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Define an Insurance "cooperative":

Arrangement where members pool funds to spread and assume their own commercial liability risk. Members engaged in businesses and activities with similar or related risks


Describe the intention of the Liability Risk Retention Act (LRRA)

-Provide businesses (especially small businesses) the opportunity to reduce insurance costs
-Promote greater competition among insurers when setting rates
-Elimination of regulation by multiple states designed to facilitate formation and interstate operation of RRGs


2 parties that can own a RRG:

-Individuals or businesses that are insured by the RRG; or
-Organization that is owned solely by insureds of the RRG


2 advantages of RRGs during hard markets:

Result in:
-Increased availability of commercial liability insurance
-Reduced premiums


Briefly define "captive":

Company that self-insures the risks of its owners


Why are the regulatory requirements for captives less restrictive than for RRGs:

Captives are wholly owned insurance subsidiaries. If fail, only assets of parent at risk


List 1 difference between a RRG and a Group Captive:

Unlike RRGs, Group Captives do not have to insure similar risks


Describe the differences between RRG and non-RRG captives.

RRG captives
-States can charter RRGs under regulations for traditional insurers or captives
-Regulatory requirement for captives generally less restrictive
-LRRA provides single-state regulation
Non-RRG captives
-May provide property coverage, which RRGs cannot
-Generally cannot conduct insurance transactions in states other than domiciliary


Describe the licensing differences between traditional insurers and RRGs

Traditional Insurers and non-RRG Captives
-Subject to licensing requirements and oversight of each nondomiciliary state in which they operate
-Required only to register with regulator of state in which they intend to sell insurance
-Still expected to comply with other laws (i.e., claim settlement practices, unfair trade) and pay applicable premium and other taxes


What powers do regulators in the nondomiciliary states have after the insurer (Traditional or Non-RRG captive) becomes licensed?

-Conduct financial examinations
-Issue an administrative cease and desist order to stop insurer from operating in state
-Withdraw company's license to sell insurance in the state


3 requirements that the LRRA sets for the RRG:

1. Provide a plan of operation to insurance commissioner of each state in which it plans to do business
2. Provide a copy of group's Annual Statement to insurance commissioner of each state in which it plans to do business
3. Submit to financial exam of nondomiciliary state if domiciliary state refuses to do so


2 implications of the fact that RRGs are prohibited from participating in state guaranty funds:

1. Will provide strong incentive to establish adequate premiums and reserves
2. RRG insureds and their claimants could be exposed to all losses resulting from claims above what RRG can pay


2 similarities between RRG/ Captive Insurers and to Mutual Fund Companies:

1. All are owned by their shareholders and permit shareholders
2. All employ the services of a management company to administer operations


Describe the effect on the market of RRGs

1. Increase availability and affordability; important for groups with limited access to insurance
2. State regulators believe RRGs have filled a void in the market