Differences Between Captives, RRGs
Although risk retention groups are a form of captive, there a number of key differences between them. Here are a few examples of how they differ:
Captives have been around more than 100 years, while the legislation authorizing RRGs was enacted in 1981 and amended in 1986.
Captives can have a single parent-policyholder, while RRGs must have at least two policyholders.
RRGs must have at least $500,000 in capital, and usually more; captives, depending on the domicile, can have far lower capital requirements.
Captives can be used for any line of coverage; RRGs can only cover liability productsgeneral, auto, professional. (The National Association of Insurance Commissioners is debating whether to recommend that Congress amend the Liability Risk Retention Act to include property and workers compensation exposures.)
Captives can be set up wherever there are captive domiciles, U.S. and worldwide; since 1986, RRGs have been allowed to domicile only in the United States.
Captive ownership is unlimitedowners can be policyholders or anyone else; RRG ownership is limited to policyholders only.
Captives can be fronted by any willing, licensed primary insurerlimited only by regulatory and state insurance guidelines; RRGs are portable. They do not require a front as legislation allows RRGs to underwrite in any state once charted in a U.S. domicile.
Captives and RRGs are both eligible to be rated by any independent rating agency.
Christopher L. Kramer is senior vice president for Neace Lukens Management Services in Cleveland, Ohio, and Washington, D.C. For Mr. Kramers take on RRGs and the nursing home market, see page 29.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 12, 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.
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