GAO: Risk Retention Groups Flashcards
Insurance cooperatives
Members pool funds to spread and assume commercial liability risk
Congress view of RRGs
Increase availability, reduce premiums in hard market; great incentive to practice risk management
Liability Risk Retention Act
Provide businesses opportunity to reduce costs
Promote greater competition
Elimination of regulation by multiple states (no need for public protection from insolvencies)
Captives
Self-insure risks of their owners
RRG captives
Regulatory requirement less restrictive
If they fail, only assets of parents at risk
LRRA provides single-state regulation
Pure captive
Cover risks of parent which is one large company
Group captive
Cover risks of a group of companies
Do not have to insure similar risks
Non-RRG captives
Pure and group – may provide property coverage; generally cannot conduct insurance transactions in states other than home state
RRG registration/licensing
Only required to register with regulator of state of sales; Provide plan of operation, copy of group’s Annual Statement; submit to financial exam; prohibited from participating in state guaranty funds
Seasoning requirement
Most states won’t license insurer unless company has been in operation for several years
RRGs, captive resemblance
Mutual fund companies – owned by share holders, employ the services of management company to administer operations
RRG effects
Increase availability and affordability for groups with limited access; have “filled a void in the market” - offer tailored coverage, serve wide variety of businesses
