NU Online News Service, Jan. 12, 9:57 a.m.EST

WASHINGTON—The Government Accountability Office hasrecommended that Congress pass legislation clarifying certainprovisions of the Liability Risk Retention Act (LRRA), includingregistration requirements, fees and coverage.

In a report released yesterday, the GAO says risk-retentiongroups appear profitable; that most of their new business appearshealth-related and that their share of the commercial liabilitymarket has increased from 2003 to 2010.

“While some RRG representatives and state regulators supportedthis legislation, others expressed concerns about whether RRGswould be adequately capitalized to write commercial-propertyinsurance and about federal involvement in state regulation,” thereport says.

The report goes on to say that some regulators with whom GAOspoke to indicated that their actions toward non-domiciled RRGsreflect an effort to “use their limited regulatory authority toprotect insureds in their states as well as address concerns aboutRRG solvency.”

The National Association of Insurance Commissioners (NAIC),which supports amending of the 1986 federal law, wants the law“clarified” to limit the preemptive authority of the currentlegislation, and to make it clear that risk retention groups mustpay premium taxes, registration fees and also to pay for oversightby the state insurance agency in each state.

Proposed legislation would amend the LRRA, which allows riskretention groups to operate through the laws of the state in whichthe group is domiciled, to allow RRGs to provide commercialproperty insurance and also include a federal arbitrator to resolvedisputes between RRGs and state insurance regulators.

While supporting the NAIC's request for clarification, the GAOgave the risk-retention industry a clean bill of health.

GAO says that “certain indicators” suggest that the financialcondition of the industry in aggregate generally is profitable,that its share of the commercial liability market has grown from1.17 percent in 2003 to about 3 percent in 2010.

Robert H. Myers Jr., general counsel to the National RiskRetention Association, says the GAO report “reminds us that RRGs inrecent years have shown healthy growth, which reflects bothfinancial strength and profitability.”

Myers also says the report discusses the enhancement ofregulation by the states that charter RRGs. “All of this showsthat the industry is maturing and becoming an important part of themarket, particularly in the area of healthcare liability,” saysMyers.

He notes that the report also points out, however, that certainregulatory issues—fees, registration, and discrimination, forexample—remain problematic and “continue to imposeupon the industry a substantial regulatory burden.”

Underscoring growth, the report says RRGs wrote $1.8 billion ininsurance in 2003 and in 2010 wrote $2.5 billion in insurance.Recent growth came through writing of health-related risks. “Otherfinancial indicators, such as ratios of RRG premiums earnedcompared to claims paid—also suggest profitability,” the GAO reportsays.

In 2010, more than 80 percent of RRGs were domiciledinVermont,South Carolina, theDistrict of Columbia,Nevada,Hawaii,andArizona, but RRGs wrote about 95 percent of their premiumsoutside their state of domicile, the GAO says.