Overview of the Risk Retention Group

The Risk Retention Group (RRG) aims to support homogeneous industries by promoting the implementation of best practices in the provision of your industry’s services. These practices are developed with significant contributions from the RRG’s Board of Directors, composed of leaders in your industry. The RRG’s mission is to provide insurance coverage along with expert risk management guidance, enabling you to deliver services without the worry of liability coverage gaps and inconsistencies that are prevalent in the current insurance landscape.

• A company owned by its policyholders. Membership is often limited to people whose business shares the same liability risks. There is no guarantee fund protection for these groups, so if members cannot pay the claims, they could be held personally liable for the risk. Many turn to these groups when they are frustrated with the commercial insurance market.

• A RRG is a “Captive” insurance company if it is incorporated in a Captive Domicile.

• Regulated under Federal Law (LRRA) and regulatory oversight is the responsibility of the State of Incorporation. A RRG is considered captive if incorporated in a captive domicile.

• All Members MUST be owners and all owners MUST be policyholders.

Compliance with LRRA

The RRG’s compliance with the LRRA is central to its operations, focusing exclusively on writing Liability coverage for its members of the same industry. This approach is designed to meet the specific needs of organizations, offering them a tailored insurance solution that addresses the unique risks associated with their industry.

Direct Writing Benefits

• Eliminate fronting (using an admitted carrier to issue the insurance policy) requirements for liability lines

• Excluded from guaranty funds, not subject to assessments

• Letters of Credit and Surplus Notes can be used for capital (minimum statutory capital is $500,000).

• Ability to change form, coverage, rates with one filing to domiciliary state

• “Authorized” to write business in all states upon filing of copies of application and incorporation

• Eliminates “non-admitted” insurer problem

Reinsurance Benefits

• Access to the reinsurance market is one of the keys to a captives’ success.

• Captives can take the predictable losses but are not able to handle shock losses.

• Risk transfer is still required for catastrophes and excess aggregate losses.

• The Risk Retention Act does not require proportional ownership by the members. Ultimate parent could “control” the Risk Retention Group with majority ownership through voting or stock rules.

• As a multi-state writer, the RRG could achieve tax deductibility by involving similar industry companies to become minority RRG members. Risk pooling and more than 30% unrelated business would create a strong argument for deductibility.

Conclusion

The Risk Retention Act offers its users the ability to directly write liability insurance in all fifty states. The regulatory burden is reduced by the federal preemption and there is scope for creative structuring of the ownership of RRGs. The Risk Retention Group, Inc., is dedicated to empowering industry groups through the provision of specialized insurance coverage and the promotion of best practices. Its compliance with the LRRA, combined with a solid reinsurance strategy, ensures that the RRG is well-positioned to meet the needs of its members while fostering an environment of safety, reliability, and professional excellence.