What is the single most important number to look at?
Loss reserve development across several years. Sustained adverse development means the group has been under-reserving, and under-reserving is what precedes an assessment on members.
TL;DR
- Risk retention groups have a long history in senior care, because they tend to form precisely when the commercial market withdraws from a class, which describes this industry more than once.
- Buying from one makes you a customer and an owner at the same time, and the second half is what most buyers underweight.
Comparison
Risk retention group versus Commercial carrier
Should we put our program in a risk retention group?
Whose decision: Operators with a genuinely good loss record considering an alternative to the commercial market.
Last updated
Side by side
| Factor | Risk retention group | Commercial carrier |
|---|---|---|
| Ownership | Owned by its policyholder members | Owned by shareholders or policyholders of a mutual |
| Guaranty fund protection | No | Yes, if admitted |
| Assessment risk | Members can frequently be assessed if reserves prove inadequate | None |
| Pool composition | Selectively underwritten peers in the same class | The carrier whole book |
| Exposure to the market cycle | Lower; not repricing to a shareholder return target | Higher |
| Exit | May require paying a share of run-off; capital returned slowly | Non-renew and leave |
| Risk management services | Usually focused on the single class | Varies, often generic |
The recommendation
A good home for a well-run operator with a long horizon, if you do investor diligence first
For an operator with a genuinely good loss record, stable ownership and the liquidity to absorb an assessment without distress, a risk retention group can be a better home than the commercial market. You are pooled with underwritten peers rather than with everyone, and the underwriting profit on your own good performance stays closer to you.
The diligence is not insurance diligence. Read several years of audited financial statements and look specifically at loss reserve development, because sustained adverse development is what precedes an assessment. Read the governing documents for the assessment provision, the exit provision and how capital contributions are treated on departure. Ask how concentrated the membership is.
It suits less well an operator with volatile results, thin liquidity, or a near-term sale or refinancing, and it is worth checking against any lease or loan document that specifies an admitted carrier or a stated rating.
Follow-up questions
Risk retention group versus Commercial carrier: what people ask next
Can we be assessed after we leave?
Frequently yes, depending on the governing documents, because claims from the years you participated continue to develop after you go. Read the exit provision before joining rather than before leaving.
Go deeper
Other comparisons
Defense inside the limit versus Defense outside the limit
Should I pay more for defense outside the limit?
Claims-made versus Occurrence
Which trigger should a senior care liability program be written on?
Admitted carrier versus Surplus lines
Should I insist on an admitted carrier?
Captive versus Guaranteed cost
Is a captive the right structure for us, or should we stay on a guaranteed cost program?
Shared aggregate versus Per location aggregate
Is a per location aggregate worth the extra premium?
Combined form versus Split between carriers
Should general liability and professional liability sit on one policy?
Free coverage review
The general answer is above. Yours is in your policy.
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