Next were South Carolina and Hawaii (each with 7 percent); Arizona and Illinois, (3 percent each); and Montana and Nevada (2 percent each).

Looking at RRG reinsurers, more than 140 reinsurance companies provide reinsurance to one or more of the 240 facilities profiled in the 18th annual edition of the recently published “Risk Retention Group Directory & Guide, 2007.” Of these reinsurers, 27 reinsure three or more RRGs. Lloyd's of London syndicates again ranked first as the reinsurer of nearly 50 RRGs.

Policyholder surplus for risk retention groups also has increased over the last three years, growing from $1.177 billion in 2004 (20.9 percent) to $1.424 billion in 2005 (21.0 percent) and $1.764 billion (23.8 percent) in 2006. (Financial data for policyholder surplus was obtained from annual statements filed by RRGs with the National Association of Insurance Commissioners.)

Looking at the business areas that generated the greatest 2006 premium, health care RRGs accounted for the largest percent of the 2006 premium increase. RRGs providing liability coverage for health care insureds accounted for $1.410 billion–more than half of 2006 premium. This was an increase of $136.7 million from the previous year.

Within the health care sector, RRGs insuring nursing homes and physicians accounted for the greatest premium gains. In fact, nursing homes accounted for $115.4 million, a gain of 33 percent, while physicians accounted for $320.6 million, a gain of 31 percent.

While RRGs insuring hospitals and affiliates generated $859.4 million–the largest dollar premium of health care RRGs–the percentage increase was only 3 percent from 2005. Since 2002, 67 percent of the RRGs formed insure health care providers.

Another sector showing substantial premium growth in 2006 is contractor RRGs, which generated 2006 premium of $257.8 million. This was a gain of $59.2 million, more than 30 percent from the previous year.

Although the market has softened for other liability lines, liability insurance for contractors has remained relatively hard, accounting for continued formations in this sector. With the economic slowdown in new housing starts, however, RRG formations for contractors over the next several years are likely to slow.

The other sectors with gains in 2006 premium include leisure (increasing by 35 percent), professional services (up 3 percent) and transportation (up 17 percent).

Twenty years after passage of the Liability Risk Retention Act, RRGs continue to fulfill the role Congress intended for them–to provide an alternative liability market for commercial insureds. While RRG formations may slow down in the current soft market, we can expect the growth over the next few years to remain steady.