HUD accepts new rating service seal of approval for loan guarantee program
Before Jan. 1 of this year, none of the 24 risk retention groups formed in the last three years to provide professional liability coverage to nursing home owners and operators were eligible for the U.S. Department of Housing and Urban Development's Section 232 program, which provides HUD-guaranteed loans for construction or rehabilitation of long term care facilities.
This was because of HUD's requirement that professional liability coverage had to be obtained from a carrier rated "B-double-plus" or better by A.M. Best. Since Best typically requires five years of operation before assigning a letter rating, none of the RRGs could meet the requirement.
Effective Jan. 1, however, HUD approved Demotech Inc.–an Ohio-based rating service that focuses on smaller insurers–as a rating service for RRGs. Since that time, RRGs that are assigned a financial stability rating of "A" (Exceptional) by Demotech can participate in the Section 232 program, under which HUD guarantees loans in the event of a default.
Demotech recently assigned four nursing home RRGs an "A" rating, making the insureds of these RRGs eligible for the HUD Section 232 program.
The first RRG to be assigned the Demotech "A" rating was District of Columbia-domiciled Healthcare Industry Liability Reciprocal Company, HealthCap RRG.
HealthCap, formed in 2003, insures more than 500 for-profit and not-for-profit nursing homes and assisted living facilities in 15 states. In 2004, it generated gross written premium of $21.2 million.
Two RRGs managed by The Uni-Ter Group of Atlanta–Florida-domiciled Ponce De Leon LTC RRG Inc. and Nevada-domiciled Lewis & Clark LTC RRG–were the next RRGs to receive an "A" Demotech rating. Uni-Ter provides a full range of services to the RRGs, including underwriting, risk management and claims services.
Ponce de Leon, formed in 2003 to insure long term care owner/operators in Florida following the pullout of most traditional carriers, wrote 2004 gross written premium of $4.5 million.
Lewis & Clark–the surviving RRG following its merger with Henry Hudson LTC RRG–insures nursing home owner/operators in 32 states. It was licensed at the end of 2003 and wrote 2004 gross written premiums of $1 million.
The most recent RRG to receive the "A" Demotech rating is Arizona-domiciled Midwest Provider Insurance Company. Formed in the latter half of 2004, the RRG insures nursing home owner/operators who are members of state-based self-insurance workers' compensation pools, located in Illinois, Iowa and Missouri. In 2004, it wrote gross written premiums of $139,000.
While there is no seasoning requirement for an RRG seeking a Demotech financial stability rating, the firm's president, Joe Petrelli, said the RRG should have at least one year of independent audited actuarial reports.
Demotech takes a holistic approach to the rating process, obtaining information on the major functional areas–including risk management, loss control, claims, underwriting, pricing and investment guidelines–with financial analysis only part of an entire package.
Karen Cutts is editor and publisher of the "Risk Retention Reporter" in Pasadena, Calif. Visit www.rrr.com for information on risk retention groups and purchasing groups.
"Demotech takes a holistic approach to the RRG rating process, obtaining information on the major functional areas, with financial analysis only part of an entire package."
Karen Cutts
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