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A.M. Best Special Report Reveals Risk Retention Group (RRG) Impairments

2 years ago

In a recent special report on property and casualty insurer impairments in the United States, A.M. Best – a leading insurance rating organization – noted a disturbing trend among risk retention groups (RRGs): they appear to be failing at an increasing rate. Since RRGs have played an increasing role in the medical professional liability insurance (MPLI) industry in recent years, it’s important to watch what’s happening with RRGs.

MLMIC continues to issue caution about coverage through RRGs. Most recently, we described media reports about growing concerns in New York’s medical malpractice market. A Politico New York article about these concerns specifically mentioned the role of RRGs in the market’s volatility.

Best’s report (2015 Property/Casualty Impairments Update) on the industry covers the 16-year period from 2000 to 2015. During that time, 337 property/casualty insurers became impaired, says Best, while noting a greater percent of impairments in recent years:

“For the 16-year study period, there were 33 risk retention group (RRG) impairments, representing 10% of the total. However, looking at the study period in bands showed that RRGs represented 4% of impairments in 2000-2005; 12% of impairments in 2006-2010; and 18% of impairments during 2011-2015. The report notes that to some extent, the growth in RRG impairments reflects the growth in popularity of this structure. Another significant factor, however, may be unrealistic loss, operating expense and pricing assumptions being utilized at these self-insurance entities.”

MLMIC is not an RRG, and we agree with Best’s assessment that some RRG assumptions may be “unrealistic.” Now, MLMIC reiterates its warning to health care practitioners about the exposure that can occur if their insurer becomes insolvent. RRGs, in particular, may not be covered by insolvency protections afforded by New York’s guaranty fund. Hospitals and healthcare facilities should be aware of this when credentialing attendings and other providers who have RRG coverage.

We’ll continue to monitor insurance market conditions and keep you informed. If you have any questions, please do not hesitate to contact us.

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Tags: malpractice coveragemedical liability insurancerisk retention groupRRG