As an Insurance Company the Risk Retention Group will want to protect its Capital and Surplus against catastrophic losses.  This may take the form of a single event such as an explosion or the Union Carbide disaster at Bhopal.   Or it may take the form of many businesses being exposed to a single event or a series of events such as the cumulative claims of the insured member in a policy year period.


Any underwriter must retain for its own account at least some of the risk it assumes.  It can rarely “lay off” the whole thing on re-insurers.  In practical terms this means that a Risk Retention Group will probably have to pay at least 10% of all losses net.


Beyond whatever percentage of each loss or aggregate losses in excess of those retained. This is reinsurance which is costly.  And it means that you have to share a substantial part of the premium with the re-insurers.  For the most part reinsurance companies are part and parcel of the commercial insurance market.  Re-insurers look at both classes of risk and primary insurers.  Until the primary insurer (in this case the Risk Retention Group) is tested and attains a “track record” as compared with other conventional insurers, you can expect that re-insurers will drive a hard bargain simply because the Risk Retention Group’s underwriting performance is relatively unknown and imponderable and because there is relatively little regulation.  This state of affairs also suggests that Risk Retention Groups will need to shop among a larger number of re-insurers than commercial insurers to meet their needs, adding still further to their costs.


CLICK ON:  Stop Loss Insurance






F. Darrell Lindsey

State Approved Captive/RRG Manager

U.S. State Licensed Agent/Broker