HUD Captive Guidelines Still Drawing Fire

Nursing home owners fear rating requirement could jeopardize loan guarantees

Burlington, Vt.

The U.S. Department of Housing and Urban Development has posted a new guidelines notice for captive insurers owned by nursing homes, the National Underwriter has learned.

The guidelinesmeant to assure the financial stability of a nursing home’s insurer, captive or otherwise, before granting a loan guaranteehave become more flexible in some respects and more restrictive in others, according to Chris Kramer, senior vice president of Neace Lukens Management Services in Beechwood, Ohio. The firm has spearheaded an effort to elicit responses to HUD from the captive industry.

Mr. Kramer’s comments came here during the Vermont Captive Insurance Association’s annual conference.

One previous objection was that the notice would require an “A” rating for captives by A.M. Best. Mr. Kramer said that the new rule, HO 415, would now require a “B-double-plus” rating from A.M. Best, and HUD may accept assessments additional ratings services.

Once again, however, the captive still is required to have a rating, which he said was a “bone of contention.” Mr. Kramer noted that HUD?s guidelines would have a great impact because many health care facilities refinance in order to upgrade their facilities, and many of them need HUD to guarantee their loans against default.

The “Catch-22″ is that a nursing home’s insurers are still required to be rated for the facility to refinance and have the loan guaranteed by HUD, but a captive insurer needs several years in the market before it can be rated. This could either torpedo the loan or drive the nursing home back into the traditional insurance market, where coverage could be far more expensive, if it is available at all.

Mr. Kramer noted that “while HUD now recognizes that captives and risk retention groups are a vital part of protecting the assets of nursing homes and related health care facilities from liability issues, HUD needs to be clearer on what might be ambiguous guidelines.”

He said he hopes that Neace Lukens and the captive industry can continue its dialogue with HUD to clarify the guidelines.

HUD?s next step, and whether the federal agency will invite comment on its latest draft as it did after the first notice was issued in January, is not yet known.

Reproduced from National Underwriter Edition, August 19, 2004. Copyright 2004 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.