U.S. RE CEO Proposes Creation of Pool as Capital Source for Risk Retention Groups

Tal P. Piccione, Chairman/CEO of U.S. RE Companies, Inc., proposed in a speech to the National Risk Retention Association annual conference, that a new pool of capital be formed for growing Risk Retention Groups (RRG).

RRGs are insurance companies that provide liability coverage to a wide spectrum of American industry under authority granted by the federal Liability Risk Retention Act of 1986 that permits an RRG licensed in a single state to operate in all 50 states without additional licensing. There are 254 RRGs operating today. In 2008, premium volume of the top 100 RRGs exceeded $2.5 billion. Industry net worth grew to $2 billion, up from $1.4 billion three years earlier.

U.S. RE is an international financial services group with subsidiaries in reinsurance brokerage; consulting; investment banking; and risk, claims, and captive management. Uni-Ter Underwriting Management Corporation, a member of the U.S. RE Group, builds and manages Risk Retention Groups active in 47 states.

Piccione said the large number of RRGs limited in their writings by available capital may well create attractive opportunities for investors, including reinsurance companies, hedge funds, private equity funds, and fronting companies. He encouraged NRRA, the industry trade association, to explore opportunities to create this new source of investment capital.

"Looking to the future, I believe the reinsurance industry could take a more dynamic part in helping RRGs achieve their potential. In some cases, initial capital outside the base of potential stockholders is needed to get an RRG off the ground or enable a startup to gain momentum."

"Reinsurers are entrepreneurs like you," Piccione asserted. "I believe some could be interested in exploring the possibility of subscribing to a pool of capital available to RRGs. Such a pool would be consistent with historic practice in some quarters of the insurance industry to enable procurement of financing to facilitate availability of insurance capacity," he explained. Piccione offered to work with the Association in studying the potential for developing an investment pool.