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

Besides broadening the products that could be sold by these entities, the legislation will also impose stronger corporate governance standards, National Underwriter has learned.

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

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

The legislation will be introduced in advance of a Wednesday hearing on financial services regulation scheduled to be held by the Capital Markets Subcommittee of the House Financial Services Committee.

A representative of the industry is expected to testify on the need for the legislation at the hearing, according to insurance lobbyists.

A draft of the legislation indicates that if enacted the bill will allow RRGs to provide property insurance only if they enhance existing safety-and-soundness standards.

These will include prohibiting excess exposure to individual risks, requiring risk-based capital standards, mandating new financial statement standards, and (where possible and nondiscriminatory), requiring participation in National Association of Insurance Commissioners solvency monitoring mechanisms.

Although exact language was unavailable, the legislation is expected to clarify that RRGs that want to add new classes of members or engage in the new activities must implement minimum corporate governance standards.

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

It will allow RRGs to provide property coverage only if their state of domicile has adopted specific standards for examination authority, audits by certified public accountants, accounting practices and procedures, filings with the NAIC, valuation of investments, and safety and liquidity of investments policies.

Other issues that must be addressed to qualify for the added coverage authority will be liabilities and reserves, actuarial opinions, capital and surplus, corrective actions, holding company systems, risk limitations, and reinsurance ceded rules, the legislation is expected to say.

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

Special Reports /

Bill Would Let RRGs Offer Property Coverage

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