MONTPELIER, Vt.-The formation of a new risk retention group by five of the nation's top academic medical centers is strengthening Vermont's reputation as a domicile of choice for medical centers.

The risk retention group that started doing business Jan. 1 will provide professional liability and general liability coverage for a group of the top academic medical centers in the United States.

Creating the Vermont RRG will provide its members "coverage and operational flexibility," said Christopher D. Smith, president of MCIC Vermont Inc. (A Risk Retention Group).

The five members of MCIC Vermont include: Johns Hopkins Hospital & University in Baltimore; New York Hospital/Cornell University in New York; Presbyterian Hospital in New York; the University of Rochester Medical School and Strong Memorial Hospital in Rochester, N.Y.; and Yale-New Haven Hospital and Yale University's Medical School in New Haven, Conn.

The parent of the newly formed risk retention group is MCIC Vermont Holdings Inc. The risk retention group's members are the shareholders of the parent company.

In addition to insuring the member institutions, the new RRG will provide professional liability and general liability coverage for their employees, affiliates and approximately 7,500 physicians. The group anticipates it will write about $20.3 million in premium this year, which would rank it among Vermont's largest group captives.

The new risk retention group was capitalized with paid-in capital and surplus of $10 million cash, Mr. Smith said.

Johnson & Higgins Services Inc. in Burlington is managing the newly formed MCIC Vermont RRG, which was licensed late last year.

Before the formation of MCIC Vermont, the members' coverage was provided through Bermuda-domiciled Medical Centre Insurance Co. Ltd., which has been in operation for 18 years, Mr. Smith said. That group captive will remain in operation and will write some reinsurance for the Vermont-domiciled RRG.

Forming a Vermont domiciled RRG, though, "allows us an onshore presence, to have employees onshore," the RRG president said. "And with health care changing and going different ways, and as hospitals and medical schools start to affiliate themselves with other health care entities, this was just a natural fit for us-to move onshore."

Leonard D. Crouse, Vermont's director of captive insurance in Montpelier, said the health care group's decision to form a domestic operation made sense both for the RRG's members and for Vermont.

"They wanted to come onshore, and to us it made good business sense for them to do so," Mr. Crouse said.

"They've been very, very conservative," the Vermont captive director said. "There's a lot of money there."

He likened the MCIC Vermont RRG to Controlled Risk Insurance Co. of Vermont Inc. (A Risk Retention Group), formed in Vermont in 1995.

CRICO, formed by the Cambridge, Mass.-based Risk Management Foundation of the Harvard Medical Institutions to write hospital and general liability for the 13 Harvard-affiliated medical institutions, joined an existing Cayman Islands captive that the institutions' formed in 1976.

Recently, Bermuda has sought to position itself as an alternative to the Cayman Islands, which has long been a top domicile for health care captives.

Alan C. Cossar, president of the Bermuda Insurance Management Assn., said the formation of MCIC's Vermont-domiciled RRG isn't a case of the member institutions abandoning Bermuda.

Instead, Mr. Cossar said he believes it's a case of the member institutions taking advantage of a more cost-effective way of doing business that will continue to involve their offshore captive.

"It's not a redomiciling," Mr. Cossar said. "It's not been a change out of Bermuda. They'll still be operating here in Bermuda."

He said what he expects the MCIC Vermont members to do is follow "a concept that I've seen being put in place where, to save on fronting costs, a health care group may form a risk retention group someplace like Vermont and really what happens is that risk retention group passes most of the risk through to the Bermuda captive."

"It gives them a bit more control as well in terms of underwriting and things like that," Mr. Cossar said.

The model Mr. Cossar described fits the MCIC Vermont RRG "to a certain extent," Mr. Smith said. But, he added, "We felt if we were going to set up a U.S. company we really wanted to retain a significant amount of business. That's why we have the $20.3 million this year.

"We certainly didn't want to have just a fronting U.S. company. We wanted to have a real U.S. insurer," Mr. Smith said.

"We felt it would be more prudent to really put some risk in the RRG."

The Bermuda-based MCIC captive will provide some reinsurance for the Vermont RRG, Mr. Smith said. "Above that, we'll have some additional commercial reinsurance with Lexington (Insurance Co.), CNA and Employers Reinsurance Corp."

The MCIC Vermont RRG has five employees and will employ various consulting companies for support services, including Johnson & Higgins of Massachusetts Inc. as reinsurance broker, Tillinghast-Towers Perrin for actuarial services, Arthur Andersen & Co. for audit services and Caronia Corp. for claims consulting services.