What is the National Risk Retention Association (NRRA)?
NRRA is a nonprofit 501(c)(6) trade association which protects the rights of owner-insureds and represents the risk retention group and purchasing group industry.
What does NRRA do?
NRRA is the center of all matters relating to Risk Retention Groups (RRGs). Our team defends the rights of RRGs to do business before the courts, conducts advocacy campaigns, communicates with regulators, represents RRGs before the National Association of Insurance Commissioners (NAIC), and connects members of the risk retention community during its annual conference. NRRA works diligently to protect the preemption provisions of the LRRA and has thwarted or redirected potentially damaging legislation on multiple occasions.
Annual NRRA Conference
The annual NRRA National Conference is a three-day, fast-paced networking and educational platform packed with speakers and opportunities to connect with leaders and innovators throughout the insurance industry. It is a great place to learn about the RRG industry and grow your business at the same time.
What is “Amicus Curiae” and what does that term mean?
Amicus Curiae (Amici if plural) is a Latin term meaning “friend of the court.” It generally takes the form of a pleading procedure whereby an entity or group of entities or persons who are not “parties” to a judicial proceeding or legal case can be allowed to file supplemental briefing because they represent a larger group of people or businesses, such as an industry, and who/which could be adversely affected by a decision of the court if only narrowly focused upon the parties in the case. Amicus therefore appears as a “friend of the court” to assist the court in being able to see legal issues involving the “bigger picture” impacted by a prospective decision.
What is the origin of Risk Retention Groups?
Congress passed the Product Liability Risk Retention Act in 1981. This created a new type of insurance carrier, Risk Retention Groups. In 1986, Congress broadened the Act to include commercial liability and renamed it the Liability Risk Retention Act (LRRA or the Federal Act). The LRRA is codified in Title 15 of the United States Code, beginning at Section 3901.
Where can I access the Federal Liability Risk Retention Act?
To access an online copy of the LRRA, click here.
What is a Risk Retention Group?
A Risk Retention Group is a liability insurance company that assumes and spreads all, or a portion of, the liability exposure of its group members.
Who is a Member of a Risk Retention Group?
The members of a Risk Retention Group must be engaged in businesses or activities that are similar or related with respect to the liability to which those members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations. For example, a group of medical professionals could belong to one RRG, while a group of schools would belong to a different RRG.
Members of a Risk Retention Group include not only the Risk Retention Group’s equity owners and contributors, but also entities affiliated with or related to such owners or contributors. Membership in a Risk Retention Group includes active participants in a risk retention program. Active participants include persons whose own liability is currently assumed, in whole or in part, by the Risk Retention Group.
Who owns a Risk Retention Group?
The LRRA allows for two different RRG ownership schemes: 1) Member Owners and 2) Sole Organization Owner.
Under both permitted ownership schemes, members of the Group who are also insured by the Group are in control of the Risk Retention Group, either as Member Owners or as member-owners of the Sole Organization Owner. Not all members of a Group need be insured by the Risk Retention Group. Nor are all persons insured by the Risk Retention Group required to be owners of the Risk Retention Group. But all owners of the Risk Retention Group must also be both members of the Group and provided insurance by the Risk Retention Group.
In the case of Member Owners, ownership of a Risk Retention Group is restricted to persons who are both members of the Risk Retention Group and who are provided insurance by the Risk Retention Group. (LRRA § 3901(a)(4)(E)((i))
In the case of a Sole Organization Owner, that organization’s owners are restricted to persons who are both members of the Risk Retention Group and who are provided insurance by the Risk Retention Group. (LRRA § 3901(a)(4)(E)((ii))
Federal Liability Risk Retention Act Legislative Background, Definitions and Provisions
During the 99th Congress, the Committee on Commerce, Science, and Transportation conducted numerous hearings to examine the availability and cost of liability insurance. As a result, the United States Congress revised the Products Liability Risk Retention Act of 1981 through the Risk Retention Amendments of 1986. The final Act, which was signed into law by President Reagan on October 27, 1986, is known as the Liability Risk Retention Act of 1986.
Since its enactment, this federal law has been the subject of numerous interpretations by legal bodies, groups, and individuals. To understand all the implications under the Liability Risk Retention Act of 1986, it is necessary to review the Congressional purpose for enacting the legislation, and the legislative history of the legislation. A good deal of the legislative history of the act is detailed in the court decision Home Warranty Corporation v. Georgia (11th Cir. 1985) 777 F.2d 1455. One should also review the National Association of Insurance Commissioners’ (NAIC) Model Risk Retention Act. To facilitate your understanding of the Liability Risk Retention Act, the following outlines the components with deviations as they occur under the NAIC Model Risk Retention Act. Also worth review are the US Government Accountability Office’s two reports on Risk Retention Groups, the first in 2005 (GA0-05-536 Risk Retention Groups), and the second in 2011 (GAO-12-16 Risk Retention Groups).
