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GROUP
CAPTIVE / RRG A group captive (or risk retention
group) is basically the same concept, except that it is normally owned by a
number of companies with the same risk or in the same industry. Oftentimes, group captives are organized by
a trade association or other umbrella groups for the industry. Group captives allow their members to
spread their risks, and to aggregate their buying power with reinsurers. Assuming that the group is selective in
what companies are invited to participate, the overall claims experience
should make the captive more profitable than its commercial
counterparts. Such groups are
particularly appropriate when their risks are misunderstood by the
traditional insurance market and they otherwise would be charged higher
premiums than what is justified by their actual risk. The federal Liability risk
Retention Act of 1986 offers qualifying group captives substantial freedom
from state regulation other than the licensing jurisdiction. For companies that must provide proof of
insurance to their companies, and if perception or the captive’s lack of a
rating may be an issue, a fronting arrangement can be negotiated with a
licensed admitted carrier.
Qualification under the Act also relieves the group captive from
complying with all but the anti-fraud provisions of federal and state securities
laws. Setting up a single parent or
group captive (or risk retention group) is a long-term, complex undertaking
that should not be lightly considered or undertaken. It requires considerable effort in
collecting premium and claims histories, and a feasibility study must be
performed by an independent actuary in order to validate that the program
makes sense in light of projected premiums, administrative and underwriting
expenses, and likely claims and loss development. Whether you go on-shore or off-shore, the
licensing authorities will need to be convinced that the proposed captive
makes economic sense and that the program is substantial enough to warrant
their approval. |
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