Soaring RRG Formations Continue Into 2004

With the addition of four new risk retention groups to Risk Retention Reporter listings in January 2004, and more waiting to be added to the February RRR, there appears to be no let up in the momentum behind RRG formations.

Last year was a historic one for the Liability Risk Retention Acta federal law enacted by Congress in response to the nation's “liability crisis” of the mid-1980s. Never before in the history of LRRA have so many RRGs been formed in any one year.

From January to December 2003, 58 RRGs were formed and seven RRGs retired, bringing the total number of operating RRGs at year-end to an all time high of 141.

As we enter 2004, the number of RRGs is already up to 145, with dozens more in the pipeline.

The reason for this record number of formations stems from the hard market, particularly in the health care area, as an ever-increasing number of carriers have stopped writing medical malpractice coverageeither withdrawing from the market or going out of business.

Another driving force behind RRG formations is the drying up of the fronting market, leaving many captive programs with little alternative except that provided by the Liability Risk Retention Act.

During the five-year period from 1999 to 2003, RRG activity underwent dramatic change. In 1999 and 2000, a total of only five RRGs formed, while twice as many retired. In 2001, formations rose slightly to seven with three retirements.

However, in 2002, with the hard insurance market in full force, formations swelled to 21 RRGs with no retirements, while 2003 broke all records with 58 formationsmore than double the amount of the previous year.

Given the continued likelihood of the hard liability market throughout 2004, many more RRGs can be expected to form, not only in the health care area but in other business sectors as well. These include property development, with new RRGs insuring contractors, and transportation, in which a growing number of RRGs are insuring trucking operations.

RRGs have also begun to develop in new business areas. An example is an RRG added to RRR listings this month providing stop-loss coverage for self-funded employer health plans.

The accompanying chart outlines RRG formations and retirements from 1987 to 2003.

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. For more information visit the Web site at www.rrr.com

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 23, 2004. Copyright 2004 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.

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Soaring RRG Formations Continue Into 2004

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