Exec Proposes Creating A Risk Retention Group Capital Pool

NU Online News Service, Sept. 25, 11:15 a.m. EDT

The chief executive of a reinsurance brokerage firm has urged a trade group to look into the creation of a capital pool for expanding Risk Retention Groups.

Tal P. Piccione, chairman and CEO of U.S. RE Companies Inc., made his proposal in a speech to the National Risk Retention Association at the group's recent annual conference.

Risk Retention Groups (RRGs) operate under a federally-created format for insurance companies that provide liability coverage to industries under the U.S. Liability Risk Retention Act of 1986 that permits an RRG licensed in a single state to operate in all 50 states without additional licensing.

There are 254 RRGs operating today. In 2008, premium volume of the top 100 RRGs exceeded $2.5 billion. Industry net worth grew to $2 billion, up from $1.4 billion three years earlier, according to figures contained in Mr. Piccione's announcement of his proposal.

Uni-Ter Underwriting Management Corporation, a member of the U.S. RE Group, builds and manages Risk Retention Groups in 47 states.

Mr. Piccione said the large number of RRGs limited in their writings by available capital may well create attractive opportunities for investors, including reinsurance companies, hedge funds, private equity funds, and fronting companies. He encouraged the NRRA to explore opportunities to create this new source of investment capital.

"Looking to the future, I believe the reinsurance industry could take a more dynamic part in helping RRGs achieve their potential. In some cases, initial capital outside the base of potential stockholders is needed to get an RRG off the ground or enable a startup to gain momentum," said Mr. Piccione.

"Reinsurers are entrepreneurs like you. I believe some could be interested in exploring the possibility of subscribing to a pool of capital available to RRGs. Such a pool would be consistent with historic practice in some quarters of the insurance industry to enable procurement of financing to facilitate availability of insurance capacity," he explained.

Mr. Piccione offered to work with the Association in studying the potential for developing an investment pool.