From the May 2, 2011 issue of National Underwriter Property & Casualty • Subscribe!

LRRA’s 25th Anniversary: Act Brought Big Changes In Liability Insurance

The Liability Risk Retention Act (LRRA), celebrating its 25th anniversary this year, has brought about many changes in liability insurance since its enactment, including the establishment of risk-retention groups (RRGs) and risk-purchasing groups (RPGs) as effective alternative risk-transfer vehicles.

By the end of 2010, 251 RRGs and 808 RPGs were operating. While both entities operate in all 50 states and D.C., there are only a handful of states that are favored as domiciles for RRGs and RPGs.

Taking the lead for licensing RRGs in 1987 and continuing as the leading domicile is the state of Vermont, which garnered 34 RRGs before 1990 and totaled 122 groups (both active and retired) at the end of 2010.

In the last decade, however, several domiciles have been encroaching on Vermont’s domination as an RRG domicile.

South Carolina is head of the pack with 55 RRGs licensed since 2001, D.C. follows with 41 groups, and Nevada is right behind with 37 groups—21 of them licensed since 2006.

Montana is the only other domicile with double-digit growth in that same time period, licensing 17 RRGs, including 12 since 2006.

RISK PURCHASING GROUPS

The top domicile for risk-purchasing groups since 1987 has been a race between Delaware and Illinois.

At the end of 2010, Illinois had 140, while Delaware had 128 groups. Texas came in a distant third with 78 RPGs, followed by California (66) and New York (56).

D.C. is the most likely challenger to the dominance of the current top two. The domicile had 41 licensed RPGs at the end of 2010. The current momentum is with D.C. as it becomes an increasingly important domicile—the only domicile that is favorable to both RRGs and RPGs.

With its emphasis on attracting captives and other alternative risk-transfer vehicles, D.C. will likely soon be challenging South Carolina for the second most-favored domicile for RRGs and surpassing New York in the race to attract RPGs.

Popularity Contest

Why are some domiciles more popular than others? The domiciles favored by RRGs tend to be those with a captive law. RPGs also have tended to choose states with a captive law—both Delaware and Illinois passed a captive law early on. Many of the domiciles now attracting RRG formations are those with a captive law passed since 2000—Nevada and Montana for example.

Of the top RRG domiciles that have had a captive law on their books for more than 10 years, the states that actively amend their captive law to keep up to date with business trends—Vermont or South Carolina, for example—are the most attractive domiciles for RRGs.

 

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