RISK RETENTION GROUPS (RRG)

Question 1

SECT A: RISK RETENTION GROUPS

MARKET NEED

Answer 1

1970’S: BUSINESSES CALLED ON INSURERS TO PAY FOR LOSSES THAT NEITHER THE BUSINESSES NOR INSURERS ANTICIPATED
COMMERCIAL BUSINESS INS UNAVAILABLE DUE TO FREQ & SEV

Question 2

SECT A: RISK RETENTION GROUPS

OPERATION

Answer 2

• Liability insurance companies, with similar insurance needs, pool their risks and form an insurance company that they operate under state regulated guidelines of the domiciliary state
• RRGs are owned by its members
o All insureds of RRG must be owners of RRG
o All owners of the RRG must be insured
• Domiciled in 1 state but can operate in all 50 states
• Unlike other captives, RRGs may write directly in states where they are registered without obtaining a license

Question 3

SECT A: RISK RETENTION GROUPS

REGULATION

Answer 3

• Federal Liability Risk Retention Act (LRRA) of each state preempts the typical rights and authorities of the non-domestic state

Question 4

SECT A: RISK RETENTION GROUPS

RRG VS STANDARD INSURER (7)

Answer 4

• Licensing – RRG: 1 state but can write in all states; standard insurers: write in states they are licensed
• Regulation – RRG: not consistent between states; standard insurers: more consistent
• Ownership – RRG: insureds are owners and vice versa; standard insurers: shareholders, owners
• Financial reporting – RRG: usual quarterly and annual filing requirements as standard insurance
• Accounting – RRG: GAAP; standard insurers: SAP
• Rate & form filings – RRG: few states require this; standard insurance: must be filed
• Guaranty funds – RRG: specifically disallowed; standard insurance: most states have