Selecting An RRG Domicile
With the rate of risk retention group formations triple that of last year, a fundamental decision that each RRG is faced with is what state to select as its state of domicile.
Under the single-state regulatory scheme of the Liability Risk Retention Act, an RRG's domiciliary state plays a key role in its regulation, preempting the laws of other states, except in limited areas defined by the federal law.
In selecting an RRG's domiciliary state, several factors will come into play. Perhaps the key factor will be whether the state has a captive law that enables formation of RRGs. Captive laws typically provide for greater flexibility, such as lower capital and surplus requirements and more latitude with regard to investments.
While 19 states serve as RRG domiciles, three statesVermont, Hawaii and South Carolinaare the dominant domiciles, accounting for regulation of more than 75 percent of all RRGs.
Vermont remains the leading state for regulation of risk retention groups, with 57 active RRGs under its jurisdiction. South Carolina recently surpassed Hawaii as the second leading RRG domicile, regulating 22 active RRGs, compared with 17 regulated by Hawaii.
In the first eight months of this year, South Carolina licensed 12 RRGs, compared with Vermont, which licensed 14, and Hawaii, which licensed only one RRG.
In terms of licensing new RRGs this year, Hawaii has slipped behind Nevada, which licensed two RRGs, and tied with six other states, each of which have licensed one RRG so far this yearAlabama, Arizona, District of Columbia, Florida, Kentucky and Montana.
In addition to studying which states regulate RRGs, another helpful factor to consider is whether certain domiciles are more likely to regulate RRGs in particular areas of business.
For example, Vermont regulates no RRGs that insure extended vehicle service contracts, while Hawaii and South Carolina each regulate RRGs providing contractual liability for vehicle service contracts.
Nevada and Hawaii are the only two states that regulate RRGs providing liability coverages for contractors, with each having licensed an RRG in this business area this year.
Finally, after consideration of these factors, a visit to the domicile and a face-to-face meeting with state regulators is essential in making the final decision as to whether there is a good fit between the RRG and its future home.
Karen Cutts is managing editor and publisher of the "Risk Retention Reporter," a monthly newsletter based in Pasadena, Calif., that she founded shortly after passage of the 1986 Liability Risk Retention Act.
With the rate of risk retention group formations triple that of last year, a fundamental decision that each RRG is faced with is what state to select as its state of domicile.
Under the single-state regulatory scheme of the Liability Risk Retention Act, an RRG's domiciliary state plays a key role in its regulation, preempting the laws of other states, except in limited areas defined by the federal law.
In selecting an RRG's domiciliary state, several factors will come into play. Perhaps the key factor will be whether the state has a captive law that enables formation of RRGs. Captive laws typically provide for greater flexibility, such as lower capital and surplus requirements and more latitude with regard to investments.
While 19 states serve as RRG domiciles, three statesVermont, Hawaii and South Carolinaare the dominant domiciles, accounting for regulation of more than 75 percent of all RRGs.
Vermont remains the leading state for regulation of risk retention groups, with 57 active RRGs under its jurisdiction. South Carolina recently surpassed Hawaii as the second leading RRG domicile, regulating 22 active RRGs, compared with 17 regulated by Hawaii.
In the first eight months of this year, South Carolina licensed 12 RRGs, compared with Vermont, which licensed 14, and Hawaii, which licensed only one RRG.
In terms of licensing new RRGs this year, Hawaii has slipped behind Nevada, which licensed two RRGs, and tied with six other states, each of which have licensed one RRG so far this yearAlabama, Arizona, District of Columbia, Florida, Kentucky and Montana.
In addition to studying which states regulate RRGs, another helpful factor to consider is whether certain domiciles are more likely to regulate RRGs in particular areas of business.
For example, Vermont regulates no RRGs that insure extended vehicle service contracts, while Hawaii and South Carolina each regulate RRGs providing contractual liability for vehicle service contracts.
Nevada and Hawaii are the only two states that regulate RRGs providing liability coverages for contractors, with each having licensed an RRG in this business area this year.
Finally, after consideration of these factors, a visit to the domicile and a face-to-face meeting with state regulators is essential in making the final decision as to whether there is a good fit between the RRG and its future home.
Karen Cutts is managing editor and publisher of the "Risk Retention Reporter," a monthly newsletter based in Pasadena, Calif., that she founded shortly after passage of the 1986 Liability Risk Retention Act.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
