To Merge Makes Sense

To Merge Makes Sense

After months of talks on merging not the first such discussion between the two groups the Captive Insurance Companies Association and the National Risk Retention Association announced last month that they were mutually ceasing any further negotiations.

A brief press release did not give any specific reasons for the failure of the latest talks, simply stating that the boards of the two alternative market groups had considered the effect of a merger on their long-term strategies. Their conclusion was that “moving forward with a merger at this time would not provide sufficient additional benefits for members.” Really?

This is interesting, since some of the owners of captives and risk retention groups belong to both associations. A merger of the two groups could benefit members who could attend one meeting rather than two and be kept abreast of issues facing both captives and RRGs. It would also mean more dollars in the till to benefit all members.

NRRA Chairman Stephen R. Crem who is president and CEO of the American Safety Insurance Group of Companies as well as program manager for the company's RRGsaid the two associations began by looking at commonalities.

“We both serve the alternative risk-transfer market,” he said. “CICA actually targets RRGs as part of its member base. We have common service-provider members they would prefer if the two associations were one because they would have to attend fewer meetings, and we even use the same management company.”

However, merger talks were shelved because of NRRA's stronger focus on legislative issues, Mr. Crem explained.

CICA Chairman Daniel S. Labrie, president and CEO of the Housing Authority Insurance Group, said that following the pre-merger due diligence process, “we both concluded we needed to be independent of each other. CICA is less focused on the legislative aspect of RRGs and NRRA has a strong emphasis on that. We thought it was better for both associations to serve their memberships as independent associations.”

Mr. Crem said NRRA can best serve its members by “actively participating in legislative issues as a primary purpose for the existence of the association.” He added that CICA is focused more on development and networking of captives. “At the end of the day, we both concluded that NRRA's focus on government affairs may be diluted if a merger took place,” he said.

Mr. Labie said he does not see a merger “coming up again in the near future.”

That's too bad. Yes, it's true that there have been more legislative issues facing RRGs in the past year or so. There have been efforts to expand the federal Liability Risk Retention Act, and risk retention groups have had to defend themselves in the wake of an auto warranty RRG gone bad. (The RRG in question was formed in Cayman before the LRRA was passed, not in the United States a detail that seems to elude some.)

But what happens if the negative spotlight turns to captives? We are all aware that alternative risk-transfer accounts for nearly half of commercial insurance market share, and that captive and RRG growth has remained steady despite softening in the traditional insurance market. However, the ART market's problem is that it is broken up into bite sizes. Wouldn't it have been wise for the two groups to lay down their differences and embrace similarities in a play for greater clout?

Yes, getting involved in legislative issues is costly and time-consuming, but there is the outside chance that not doing so could be even more costly and time-consuming in the long run.

Caroline McDonald

Senior Editor

Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 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.