NRRA Members Only: For a more report on the NAIC's Working Group meeting on December 7, 2003, Click Here.

NRRA Government Affairs Committee Update
The Government Affairs Committee met by telephone conference on December 16, 2003, to receive a report from Skip Myers, NRRA General Counsel, on the discussions that took place within the working group at the NAIC Winter Meeting with regard to expansion of the LRRA.

The good news is that the NAIC working group has decided to “table” the proposed resolution, which opposed expansion of the LRRA. Commissioner Wagner (Nebraska), however, indicated that the resolution could come up again at a later time, perhaps even nine months from now. Our thanks to Skip Myers, NRRA General Counsel, for his able representation of NRRA’s interests before the working group.

There is still, however, a great deal of resistance among certain state regulators and conventional market forces to expansion of the LRRA. The ability of RRGs to provide contract liability insurance continues to be a focus of certain regulators. Some states have even called for greater regulation of RRGs with respect to restrictions on authorized lines of insurance and higher solvency standards.

In its discussions with state regulators and the NAIC, NRRA will continue to focus on the benefits of the RRG model as an alternative to the conventional market. NRRA will also continue to highlight the regulatory authority at the disposal of both domiciliary and nondomiciliary states preserved in the LRRA to dissuade the NAIC from pursuing further regulation of RRGs. The Committee urges all NRRA members to support this effort by contributing to the NRRA Public Affairs Fund. Your financial support is critical to our success.

From the Government Affairs Committee, we wish all of you a very happy Holiday Season and much success in the New Year.

NAIC forms working group to discuss expansion of the LRRA - NRRA takes issue with the NAIC's underlying premises
Submitted by NRRA Government Affairs Committee Chair, Kevin Brobson, Buchanan Ingersoll Professional Corp.

The National Association of Insurance Commissioners (NAIC) Property and Casualty Insurance (C) Committee recently formed a working group to consider what recommendations, if any, the NAIC should make to Congress regarding the expansion of the Liability Risk Retention Act (LRRA) to permit RRGs to insure other commercial risks, such as property, and whether RRGs should be permitted to insure contract liability.

The decision to form a working group came after the National Risk Retention Association (NRRA) and captive-domicile regulators took issue with a draft resolution that was circulated by the Committee at the last NAIC meeting. In addition to expressing opposition to the expansion of the LRRA, the draft resolution contained several broad-sweeping and inaccurate statements about RRGs, the regulatory framework for RRGs, and the value of RRGs in the marketplace.

In his October 15 letter to Jose Montemayor, Texas Insurance Commissioner and Chairman of the C Committee, Robert Myers, NRRA general counsel, took issue with several of the premises underlying NAIC's position. "They take a run at the fact that risk retention groups are owned by their insureds and therefore there is not the diversity of risk," Said Myers. However, "The Mutual of Omaha has that problem-they're owned by their risks," he said.

Myers explained that the most important misunderstanding is NAIC's assumption that risk retention groups are more prone to insolvencies than property-casualty companies. "When you examine the facts, you realize that licensed companies and RRGs have a statistically comparable failure rate--about one percent," he said.

Myers also noted that NAIC questioned whether there is a shortage of commercial property coverage. "Even though the marketplace is turning around for property and is softening, that doesn't mean there is not a demand for commercial property coverage," he said.

The working group includes the following jurisdictions: California, District of Columbia, Hawaii, New York, Washington and Vermont. More parties may be added to the working group as it is formed.

Commissioner Montemayor asked that the working group provide an "organizational report" at the December meeting of the NAIC in Anaheim, California. In addition to the matters set forth in the draft resolution, Commissioner Montemayor has expressed concern about captives forming initially for one purpose and then transforming themselves into an RRG with national reach without adequate regulatory oversight.

Commissioner Montemayor said that the next step is to discuss the issue and come up with a direction. If the NAIC does decide to oppose expansion of the LRRA, he said, "we would take up a resolution regarding our position and communicate it to our Congressional leadership saying we don't think it's a good idea and here's why."

Work continues on broadening the scope of the Risk Retention Act (RRA) to allow RRGs and PGs to offer commercial property and auto physical damage coverage. Although there are some early indications that the commercial property market hardening is leveling off, RRG and PG members continue to feel the pressure of high pricing, reduced coverage and commercial insurance companies exiting specific markets.

The Council for the Expansion of the RRA (CERRA) is leading the efforts in the House of Representatives and Senate for the change in the Act. CERRA membership includes a wide range of RRGs and PGs, including the Housing Authority RRG, Attorney Liability Protection Society RRG, United Educators Insurance, RRG, Premier Hospital Insurance Group, NRRA, RIMS, Council of Insurance Agents and Brokers, state captive associations, state insurance departments and numerous other RRGs and PGs and service providers. Work is also in process to secure the support of important trade associations.

Congressman Michael Oxley, the influential chair of the House Financial Services Committee identified review of the Risk Retention Act as one of the top three priorities for his committee in this session of Congress. In the Senate, Senators Wyden (D-OR) and Burns (R-MO) have expressed interest in sponsoring the change to the RRA. A quick glance at the issues in front the Congress this year gives a hint at the challenge we face as we work to expand the RRA. There is a myriad of high profile and competing issues facing Congress. The greatest challenge for CERRA is to raise the level of attention and understanding of the need for this change with influential members of the House Financial Services Committee and the Senate Commerce Committee.
It is important to note that the expansion of the Risk Retention Act will NOT allow RRGs or PGs to write workers compensation or personal lines.

What can an RRG, PG or service provider do to help expand the RRA?

Prior to the close of the 107th congressional session, the Council for Expansion of the Risk Retention Act (CERRA) was successful in securing bi-partisan support in the Senate for the amendments to the Risk Retention Act. Progress was also made toward obtaining bi-partisan support in the House. CERRA's current efforts are geared toward introduction of free-standing bills with bi-partisan support in both the House and the Senate early in the next legislative session. Until the next legislative session begins there we expect that there will be little to no activity to report.

As you will recall, NRRA voted at our last annual meeting to approve an effort to amend the Liability Risk Retention Act. Since that time, substantial progress has been made by NRRA members and others in promoting these amendments before Congress.

A broad coalition known as the Council for Expansion of Risk Retention Act (CERRA) has been formed, and it includes not just risk retention groups but also real estate interests, consumer groups, educational institutions, and insurance producers. Numerous meetings and telephone communications have been made with Senators and members of Congress and their staffs.

When S. 2600 (the federal terrorism reinsurance legislation) recently passed the Senate, one of the amendments to be considered was an amendment which would have expanded the Liability Risk Retention Act. The Senate Parliamentarian ruled that the amendment was not germane, and, therefore, could not be offered. Nonetheless, the fact that Senator Ron Wyden (D-Oregon) was interested in offering the amendment shows the substantial progress that has been made.

Efforts are continuing to promote the risk retention amendments. We are hopeful that we soon will be able to get bills introduced in both the House and the Senate.

You can help by making a contribution to the NRRA Public Affairs Fund to support these ongoing activities. The Public Affairs Fund relies on donations from NRRA members and supporters and is the sole source for funding the Liability Risk Retention Act expansion initiative.

Please be aware that contributions to the NRRA Public Affairs Fund for the purpose of obtaining amendments to the Liability Risk Retention Act are regarded by the Internal Revenue Service as “lobbying” expenditures, as such are not tax deductible as ordinary and necessary business expenses by donors.

In addition, you can help by writing and telephoning your elected representatives to elicit their support. We will keep you updated on our progress and will contact you with further information when the time is right for you to make these contacts.