A combination of problems arising from the subprime mortgagedebacle and the soft property-casualty insurance market took a tollon 2007 annual gross written premiums for risk retention groups,which declined by 3 percent to $2.5 billion, down $100 million from2006.

The business area accounting for most of the 2007 premiumdecrease was property development, where RRGs insuring homebuildersand contractors are classified.

The premium slump was the greatest in the contractors sector,with 2007 premiums plummeting 35.2 percent to $1.6 billion. Thenext largest decrease arose from the homebuilders sector, wherepremium fell 30.8 percent to $41.65 million.

In fact, when RRGs in property development are taken out of themix, 2007 RRG premiums actually showed a slight gain of 1.2percent.

The slump in premiums from RRGs insuring contractors andhomebuilders reflects the deep problems in the U.S. housing market,brought about by subprime lending practices, in which many mortgagelenders often made "NINJA" loans--loans to borrowers with noincome, no jobs and no assets.

Housing starts for single-family homes, where the majority ofcontractors and homebuilders insured by RRGs operate, were off 40.5percent from a year ago--the largest year-over-year drop sinceJanuary 1991.

Given that the Federal Reserve recently downgraded itsexpectations for economic growth this year, citing damage from thehousing slump and credit crunch, it is unlikely that RRGs in theproperty development sector will experience a rebound in 2008 or2009 premium.

However, the premium picture is far brighter for RRGs providingprofessional liability insurance to physicians.

In the physicians sector, 2007 RRG premium showed its greatestgains, totaling $3.5 billion--an increase of 10.1 percent. Of the14 new RRGs formed in 2007 to insure physicians, eight beganoperations and produced premium totaling $21.4 million, while sixgenerated no 2007 premium.

For the first six months of 2008, there were nine RRGformations, compared to 18 RRG formations during the first sixmonths of 2007.

In comparing retirements to other soft markets, RRGs appear tobe holding their own, with retirements for the last two yearsalmost neck and neck--eight RRGs retiring during the first sixmonths of 2008, compared with nine for the same period lastyear.

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