Risk Retention Groups

A risk retention group is a liability insurer owned by its policyholders, formed under the federal Liability Risk Retention Act, and licensed in one state while writing across many. Senior care has a long history with them, because they formed precisely when the commercial market withdrew from the class.

A risk retention group can be an excellent home for a well-run operator: members are underwritten selectively, loss experience is shared among peers rather than pooled with the whole market, and pricing is less exposed to the commercial cycle. The questions to ask are ownership questions rather than insurance ones. How capitalized is it, what does its loss reserve development look like over several years, can it assess members if reserves prove inadequate, and what does exiting cost. Because there is no guaranty fund, an undercapitalized group failing leaves members with unpaid claims and possibly an assessment on the way out. Review the audited financial statements the way an investor would, because as a member that is closer to what you are.