DISB Supports NAIC Regulatory Activities Affecting Captives

(Washington, DC) Acting Commissioner Thomas E. Hampton of the Government of the District of Columbia Department of Insurance, Securities and Banking (DISB) today said that the District of Columbia supports the current risk retention groups (RRGs)'s financial regulatory process.

"The regulatory process may need some minor modifications, but the current system meets the primary objective of the regulation," said Hampton at the 2006 Captive Insurance Breakfast Series, hosted by the Captive Insurance Council of the District of Columbia at the offices of McDermott Will & Emery. He provided an update on the National Association of Insurance Commissioners (NAIC)'s current regulatory program affecting RRGs. "Our regulatory scheme identifies the financial concerns of RRGs in their early stages. If financial concerns are identified early, it gives the regulator and the company sufficient time to protect policyholders and consumers by abating insolvency concerns."

Hampton said that DISB supports the establishment of Part B standards pertaining to policies and procedures used to perform financial analysis and financial examinations. However, DISB does not support the NAIC adopting the Part A Laws and Regulations standards for RRGs licensed as captive insurance companies. Since state captive insurance laws are based on the Liability Risk Retention Act of 1986 (the LRRA), which was enacted by Congress to ease the shortage of affordable commercial liability insurance, captive RRGs are currently exempt from the Part A accreditation standards.

The acting commissioner provided this update based on the subcommittees recently formed by the NAIC to address the applicability of certain accreditation standards to RRGs. A recent report by the Government Accounting Office (GAO) on RRGs had found that they have a small but important effect in increasing the availability and affordability of commercial liability insurance for certain groups; but they have increased potential to face greater solvency risks. So, the GAO had recommended that the states, working in concert with the NAIC, make changes in the current regulatory framework for RRGs by creating uniformed, baseline regulatory standards.

Page 1 of 2 1 2