What is a Risk Retention Group?

This act, which authorised the formation of Risk Retention Groups as well as Purchasing Groups, was passed in response to rising premiums and the diminishing availability of products liability coverage, both of which were having a detrimental effect upon businesses.

The purpose of a risk retention group is to enable a group of purchasers to form a mutual risk-financing organisation, similar to a group captive to assume liability business. The passing of the Liability Risk Retention Act in 1986 made this possible providing that each group was licensed under the laws of at least one state.

Risk Retention Groups today are normally exempt from the state laws that apply to private insurers however in certain states where they are not chartered they may be subject to state laws, premium taxes and participation in market plans.

A Risk Retention Group differs from a Purchasing Group which is not an insurance company and therefore unable to assume risk. It is however feasible for Purchasing Groups that wish to assume risk, or self-insure, to form group captives to assume risk as reinsurers of a fronting companies.