NU Online News Service, Jan. 17, 12:18 p.m.EST

While the Government Accountability Office (GAO) report onrisk-retention groups (RRGs) recommends that Congress passlegislation clarifying certain provisions of the Liability RiskRetention Act (LRRA), it doesn't go far enough, according to anindustry expert.

In a report released Jan. 11, the GAO recommends that Congressconsider "clarifying whether 1) RRG registration requirementsbeyond those currently specified in LRRA are permitted innon-domiciliary states (states other than the state in which theRRG is licensed) and 2) fees in addition to premium and other taxescould be charged to RRGs by non-domiciliary states in which theyoperate."

Fees and other requests by non-domiciliary states, which NRRAsays violate the federal act, have been an ongoing issue.

Sanford Elsass, a member of the board of directors for theNational Risk Retention Association (NRRA), tells NU, "For all ofthat work, the response was mild compared to the gravity of thework the states have done to try to slow the growth of RRGs or stopRRGs."

He adds that to his understanding, the purpose of the GAO reportwas to "create a very clear black-and-white picture of whetherthere have been egregious acts that violated the law—which we haveproven there are."

Elsass is perplexed because "a lot of us spent time with theGAO, so to have this be in the report is politically not veryuseful or very helpful to risk-retention groups."

Joseph Deems, NRRA executive director and chair of theassociation's Government Affairs committee, says in a statement:"The GAO report noted that legislation (HR 2126) has beenintroduced that provides for a federal arbitrator to resolvedisputes between RRGs and state regulators, but it does not take astrong stand against efforts by some states to encroach on theright of RRGs to operate with only limited regulation as authorizedby the federal law (LRRA)."

The National Association of Insurance Commissioners (NAIC),which supports amending the 1986 federal law, has said it wants thelaw "clarified" to limit the preemptive authority of the currentlegislation and to make it clear that RRGs must pay premium taxes,registration fees and also pay for oversight by the state insuranceagency in each state.

Proposed legislation would amend the LRRA, which currentlyallows RRGs to operate through the laws of the state in which thegroup is domiciled, to allow RRGs to provide commercial propertyinsurance and would 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.

In its report, GAO says that "certain indicators" suggest thatthe financial condition of the industry in aggregate generally isprofitable, that its share of the commercial-liability market hasgrown from 1.17 percent in 2003 to about 3 percent in 2010.

In 2010, more than 80 percent of RRGs were domiciled in Vermont,South Carolina, the District of Columbia, Nevada, Hawaii andArizona, but RRGs wrote about 95 percent of their premiums outsidetheir state of domicile, according to the GAO.