In January 2020, a hearing was held on H.R. 4523, the Nonprofit Property Protection Act. The bill sought a limited expansion of the Liability Risk Retention Act to allow a small subsector of risk retention groups (RRGs) to write property coverage. The hearing provides a good lens for examining the challenges and the opportunities facing the risk retention group industry in 2021—the hard market, the recent insolvencies, and the relationship of the RRG industry with the National Association of Insurance Commissioners (NAIC).
At the hearing, Missouri Department of Commerce and Insurance Director Chlora Lindley-Myers testified against the expansion on behalf of the NAIC. In her testimony, Ms. Lindley-Myers stated that risk retention groups have a higher historical insolvency rate than admitted insurers and have had an insolvency rate nearly twice that of admitted insurers over the past 10 years. It is unclear where the data was sourced, as Ms. Lindley-Myers did not provide a citation.
Furthermore, by limiting her data to the last 10 years, Ms. Lindley-Myers is excluding the hard market of the 2000s where risk retention groups outperformed traditional insurers.
One note on the following analysis is that different reports use different terminology—”impairment,” “liquidation,” “insolvency,” etc.—that are not the same but carry similar connotations. Many insolvent companies are later liquidated, as are many impaired companies. The data for RRGs will be focused on liquidations, both because it is the most serious outcome and because it is the most common outcome for impaired companies.