 2006 was also at its highest in 2006, with $3.3 million per RRG. Median premium fell to $2.45 million in 2007, but in both 2008 and 2009 has held steady at $2.5 million.
In 2009, the largest business areas--health care and professional services--showed a decline. Several of the smaller business areas, however, generated more premium in 2009 than the year before. For example:
o The Financial sector, which showed the largest increase--soaring to $94.4 million from only $0.4 million in 2008. (In 2009, a longtime captive company made the transition to an RRG, which greatly benefited the financial sector.)
o Government & Institutions was up by 3.5 percent to $244.5 million.
o Manufacturing & Commerce increased premium by 4.8 percent, rising to $56.8 million.
Health care is still, by far, the largest sector, accounting for 60 percent of RRGs and nearly 60 percent of all premium. In 2009, however, health care declined slightly, falling 1.4 percent to $1.48 billion, even while gaining an additional risk retention group.
The biggest loss in premium was seen in the Property Development sector for the second year in a row, declining by 30.4 percent in 2009 to $102.7 million. The continued housing crisis following the bursting of the real estate bubble, on top of the poor economy, took its toll on homebuilder RRGs, with three large groups retired during 2009. 
While RRG premium declined in 2009, so did the number of RRGs. This was the first time the overall number of operating RRGs has fallen since 2000.
The hard market of the middle of the last decade saw RRG numbers rise from 65 RRGs in 2000 to a high of 262 in early 2009. However, even when the number of operating RRGs reached a low point earlier this year, going down to 245, there were still more RRGs operating than in 2006, when RRG premium was at its peak. At year-end 2006 there were 238 RRGs.
In the first seven months of 2010, 11 RRGs formed while 11 have ceased doing business. Many of the retired RRGs in the early part of 2010 were actually RRGs that closed their doors at the end of 2009.
There are at least two RRGs that have just about completed the licensing process in their states of domicile, and several state regulators have indicated that more RRGs are in the registration pipeline.
In 2009, the U.S. captive market premium was estimated to be nearly $10 billion. RRGs make up about a quarter of that market.
With ever greater interest in alternative risk-transfer and potentially favorable federal legislation in 2011 to allow RRGs to write property insurance as well as liability coverage, RRGs are continuing to play a distinctive role in the commercial insurance market.
Karrie Hyatt is managing editor of the Risk Retention Reporter in Pasadena, Calif.
