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More than three and a half decades after Congress passed legislation allowing the formation of risk retention groups, the alternative risk transfer vehicles remain a vital source of coverage for their tens of thousands of policyholder-owners.
Risk retention groups, which are multiple-owner captives and can do business in any state after meeting the licensing requirements of one state, have grown significantly over the past couple of decades: As of the end of January, 230 RRGs were operating compared with 100 in 2003, according to the Risk Retention Reporter, a monthly newsletter covering the sector.
Some RRGs reported huge growth in the number of policyholders, as well as their premium volume.
For example, United Educators Insurance, a Reciprocal Risk Retention Group, which is licensed in Vermont and based in Bethesda, Maryland, now has about 1,600 policyholders and $200 million in premium volume. That compares with 900 policyholders and $25 million in premium volume 20 years ago.
“We provide significant risk management services and stability of premium rates,” said Janice Abraham, United Educators’ president and CEO, adding that the RRG has a 99% policyholder renewal rate.
“Members stay with us not just because premiums may be the least expensive, but because of the total package of services,” Ms. Abraham added. For example, the United Educators’ RRG, Ms. Abraham says, offers an extensive array of online courses targeted to the specific risks of schools and colleges.
Even during the current soft market, some RRGs continue to attract new members, boosting their premium volume. For example, the Alliance of Nonprofits for Insurance, Risk Retention Group, which was licensed in Vermont in 2000, added 760 policyholders between 2016 and 2017, with premium volume rising by about $3 million. The RRG now has about 7,600 policyholders and more than $43 million in premium volume.
“We are definitely continuing to grow,” said Pamela Davis, president and CEO of the RRG in Santa Cruz, California. “We believe we are a great long-term value. Those who will stay will benefit from premium stability, broad coverage and extensive risk management services.”
The RRG offers coverage for improper sexual conduct liability, employment practices liability, professional liability, general liability, commercial auto liability, directors and officers liability and umbrella liability.
“We’ve had 100% renewal for the last six years,” said Mike Miller, senior program director in St. Charles, Illinois, for Washington, D.C.-licensed Trinity Risk Solutions RRG. The RRG, which initially provided general liability and professional coverage to nonprofit senior care facilities, recently began offering coverage to for-profit senior care operators.
Stable premiums and “top risk management services” have driven that 100% renewal rate, even “in the face of tough competition” from the commercial market, Mr. Miller said, adding that Trinity Risk Solutions “provides clinical, regulatory and compliance assistance from highly qualified risk management experts, all with years of experience working in the senior care field.”
Not all RRGs have that kind of retention rate, due in large part to stiff competition from commercial insurers.
“Insurers have a big war chest, and they can compete aggressively,” said Jeremy Brigham, a director in the Hartford, Connecticut, office of Willis Towers Watson P.L.C., adding that in some cases the need for RRGs has tapered off.
Indeed, while the number of RRGs has, over the last couple of years, stayed in the 230-235 range, it is down from the peak of about a decade ago when premiums were soaring for many lines of coverage. At the end of 2008, just over 260 RRGs were operating.
As the traditional market softened, “The need for RRGs tapered off,” said Bruce C. Whitmore, senior vice president and senior resource consultant in Willis Towers Watson’s Tampa, Florida, office.
One thing that hasn’t changed is where RRGs decide to be licensed. While RRGs are spread across states with captive laws, Vermont — from the start and today — is home to more RRGs than any other state.
Currently, 90 RRGs, or close to 40% of all RRGs, are licensed in Vermont.
Vermont regulators “really understand RRGs. Vermont has a reputation of being the gold standard,” said Michael Serricchio, a managing director with Marsh Captive Solutions in Norwalk, Connecticut.
What has changed is the size of some RRGs. For example, Attorneys’ Liability Assurance Society Inc., a Risk Retention Group, provides coverage to 62,000 lawyers and has projected premium volume this year of more than $350 million.
The RRG’s size is due to loss control services “unmatched” by the commercial market, said Mark Gralen, general counsel and executive vice president-member relations in Chicago for ALAS, which is licensed in Vermont.
That commitment to risk management, which includes numerous loss control conferences, such as one in March on cyber security, for example, has held down losses and enabled the RRG to offer rates that are lower compared with its formation in 1996, Mr. Gralen said.
In addition to conferences, ALAS offers members other “unique resources and services that cannot be purchased commercially,” Mr. Gralen said.
Those resources and services “include a wide variety of printed and electronic publications, customized on-demand programs and presentations addressing current issues from ALAS claims, with 25 experienced ALAS lawyers to answer complex questions and assist firms with difficult internal issues or major projects,” he said.
“There is a strong commitment to risk management and loss control,” Mr. Gralen added.
In all, RRGs with the highest longevity have several shared characteristics, said Michael Bemi, who retired last year as president and CEO of Vermont-domiciled The National Catholic Risk Retention Group Inc., which has operated for more than 30 years.
Those common threads, Mr. Bemi said, include a “bona fide raison d’être for establishment — including coverage unavailability, coverage inadequacy and/ or unaffordability in the traditional market — and strong grass-roots support from potential policyholder-owners.”
In addition, Mr. Bemi said, RRGs with the greatest longevity have “worked hard to be good and stay good at the fundamentals, i.e., underwriting, claims management, risk control, investment management, reinsurance placement and marketing.”
Global captive formations slipped in 2017 amid the continued soft commercial insurance market, but captive managers anticipate growing interest in alternative risk transfer vehicles as some lines of coverage see rates edge up.