Nancy Praeger, President of the National Association of Insurance Commissioners (“NAIC”), sent a letter last month to the U.S. House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (the “Subcommittee”) and the co-sponsors of H.R. 5792, Increasing Insurance Coverage Option for Consumers Act of 2008 (the “Bill”). We previously reported about the Subcommittee’s approval of the Bill here.
The Bill would amend the Liability Risk Retention Act of 1986 (the “Act”) for both Risk Retention Groups (“RRGs”) and Risk Purchasing Groups (“RPGs”). For RRGs, the Bill provides for stronger financial and regulatory disclosure requirements, uniform governance standards, and codifies the fiduciary duty owed by the board of directors. Specifically, a RRG would be required to hold a written charter, form an independent audit committee, and have a majority of independent directors on its board of directors. The Bill also contemplates allowing RRGs to provide commercial property insurance if its state of domicile adopts standards for examination authority, audits by certified public accountants, accounting practices and procedures, filings with the NAIC, valuation of investments, safety and liquidity of investments, liabilities and reserves, actuarial opinions, capital and surplus, corrective actions, holding company systems, risk limitations and reinsurance ceded rules.
For RPGs, the Bill would amend the Act to allow them to obtain commercial property insurance for their members and to enjoy a stronger exemption from regulation by states other than their state of domicile.
President's Praeger's letter stated that although the NAIC has yet to take a formal position on the Bill, the NAIC is generally supportive of the Bill’s improved corporate governance standards for RRGs, but not of its proposed expansion of the Act to allow commercial property insurance to be written by RRGs and purchased by RPGs. With respect to the proposed expansion, Praeger noted that regulators have seen “increased competition in the commercial property market, particularly in areas where there are fewer insurance carriers” and that solvency concerns exist regarding the ability of RRGs and RPGs to manage property risks in the event of natural catastrophes. The NAIC is joined by the National Association of Mutual Insurance Companies and the National Association of Professional Surplus Lines Offices, Ltd. in the belief that commercial property insurance is readily available in the current marketplace and that expansion of the Act is unnecessary.