He said the increase in risk retention groups has been noticed by his company?s managers in Vermont, Bermuda and South Carolina, with the expansion seen more in some domiciles than others.

South Carolina, Mr. Osborne said, has overtaken Hawaii as a center for RRGs. Of South Carolina's 52 captives, Mr. Osborne said he believed 24 are RRGs.

USA Risk Group recently announced that the Saint Luke's Health System RRG, which it manages, was licensed as South Carolina's 50^th captive on July 31.

Vermont, the largest U.S. domicile, is a place "where you can still do RRGs," he said, but he explained that some of the newer domiciles, such as Montana, Arizona and South Carolina, are ideal for some smaller groups because they don't require as much capitalization as Vermont,

Mr. Osborne said the domiciles have learned to be thorough in their investigations. Early on, according to Mr. Osborne, South Carolina had licensed an RRG "that was a mistake."

As a result, he said, most new domiciles are savvier, requiring more than just a business plan. "They want to look at the National Association of Insurance Commissioner's rules," he said. But most importantly, "they're willing to work with you."

South Carolina, he noted, has long since proved itself as a reputable domicile, so much so that USA Risk Group now has an office in Charleston, S.C.

One of the reasons organizations are forming RRG's, he said, is the lack of fronting companies and the higher cost of fronting. The other driver, he said, is "complete lack of availability, similar to the way it was in the 80s."

Doctors groups, certain trucking classes and nursing homes have "no coverage options, while RRGs have created an option," he said.

Mr. Osborne related that some doctors groups have reported paying coverage as high as "$100,000 for an obstetrician. For 60 doctors that would be $6 million, and that group has never had more than $1.5 million in claims in a year."

State law in Florida, he added, only requires $250,000 per occurrence and $750,000 annual aggregate. He noted that seven or eight claims?what you might typically see for 60 doctors?would amount to $1.5-$2 million.

A group paying $60,000 per doctor still amounts to "a very viable program," he said. What's more, some of these groups "are becoming completely self insured" because of the expense and scarcity of reinsurance.

By being an RRG, he concluded, the "fronting need goes away and they are still meeting the requirement that the company providing the coverage is authorized to do business in the state."

Mr. Osborne said that USA's client, Saint Luke's Hospital in Kansas City, Mo., found that pricing for coverage continued to rise, even though the number of claims stayed the same.

The hospital had an active loss control and safety program and felt "it was time to take matters into their own hands because the marketplace was not giving them any credit for their efforts," he said.

The company formed an RRG and domiciled in South Carolina. He noted that Kansas, which the hospital also serves, has a state fund that "kicks in over $200,000," so the group is retaining the first $200,000 in Kansas.

To cover its Missouri risk, the group purchased malpractice coverage for occurrences of more than $250,000, with a $1 million limit, he noted.

"They chose South Carolina because they got a warm reception there," he said. South Carolina proved to be "quite keen to take on risk retention groups for medical groups," and the location is convenient.

Mr. Osborne said this RRG was also set up as a reciprocal. Reciprocals are set up so that any profits are passed back to members of the RRG. The group is "taxed at the hospital's level, so you don't have a federal tax issue. So that's another benefit that is fairly recent," he said.