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DENVER-Policyholders of a financially troubled Colorado-domiciled risk retention group for dentists will be able to purchase coverage from a Tennessee-domiciled medical malpractice risk retention group.

National Dental Mutual Insurance Co., a risk retention group licensed by Colorado in 1987, was placed in liquidation April 10 after the Insurance Division determined the insurer was "operating in financially hazardous condition," said Beverly Day, chief of financial affairs in the Colorado Division of Insurance in Denver.

Financial reports submitted to the division showed the insurer had suffered losses in four of the last five years. As a result, National Dental Mutual's policyholder surplus dropped to $1.4 million at year-end 1996, about $100,000 below the minimum statutory surplus requirement of $1.5 million. The insurer wrote $339,115 in premiums in 1996.

Adding to the insurer's woes was a bankruptcy filing by A.W. Lawrence Agency Inc., its Texas-based management company, according to a report by Special Deputy Liquidator John A. Massengale. Mr. Massengale was appointed liquidator of the risk retention group in January after National Dental Mutual failed to submit a plan of operation that had been requested by Colorado regulators.

To ensure no disruption in coverage for the 400 to 450 dentists and dental groups in 36 states that are insured by National Dental Mutual, Colorado regulators arranged for coverage through another risk retention group underwriting similar risks.

The new policies, issued by Doctors Insurance Reciprocal RRG of Tennessee, will provide the same $1 million in limits and become effective retroactive to the date of the National Dental Mutual seizure.

Doctors Insurance Reciprocal, licensed in 1990, holds an A rating from A.M. Best Co. Besides writing medical malpractice liability insurance for doctors, the risk retention group also has a small book of dental malpractice business, according to the Colorado Division of Insurance spokeswoman.