The Committee on Commerce, Science, and Transportation, supported by the Administration’s Tort Policy Working Groups’ report, was convinced that an expansion of the Products Liability Risk Retention Act of 1981 was needed to facilitate group insurance programs. It was presumed that this expansion would reduce costs, provide alternative mechanisms for coverage, and promote greater premium competition among general liability insurers. It was believed that this expansion would encourage insurers to set premiums that would compete with the new formations created under the revised law.
To accomplish these goals, the Congressional history is clear on the absolute need for preemption from certain state laws which would hinder or oppose the formation and interstate operation of association captive insurance companies or Risk Retention Groups. The record also reflects the need for preemption of prohibitive or restrictive state laws that would preclude insurers from giving preferential rates, terms, and conditions to groups seeking liability insurance coverage. The LRRA provides the following definitions to aid in gaining an understanding of RRGs.
Insurance: Primary, excess, reinsurance, surplus lines, or any other means for transferring risk under state or federal law.
Liability: The legal liability for damages (including legal fees and other claims expenses) resulting in bodily injury, property damage, personal injury, or other types of loss or damage arising out of any business or governmental activity. The term does not include personal risk liability or the liability of railroads for injuries to their employees under the Federal Employer’ Liability Act (FELA).
Personal Risk Liability: Liability for personal injury or property damage resulting from personal, familial or household responsibilities, rather than from business-type activities.
Hazardous Financial Condition: Exists when a risk retention group appears to be unable (1) to meet its policyholders’ obligations regarding known claims and reasonably anticipated claims, or (2) to pay other obligations of business operations.
Risk Retention Groups
A Risk Retention Group is a corporation or other limited liability association functioning as a liability insurance company. An RRG is organized for the primary purpose of assuming and spreading the liability risk exposure(s) of its group members . It must be chartered and licensed as a liability insurance company in one of the 50 states or the District of Columbia. It can also charter as an industrial or association captive under special state captive laws in some states.
RRGs chartered or licensed under the laws of Bermuda or the Cayman Islands that have met the capitalization requirements of one state prior to January 1, 1985 can continue to operate as RRGs. These are the only offshore formations which were permitted. No such companies exist today.
The structuring of the RRG will conform to the laws of the chartering state and can include formation as a stock or mutual company or as a reciprocal exchange. Members of an RRG must be engaged in businesses or activities which are similar or related to the liability exposures created by virtue of common business or trade practices, products, services, premises, or operations. In addition, an individual or firm that meets these criteria cannot be excluded from the group if the intent of the exclusion is to provide the group with a competitive advantage.
Owners of RRGs must be both members of and insured by the group. Indirect or secondary ownership through a wholly owned, single organization is permitted when the organization’s owners are members of and insured by the RRG. Insurance companies cannot have an ownership interest in an RRG unless all members of the group are insurance companies.
The ownership interests of an RRG are exempt from filing registration statements under Federal Securities Law and state Blue Sky Laws. However, in line with the anti-fraud provisions of applicable State and Federal laws, any solicitation for funds must disclose all material facts regarding the RRG and its insurance operations.
Except for the chartering state, an RRG is exempt from any state law, rule, or regulation that regulates or makes an RRG unlawful except, any state can require an RRG to:
- Comply with unfair claim settlement practices
- Pay applicable premium or surplus lines taxes
- Participate in residual market mechanisms (Joint Underwriting Authorship’s/Assigned Risk Pools)
- Designate the insurance commissioner as agent for service of process
- Submit to financial examination by other state insurance commissioners if the chartering state has not initiated such an examination
- Comply with state deceptive, false, or fraudulent trade practice laws
- Comply with lawful orders for delinquency or dissolution proceedings
- Comply with an injunction for hazardous financial condition
- Include a notice in insurance policies, in 10-point type, stating the RRG is not subject to all state laws and regulations, and that the insolvency guaranty fund is not available for the RRG.
- The non-chartering state has no approval authority over rates, coverages, forms, insurance-related services, management, operation, investment activities, or loss control and claims administration. In addition, the Act prohibits states from otherwise discriminating against RRGs.
