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PERMISSIBLE
OWNERSHIP INTEREST IN A RISK RETENTION GROUP Section 1 of the LRRA makes clear
that there are only two permissible ownership structures for RRGs. See 15 U.S.C. §3901(a)(4)(E). The first, and by far most common, is to
have the RRG owned directly by those persons or entities who comprise its
membership and are insured by the group.
The second ownership operation involves a single entity owning the
RRG, which in turn has as its members and owners the insured’s of the
RRG. This indirect ownership
structure, other than interposing a holding company type entity between the
members and the RRG, is conceptually identical to the direct ownership
option. The legislative history of the
LRRA makes clear that Congress intended that all insured’s participate in
ownership, and that no other person or entity have any ownership interest. The Act imposes an additional
ownership limitation – all insured owners of an RRG must be engaged in
businesses or activities, which are similar or related with respect to
liability exposures. Thus, a medical
professional RRG could insure hospitals, physician groups and individual
doctors, but lawyers and doctors could not be insured by the same RRG. RRGs have been organized as stock
corporations, mutual corporations, and reciprocals (a form of a mutual
company accorded special tax treatment by the Internal Revenue Code). State corporate laws, under which these
various types of business entities are organized, recognize ownership
interests in shareholdings (for stock corporations), policyholder interests
(for mutual corporations), and subscriber interests (for reciprocals). As a general rule, ownership
interests entail participation in the company’s equity, or surplus,
entitlement to any distributions, and participation in the company’s
governance. Regardless of entity type,
It is the entity’s owners that elect the governing body and who control the
governance structure through adoption and amendment of charger
documents. Under state law, any
significant change to a corporation’s articles of incorporation or bylaws,
for example, may not be implemented without shareholder approval. |
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