When I began my time at the Risk Retention Reporter in February of 2013, the risk retention group industry was coming off a near record high of 261 operational risk retention groups. The 2000s had just ended, when the number of operational RRGs had surged from 65 in 2000 to 262 in 2008.
The growth in the 2000s was due to the hard insurance market that was in part driven by the September 11th attacks in 2001. By the end of the decade the insurance market had begun to soften, and there was some contraction in the number of operational RRGs in 2009. However, the industry quickly recovered after strong RRG formations in 2011 and 2012.
It was in 2013 that the soft market really began to take its toll on the RRG industry. A record 21 risk retention groups retired in 2013 and ten new risk retention groups formed, taking the number of operational RRGs down to 250. This report is going to focus on RRG activity since 2013, when the slow-down due to the soft market kicked into gear.
An additional nineteen risk retention groups closed shop in 2014, and just seven new RRGs formed—at the time, the lowest number of formations since 2001—taking the number of operational risk retention groups down to 238.
Outside of minor rebounds in 2016 and 2019, the number of operational RRGs continued to decline throughout the 2010s, hitting a low of 2014 in 2020. New RRG formations were slow from 2013 to 2020—in total 109 new risk retention groups have formed since 2013. In contrast, at the peak of RRG activity in the 2000s, 112 new RRGs formed in 2003 and 2004 alone.
Retirements have also remained high since 2013. Though retirements peaked in 2013, since then there have been double-digit RRG retirements in every year except 2019 and 2022. In total, 131 risk retention groups have ceased operation since 2013.
The insurance market began to harden again in late 2019 and that trend continued into 2020. However, risk retention group formations did not immediately pick up as the market hardened—even as other types of captive vehicles saw a surge in formations. I wrote at the time that perhaps some areas of the insurance industry—the Healthcare sector in particular—were saturated with risk retention groups and to temper expectations for a spike in risk retention group activity. The number of operational RRG fell to 214 in 2020 after retirements jumped to 18 that year.
Of course, 2020 was a challenging year. Risk retention groups require more work both to form and to regulate than other types of captives—so perhaps COVID had a disproportionate impact on RRG activity and RRGs that were forming in response to the hard market got pushed back to 2021—as the risk retention group industry made a strong comeback in 2021 with 24 new risk retention groups forming.
Retirements also fell sharply in 2021, with just four RRGs retiring that year. In addition, two RRGs reactivated, for net increase of 22 risk retention groups.
Though new RRG formations have fallen off a bit in 2022, retirements have remained low. As a result, the number of operational RRGs is continuing to climb. The industry is now more than halfway back from the recent low of 2014 to the all-time high of 262 operational RRGs set in 2008.
For the rest of the issue, I’ll be taking a look at how different business sectors and domiciles have fared over the course of the last decade as there have been some significant shifts in RRG activity.
I’ll also be examining trends in why RRGs retired over the course of the previous soft market—was the rate of insolvency worse than it had been historically?
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