FAQ
Risk Retention Groups (RRGs)
1
What is a Risk Retention Group (RRG)?
A Risk Retention Group (RRG) is a special type of insurance company created to share and manage liability risks for its members.
It must be officially licensed in one of the 50 states or in Washington, D.C. In some states, it can also be set up as a captive insurance company under special state laws.
2
What is Meant by Domiciliary State?
The state in which an RRG is chartered is called its domiciliary state.
3
Are Risk Retention Groups a form of Captive insurance?
Yes, RRGs operate through risk transfer, similar to other captive insurance entities that provide coverage for their owners or members. The key distinction is that RRGs are authorized under a unique federal statute, which is not available to other types of insurers.
4
How are Risk Retention Groups Unique?
The Liability Risk Retention Act of 1986, passed by Congress, allows individuals or organizations engaged in the same or similar businesses to pool their resources and establish an insurance company. This company needs to be licensed in only one state—known as its state of domicile. Once licensed, the RRG can offer insurance in the other 49 states, where regulatory oversight is very limited.
5
Can Risk Retention Groups Sell Insurance to Members of the Public?
No. One reason Courts treat RRGs differently is that they provide liability insurance exclusively to their own members, not to the general public. The two most common structures are: (1) members directly own the company and are also the insureds, or (2) members belong to an association that owns the company, which then issues coverage to the association’s members.
6
What is the Origin of Risk Retention Groups?
Congress enacted the Product Liability Risk Retention Act in 1981, establishing a new type of insurance carrier known as Risk Retention Groups. In 1986, the Act was expanded to cover commercial liability and was renamed the Liability Risk Retention Act (LRRA). The LRRA is codified in Title 15 of the United States Code, beginning at Section 3901.
7
How can a Risk Retention Group be Structured?
The structure of an RRG must comply with the laws of its chartering state and may be organized as a stock company, mutual company, or reciprocal exchange. Its members must be engaged in similar or related businesses or activities that give rise to comparable liability exposures through shared practices, products, services, premises, or operations. Furthermore, any individual or firm meeting these criteria cannot be excluded from membership if the purpose of the exclusion is to create a competitive advantage for the group.
8
Who Owns a Risk Retention Group?
The LRRA permits two ownership structures for Risk Retention Groups (RRGs):
-
Member Owners
-
A Sole Organization Owner
In both cases, control of the RRG rests with group members who are also insured by it—either directly as Member Owners or indirectly as members of the Sole Organization Owner. Not every group member must be insured by the RRG, and not every insured must be an owner. However, all RRG owners must be both group members and insured by the RRG.
-
Member Owners: Ownership is limited to individuals or entities who are both members of the RRG and insured by it. (LRRA § 3901(a)(4)(E)(i))
-
Sole Organization Owner: Ownership of the organization is limited to individuals or entities who are both members of the RRG and insured by it. (LRRA § 3901(a)(4)(E)(ii))
9
Who is a Member of a Risk Retention Group?
Members of a Risk Retention Group must be engaged in businesses or activities that are similar or related in terms of the liability risks they face, whether through common industries, trades, products, services, premises, or operations. For instance, medical professionals might form one RRG, while schools would organize a separate RRG. Membership includes not only the RRG’s equity owners and capital contributors, but also entities affiliated with or related to them. It further extends to active participants in the risk retention program—meaning individuals or organizations whose liability is currently assumed, in whole or in part, by the RRG.
10
Is a Risk Retention Group Ownership Interest a Security?
Yes. The ownership interests of an RRG are considered securities; however, they are exempt from registration requirements under both Federal Securities Laws and state Blue Sky Laws. That said, in accordance with the anti-fraud provisions of applicable state and federal regulations, any solicitation of funds must include full disclosure of all material facts about the RRG and its insurance operations.
11
What Does a Risk Retention Group Have to do to be Chartered and Operate In a Domiciliary State?
Under the LRRA, an RRG must submit a plan of operations or feasibility study to its chartering state for approval before offering insurance. This plan must detail the coverages, deductibles, coverage limits, rates, and rating classification systems. Any revisions to the plan must be submitted if the RRG intends to offer additional lines of liability insurance.
12
Can a Domiciliary States Regulate a Risk Retention Group?
Yes. Because the state of domicile handles the licensing and admission of RRGs, it has the authority to regulate their formation and operations.
13
What Does a Risk Retention Group Have to do to Operate In a Non-Domiciliary State?
Before operating in a non-domiciliary state, an RRG must provide that state with a copy of its feasibility study approved by the domiciliary state, along with any revisions submitted to the domiciliary state. The RRG must also submit annual audited financial statements and an actuary’s or qualified loss specialist’s opinion on losses and loss adjustment expenses.
14
Can Non-Domiciliary States Regulate a Risk Retention Group?
Except for the domiciliary state, an RRG is generally exempt from state laws, rules, or regulations that govern its operations or would make its operation unlawful. However, non-domiciliary states may require an RRG to:
-
Comply with unfair claims settlement practices
-
Pay applicable premium or surplus lines taxes
-
Participate in residual market mechanisms (e.g., Joint Underwriting Associations or Assigned Risk Pools)
-
Designate the state insurance commissioner as agent for service of process
-
Submit to financial examinations if the domiciliary state has not conducted one
-
Follow state laws against deceptive, false, or fraudulent trade practices
-
Comply with lawful orders related to delinquency or dissolution
-
Comply with injunctions for hazardous financial conditions
-
Include a notice in policies (in 10-point type) stating that the RRG is not subject to all state laws and that the state insolvency guaranty fund does not apply
Outside of these requirements, non-domiciliary states have no authority over an RRG’s rates, coverages, policy language, forms, services, management, operations, investments, or claims and loss control. Additionally, the LRRA prohibits states from otherwise discriminating against RRGs.
15
What Does a Risk Retention Group Have to do to be Chartered and Operate In a Domiciliary State?
Under the LRRA, an RRG must submit a plan of operations or feasibility study to its chartering state for approval before it can offer insurance. This plan must specify the coverages, deductibles, coverage limits, rates, and rating classification systems. Any revisions must also be submitted if the RRG plans to offer additional lines of liability insurance.
RISK RETENTION GROUP RRG
Locations
Florida
Georgia
New Jersey
New York
North Carolina
Washington DC
Contact
+1 (212) 123-45678
1605 Main Street, suite 800
Sarasota, Fl. 34236
Opening Hours
Mon - Fri
8:00 am – 8:00 pm
Saturday
9:00 am – 7:00 pm
Sunday
9:00 am – 9:00 pm
This communication is for informational purposes only and does not constitute an offer, solicitation, or the provision of legal, medical, or insurance advice. Coverage options, benefits, and terms are subject to policy provisions, exclusions, and applicable laws. Please review your policy documents carefully and consult with a licensed insurance agent or legal professional for personalized assistance. American Health Insurance Company does not endorse, guarantee, or warrant the completeness or accuracy of any third-party information. Policies and pricing may vary based on individual circumstances and state regulations.