Each RRG must submit a feasibility study or plan of operation for approval to the chartering state before offering insurance. Under the Federal Act, the plan or study must include coverages, deductibles, coverage limits, rates, and rating classification systems. The NAIC Model Act purports to further define the feasibility study as an “analysis which presents the expected activities and results of a risk retention group.” Under the NAIC Model Act’s expanded definition of feasibility study, the study is required to disclose more information than that specified in the LRRA, including historical and expected loss experience of the members, pro forma financial statements and projections, an actuarial opinion defining the minimum premium necessary to begin operations and to avoid financial difficulties, information on underwriting and claims procedures, reinsurance agreements, investment policies, and management and marketing methods. In addition, the NAIC Model Act’s expanded definition of feasibility study also requires that it contain information identifying the initial members, the organizers, the administrator, and anyone else who will otherwise influence or control the RRG.
In each state in which the RRG is or plans to do business, the RRG is required to submit a copy of the feasibility study (including revisions) and a copy of the annual financial statement. The statement must be certified by an independent accountant and include an opinion of loss and loss adjustment expense reserves by an actuary or a qualified loss reserve specialist. An RRG cannot write coverage which is prohibited by state statute or by the highest court in the state (ex: punitive damage, intentional or criminal conduct). This is not the same as coverage which is prohibited by the state insurance department. However, the states do have broad discretionary powers in deciding whether coverage from an RRG is acceptable where proof of financial responsibility is needed to obtain a license to engage in certain activities (i.e.: hazardous waste hauling, motor vehicle operations).
If an RRG is found to be “in hazardous financial condition,” any state or U.S. District Court may issue an order enjoining a RRG from soliciting, selling insurance, or continuing operations.
A Purchasing Group (PG) is an organization which purchases liability insurance on a group basis from an insurance company or a Risk Retention Group for its members. Unlike an RRG, a PG is not an insurance company and its members do not underwrite their own coverage. However, like RRGs, PGs are subject to the same, similar, or related tests pertaining to membership, exposures, and types of coverage(s) offered.
A PG is exempt from any state law, rule, regulation or order that would:
- Prohibit the establishment of a PG
- Make it unlawful for an insurer to provide or offer insurance to, or to discriminate in favor of the PG (based on loss experience)
- Prohibit a PG or its members from purchasing insurance on a group basis, regardless of a minimum time in operation, the number of members or member participation level, or otherwise discriminate against a PG or its members.
- Apart from these specified exemptions, a PG must comply with all other state laws and regulations regarding its operation and procurement of insurance.
A PG intending to do business in any state must give notice of intent to do so to the appropriate state’s insurance commissioner. The notice must identify the state of domicile and principal place of business for the PG, categorize the lines and classifications of liability insurance to be purchased, and provide the name and domicile of the insurance company from which insurance is to be purchased. In addition, the PG must designate the commissioner of each state as its agent for service of process.
The Federal Act allows for advantages in rates, forms and coverages when they are based on the PG’s loss and expense experience. However, the LRRA does not preempt individual state authority regarding approval of rates, forms or coverages regarding PGs. Note: This is not the case with RRGs.
A PG may not purchase insurance from an insurer that is not admitted in the state where the PG is located, or from a RRG that is not chartered in a state unless the purchase is through a licensed broker acting pursuant to applicable surplus lines laws
Application of State Agent and Broker Licensing Requirements
For both RRGs and PGs, chartering and non-chartering states may require agents who are acting on behalf of these entities to be licensed. However, states cannot impose residency requirements for licensing, nor can they require that the policy be countersigned by a resident agent or broker.
The contents this website have been prepared by NRRA for general informational purposes only and is not legal advice. In some instances, such may represent opinion(s) only. The information provided on this website is therefore not intended to constitute specific legal advice nor to be a substitute for obtaining legal and other professional advice or services from qualified counsel or other professionals. You should not act or refrain from acting based upon any of the information on this website nor should you use any of the information on this website as a basis for any decision or action without first obtaining advice from professional counsel qualified in the applicable subject matter and jurisdiction(s).
The contents of this website are provided “AS IS”. Your access and use of this website is at your own risk. To the extent permitted by law, NRRA disclaims all conditions, representations, warranties, express, implied, statutory or otherwise, including any warranties of merchantability, fitness for a particular purpose, title, accuracy of informational content, system integration, non-infringement of third party rights, quiet enjoyment, and uninterrupted or error free operation.
To the extent permitted by law, NRRA disclaims liabilty for any lost profits or income, lost business, or lost data, or for any consequential, indirect, exemplary, punitive, special, or incidental damages arising from or relating to this website.