To Merge Makes Sense

After months of talks on merging not the first such discussionbetween the two groups the Captive Insurance Companies Associationand the National Risk Retention Association announced last monththat they were mutually ceasing any further negotiations.

A brief press release did not give any specific reasons for thefailure of the latest talks, simply stating that the boards of thetwo alternative market groups had considered the effect of a mergeron their long-term strategies. Their conclusion was that “movingforward with a merger at this time would not provide sufficientadditional benefits for members.” Really?

This is interesting, since some of the owners of captives andrisk retention groups belong to both associations. A merger of thetwo groups could benefit members who could attend one meetingrather than two and be kept abreast of issues facing both captivesand RRGs. It would also mean more dollars in the till to benefitall members.

NRRA Chairman Stephen R. Crem who is president and CEO of theAmerican Safety Insurance Group of Companies as well as programmanager for the company's RRGsaid the two associations began bylooking at commonalities.

“We both serve the alternative risk-transfer market,” he said.“CICA actually targets RRGs as part of its member base. We havecommon service-provider members they would prefer if the twoassociations were one because they would have to attend fewermeetings, and we even use the same management company.”

However, merger talks were shelved because of NRRA's strongerfocus on legislative issues, Mr. Crem explained.

CICA Chairman Daniel S. Labrie, president and CEO of the HousingAuthority Insurance Group, said that following the pre-merger duediligence process, “we both concluded we needed to be independentof each other. CICA is less focused on the legislative aspect ofRRGs and NRRA has a strong emphasis on that. We thought it wasbetter for both associations to serve their memberships asindependent associations.”

Mr. Crem said NRRA can best serve its members by “activelyparticipating in legislative issues as a primary purpose for theexistence of the association.” He added that CICA is focused moreon development and networking of captives. “At the end of the day,we both concluded that NRRA's focus on government affairs may bediluted if a merger took place,” he said.

Mr. Labie said he does not see a merger “coming up again in thenear future.”

That's too bad. Yes, it's true that there have been morelegislative issues facing RRGs in the past year or so. There havebeen efforts to expand the federal Liability Risk Retention Act,and risk retention groups have had to defend themselves in the wakeof an auto warranty RRG gone bad. (The RRG in question was formedin Cayman before the LRRA was passed, not in the United States adetail that seems to elude some.)

But what happens if the negative spotlight turns to captives? Weare all aware that alternative risk-transfer accounts for nearlyhalf of commercial insurance market share, and that captive and RRGgrowth has remained steady despite softening in the traditionalinsurance market. However, the ART market's problem is that it isbroken up into bite sizes. Wouldn't it have been wise for the twogroups to lay down their differences and embrace similarities in aplay for greater clout?

Yes, getting involved in legislative issues is costly andtime-consuming, but there is the outside chance that not doing socould be even more costly and time-consuming in the long run.

Caroline McDonald

Senior Editor

Reproduced from National Underwriter Edition, March 4, 2005.Copyright 2005 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.