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NAIC Risk Retention and Purchasing Group Handbook

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NAIC Risk Retention and Purchasing Group Handbook Risk Retention and Purchasing Group Handbook NAIC Risk Retention and Purchasing Group Handbook 2020 The NAIC is the authoritative source for insurance industry information. Our expert solutions support the efforts of regulators, insurers and researchers by providing detailed and comprehensive insurance information. The NAIC offers a wide range of publications in the following categories: Accounting & Reporting Special Studies Information about statutory accounting principles and the Studies, reports, handbooks and regulatory research procedures necessary for fi ling fi nancial annual statements conducted by NAIC members on a variety of insurance- and conducting risk-based capital calculations. related topics. Consumer Information Statistical Reports Important answers to common questions about auto, Valuable and in-demand insurance industry-wide statistical home, health and life insurance — as well as buyer’s data for various lines of business, including auto, home, guides on annuities, long-term care insurance and health and life insurance. Medicare supplement plans. Supplementary Products Financial Regulation Guidance manuals, handbooks, surveys and research Useful handbooks, compliance guides and reports on on a wide variety of issues. fi nancial analysis, company licensing, state audit requirements and receiverships. Capital Markets & Investment Analysis Information regarding portfolio values and procedures for Legal complying with NAIC reporting requirements. Comprehensive collection of NAIC model laws, regulations and guidelines; state laws on insurance topics; and other White Papers regulatory guidance on antifraud and consumer privacy. Relevant studies, guidance and NAIC policy positions on a variety of insurance topics. Market Regulation Regulatory and industry guidance on market-related issues, including antifraud, product fi ling requirements, For more information about NAIC producer licensing and market analysis. publications, view our online catalog at: NAIC Activities NAIC member directories, in-depth reporting of state http://store.naic.org regulatory activities and offi cial historical records of NAIC national meetings and other activities. © 1991, 1996, 1998, 1999, 2013, 2020 National Association of Insurance Commissioners. All rights reserved. Printed in the United States of America No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any storage or retrieval system, without written permission from the NAIC. NAIC Executive Offi ce NAIC Central Offi ce NAIC Capital Markets 444 North Capitol Street, NW 1100 Walnut Street & Investment Analysis Offi ce Suite 700 Suite 1500 One New York Plaza, Suite 4210 Washington, DC 20001 Kansas City, MO 64106 New York, NY 10004 202.471.3990 816.842.3600 212.398.9000 NAIC RISK RETENTION AND PURCHASING GROUP HANDBOOK TABLE OF CONTENTS SECTION I. PURPOSE OF THE HANDBOOK AND BACKGROUND OF THE LIABILITY RISK RETENTION ACT OF 1986 (LRRA) A. PURPOSE ............................................................................................................I-1 B. BACKGROUND .................................................................................................I-1 SECTION II. REGULATION OF RISK RETENTION GROUPS A. NOTICE AND REGISTRATION ..................................................................... II-1 1. NOTICE ................................................................................................ II-1 (a) RISK RETENTION GROUPS ................................................ II-1 (i) Domicilliary State ....................................................... II-1 (ii) Non-Domicilliary State ............................................... II-3 (b) PURCHASING GROUPS ....................................................... II-4 (c) CHALLENGES TO NON-DOMICILLIARY STATES’ REQUIREMENTS CASE LAW ............................................. II-5 2. REGISTRATION - SERVICE OF PROCESS ..................................... II-7 (a) RISK RETENTION GROUPS ................................................ II-7 (b) PURCHASING GROUPS ....................................................... II-8 3. NOTICE AND REGISTRATION FORMS ......................................... II-8 4. REGISTRATION AND OTHER FEES ............................................... II-8 B. FINANCIAL CONDITION ............................................................................... II-9 1. RISK RETENTION GROUPS ............................................................. II-9 2. PURCHASING GROUP INSURERS ................................................ II-10 C. AGENT/BROKER LICENSING .................................................................... II-10 D. APPLICATION OF STATE FINANCIAL RESPONSIBILITY LAWS ........ II-10 1. FINANCIAL RESPONSIBILITY REQUIREMENTS ...................... II-10 2. CASE LAW AND ADMINISTRATIVE RULINGS ......................... II-12 (a) Charter Risk Retention Group v. ROLKA .............................. II-12 (b) Mears Transportation Group v. State of Florida .................. II-13 (c) American Inter Fidelity Exchange, a Risk Retention Group v. Dawson ................................................................... II-13 © 1991-2020 National Association of Insurance Commissioners June 2020 (d) Garage Services and Equipment Dealers Liability Association of America, Inc. v. Holmes ................................. II-14 (e) Yellow Cab Cooperative, Inc., before the California Public Utilities Commission .............................................................. II-15 (f) Ophthalmic Mutual Insurance Company (a Risk Retention Group) v. Musser....................................... II-15 (g) National Warranty Insurance Company, RRG v. Greenfield .................................................................. II-16 E. LIABILITY INSURANCE UNDER THE LRRA ........................................... II-16 F. PROHIBITED POLICY COVERAGE............................................................ II-20 SECTION III. REGULATION OF RISK RETENTION GROUPS A. GENERAL CONCEPTS .................................................................................. III-1 B. CHARTERING STANDARDS ........................................................................ III-1 1. MANAGEMENT EXPERTISE .......................................................... III-1 2. REINSURANCE ARRANGEMENTS ................................................ III-2 3. ABILITY TO PROVIDE SERVICE ................................................... III-2 C. SOLVENCY REGULATION .......................................................................... III-2 D. RATE REGULATION ..................................................................................... III-4 E. POLICY FORM REGULATION ..................................................................... III-4 F. MARKETING .................................................................................................. III-4 G. RISK RETENTION GROUP AS REINSURER .............................................. III-5 H. OTHER ISSUES ............................................................................................... III-6 1. GUARANTY FUNDS ......................................................................... III-6 2. RESIDUAL MARKET MECHANISMS ............................................ III-6 3. PREMIUM TAXES ............................................................................. III-6 4. DISCRIMINATION AGAINST RRGs ............................................... III-6 5. NONADMITTED & REINSURANCE REFORM ACT OF 2010 (NRRA) ....................................................................................... III-7 SECTION IV. PURCHASING GROUP AND PURCHASING GROUP INSURER ISSUES A. INTRODUCTION ............................................................................................ IV-1 B. PURCHASING GROUP EXEMPTIONS FROM STATE LAWS .................. IV-1 C. PURCHASING GROUP’S INSURER REQUIREMENTS ............................ IV-2 D. APPLICATION OF EXCESS AND SURPLUS LINES LAWS TO PURCHASING GROUP INSURERS ........................................... IV-3 E. PURCHASING GROUPS’ INSURER POLICY FORMS AND RATES ........ IV-3 © 1991-2020 National Association of Insurance Commissioners June 2020 F. OTHER ISSUES ............................................................................................... IV-3 1. LICENSING OF AGENTS OR BROKERS FOR PURCHASING GROUPS ................................................................... IV-4 2. JURISDICTIONAL ISSUE ................................................................. IV-4 3. HOMOGENEITY REQUIREMENT OF PURCHASING GROUPS . IV-4 G. PREMIUM TAXES .......................................................................................... IV-4 SECTION V. NAIC AND STATE ACTIVITY RELATED TO RISK RETENTION ISSUES APPENDICES Appendix A Liability Risk Retention Act of 1986 Appendix B NAIC Model Risk Retention Act Appendix C State Insurance Department Risk Retention Group and Purchasing Group Contact Persons Appendix D NAIC Uniform Risk Retention Group Registration Form Appendix E NAIC Uniform Purchasing Group Registration Forms Appendix F Survey of State Laws Relating to Risk Retention Groups Appendix G Statement of Voluntary Dissolution Appendix H Reinsurance Guidelines for Risk Retention Groups Licensed as Captive Insurers Appendix I Risk Retention Group Notice Language © 1991-2020 National Association of Insurance Commissioners June 2020 SECTION I PURPOSE OF THE HANDBOOK
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