Risk Retention Reporter has reported 2004 premium for risk retention groups (RRGs) neared $2.2 billion, up from $1.7 billion for 2003. During the three soft market years (98, 99 and 00) RRG premiums were essentially flat. Source: Insurance Journal, June 15, 2005 Risk Retention Group Premium Soars Above $2 Billion.
Under the federal Liability Risk Retention Act, RRGs licensed in one state can write liability insurance on a variety of property-casualty risks in other states without having to comply with the usual licensing requirements imposed on "foreign" insurers. During hard markets, RRGs tend to expand the geographical scope of their writings and take on risks "commercial" insurers decline. Unfortunately for their insureds, insureds in RRGs are not eligible for coverage from their state insurance guaranty funds that pay claims against insolvent insurers. As a result, if a RRG fails (as they sometimes do in soft markets), the policyholders (and claimants against them) may find payment of their claims to be delayed, heavily discounted or unavailable.
Such problems have come to light recently in connection with the insolvency of several RRGs associated with Reciprocal of America (ROA). ROA and its RRGs recently were declared insolvent, leaving thousands of hospitals and physicians suddenly without insurance and without assurance that claims already made against those companies would be paid in full.
See also: Unintended Consequences: Impact of Reciprocal of America on Mainstreet Professionals (April 17, 2005).
Posted by dougsimpson at June 15, 2005 04:49 PM