WASHINGTON–Legislation that would allow risk retention groups toprovide property insurance is scheduled to be introduced next weekin the House of Representatives.

Besides broadening the products that could be sold by theseentities, the legislation will also impose stronger corporategovernance standards, National Underwriter has learned.

It will also contain language clarifying that risk retentiongroups cannot access state guaranty funds that includednon-risk-retention groups.

The legislation will be introduced by Rep. Dennis Moore,D-Kans., and Deborah Pryce, R-Ohio, both members of the HouseFinancial Services Committee.

The legislation will be introduced in advance of a Wednesdayhearing on financial services regulation scheduled to be held bythe Capital Markets Subcommittee of the House Financial ServicesCommittee.

A representative of the industry is expected to testify on theneed for the legislation at the hearing, according to insurancelobbyists.

A draft of the legislation indicates that if enacted the billwill allow RRGs to provide property insurance only if they enhanceexisting safety-and-soundness standards.

These will include prohibiting excess exposure to individualrisks, requiring risk-based capital standards, mandating newfinancial statement standards, and (where possible andnondiscriminatory), requiring participation in National Associationof Insurance Commissioners solvency monitoring mechanisms.

Although exact language was unavailable, the legislation isexpected to clarify that RRGs that want to add new classes ofmembers or engage in the new activities must implement minimumcorporate governance standards.

This stems from a Government Accountability Office reportseveral years ago that raised concerns about the depth of thecorporate governance rules mandated for RRGs.

It will allow RRGs to provide property coverage only if theirstate of domicile has adopted specific standards for examinationauthority, audits by certified public accountants, accountingpractices and procedures, filings with the NAIC, valuation ofinvestments, and safety and liquidity of investments policies.

Other issues that must be addressed to qualify for the addedcoverage authority will be liabilities and reserves, actuarialopinions, capital and surplus, corrective actions, holding companysystems, risk limitations, and reinsurance ceded rules, thelegislation is expected to say.

The legislation, according to sources, would be effective 18months after date of enactment.