June 30, 2014
NRRA CONFERENCE TO FOCUS ON CRITICAL ISSUES FACING RISK RETENTION GROUPS
Chicago, IL -- The National Risk Retention Association’s annual conference will focus on critical issues facing the industry including cyber security and prospects for the risk retention sector in today’s insurance marketplace. The conference will be held in Chicago at the Sofitel Hotel, September 30 to October 2.
“The cyber threat to private data held by hundreds of risk retention and risk purchasing groups is escalating each year as breaches are reported by national companies in a variety of industries and government agencies, so we assembled a panel of security experts who will advise attendees how to develop breach and recovery plans to protect their members,” said Sanford Elsass, NRRA chairman.
“The Road Ahead” is the conference theme. A major panel of economists, industry executives, and regulators will address how to navigate uncertain markets over the next few years. The 250 risk retention groups collectively write more than $2.5 billion in liability insurance. “As the industry has matured and the competitive, soft market continues with no end in sight, we look to this panel for objective growth strategies,” said Rod Nofziger, conference chairman.
New York State Senator Neil Breslin, chairman of the National Conference of Insurance Legislators (NCOIL), will address insurance regulatory issues at the state level in a keynote speech. A panel of state regulators also will respond to questions in a session, “Ask the Regulators.”
The conference will provide a variety of panels and workshop sessions devoted to managing risk retention and purchasing groups and regulatory compliance including: how to lower reinsurance costs, enterprise risk management, enhancing capital, compliance with new state regulations, and boards’ best practices.
The NRRA website, www.riskretention.org , is now open for attendees to register for the Conference and make hotel reservations. Sponsorship opportunities also are available on the website. For additional information, contact Mireya Parales at 818-995-3789.
FEDERAL CIRCUIT COURT RULES FOR RISK RETENTION GROUP IN DISPUTE OVER ARBITRATION CONTRACT PROVISIONS
Atlanta, GA -- The Eleventh U.S. Circuit Court of Appeals affirmed a lower court ruling that Allied Professionals Insurance Company Risk Retention Group could not be forced to arbitrate a case in Florida under the state’s direct action statute when the insurance contract required disputes to be arbitrated in California.
“We are very gratified by the Court of Appeals decision upholding the arbitration provisions of the insurance contract under the Federal Arbitration Act,” said Michael Schroeder, vice president and general counsel of Allied.
Rick Cigel, Allied’s attorney in the case, said, “this is another significant step in the protection of risk retention groups’ rights to operate free of restrictions and regulations by individual states. The court ruled that Florida law did not apply, as the parties’ arbitration agreement was governed by the Federal Arbitration Act.”
Joseph Deems, executive director of the National Risk Retention Association, said “this ruling will set a clear precedent that the Federal Arbitration Act prevails in challenges to the arbitration provisions of an insurer’s contract. We were pleased to support Allied with an amicus brief in this important case.”
The appellate court’s opinion issued May 9 came after eight years of litigation in a case brought by Joanna Kong against a massage therapist insured by Allied Professionals who obtained a judgment against the therapist for an injury to her ankle.
An arbitrator determined Kong’s injury was not covered under the policy. The federal district court in California entered the arbitration decision as the judgment of the court, and the Ninth U.S. Circuit Court of Appeals affirmed the judgment.
Kong then sought to have her case heard by a Florida court under the state’s direct action statute, which provides that in a direct action against an insurance company, the company is deemed to be a citizen of the state. The federal district court in Florida denied her motion. The Eleventh Circuit Court determined that Kong’s case against Allied was not a “direct action” under federal law, and affirmed the lower court ruling that the parties be compelled to arbitrate the dispute in California according to the terms of the insurance contract.
DRAFT BILL WOULD ALLOW RRGs TO WRITE PROPERTY INSURANCE
A discussion draft of a bill that would amend the Liability Risk Retention Act to allow RRGs to write property insurance was the subject of a recent hearing by the Subcommittee on Housing and Insurance of the Financial Services Committee. Reaction to the proposal was generally favorable. Joe Carter, Vice President of United Educators RRG, spoke for the industry in support of the proposal. He said authorizing RRGs to write property would increase capacity, choice, and market competition for commercial insurance; create efficiencies for RRGs who will no longer be forced to seek coverage elsewhere for commercial lines that RRGs cannot offer; lower the cost of risk to RRGs and their members; and enable RRGs to provide stable coverage and pricing for other lines of commercial insurance and insulate these lines from the cyclical nature of the larger commercial insurance market. The proposal has broad support from industry groups including NRRA, the Vermont Captive Insurance Association, and the Risk and Insurance Management Society.
RISK RETENTION INDUSTRY IN 2013 --NO GROWTH BUT STABLE FINANCIAL RESULTS
The risk retention industry overall was flat in 2013 with premium at $2.6 billion. Poor results in the healthcare sector and record retirements offset strong growth in government and institutions, manufacturing and commerce, transportation, and professional services, according to a special analysis by the Risk Retention Reporter.
In a study of 2013 results by Demotech, the financial analysis and rating firm, Douglas Powell, Senior Financial Analyst, reported that the risk retention industry is financially stable with a strong balance sheet overall, adequate loss reserves, and an annual underwriting gain each year since 2004.
Strong Balance Sheet
“From 2009 through 2013, RRGs collectively increased policyholders’ surplus 38.4 percent,” Powell wrote. “This increase represents the addition of more than $1 billion to policyholders’ surplus. During this same period, liabilities increased only 12.5 percent, slightly more than $493.5 million. These reported results indicate that RRGs are adequately capitalized in aggregate and able to remain solvent if faced with adverse conditions or increased losses.”
Adequate Loss Reserves
Despite a 3.4 percent decline in loss reserve development in 2013 compared with 2012, Powell reported that “in regard to RRGs collectively, the ratios pertaining to loss reserve development are favorable.”
“The profitability of RRG operations remains positive,” according to Powell. The industry reported an aggregate underwriting gain in 2013 of $97.3 million, continuing a 10-year trend. While underwriting profit was down 47.1 percent, investment income of $216.4 million produced net income of $252.8 million. Powell noted that RRGs collectively have reported positive net income for each year since 1996.
He concluded that the industry is financially stable. “While RRGs have reported net underwriting gains and net profits, they have also continued to maintain adequate loss reserves while increasing premium written year over year.”
April 14, 2014
JOE DEEMS, NRRA EXECUTIVE DIRECTOR, SPEAKS WITH WRIN.TV ABOUT A RECENT RULING BY THE SECOND CIRCUIT COURT OF APPEALS IN NEW YORK -- IMPORTANT RULING FOR RISK RETENTION GROUPS
Click HERE to watch Joe's interview!