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Liability Risk Retention Act provisions need clarification: GAO


WASHINGTON—The federal Government Accountability Office has released its long-awaited report on risk retention groups, concluding that Congress should consider clarifying some provisions of the Liability Risk Retention Act of 1986 in order to reduce varying interpretations of the law by state regulators and courts.

The report notes that while typically only a few states serve as domiciles to most risk retention groups, those RRGs tend to write most of their business in nondomiciliary states.

However, the report notes that states have interpreted the LRRA provisions differently, “due in part to LRRA's silence on certain issues such as registration requirements, fees and the types of insurance coverage RRGs can write, sometimes resulting in litigation between state insurance regulators and RRGs.”

The GAO recommends that Congress clarify those nondomiciliary registration requirement and fee provisions, as well as provide a more specific definition of the types of coverage permitted under the LRRA.

The report updates the GAO’s analysis from its 2005 study on risk retention groups. In that report, the GAO recommended implementation of more uniform state regulatory standards.

The new report notes that since that time, the National Assn. of Insurance Commissioners has revised its accreditation standards to align RRG regulation more closely with that of traditional insurers, including a risk-focused examination process to be applied in all RRG financial examinations begun during or after 2011.

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