Under the changed regulations which HUD published on Jan. 6, more stringent insurance and financial reporting guidelines would be created for long term care providers wishing to qualify for government insured mortgages through the "Professional Liability Insurance for Sec. 232 Programs."

Section 232 of the Housing Act provides FHA insurance for private construction mortgage loans to finance new or rehabilitated nursing homes and other types of care facilities.

According to HUD, the professional liability insurance it requires would need to be obtained through a carrier with an "A" rating or better from A.M. Best Company. If the guidelines are adopted, the minimum required coverage would be $1 million per occurrence, $3 million aggregate, and a per occurrence deductible not to exceed $25,000.

William P. White, captive director for Washington, D.C., told National Underwriter that by requiring insurance to come from "A"-rated insurers and requiring a deductible of no greater than $25,000 per occurrence, "you have now hamstrung the very organizations that are trying to get insurance in a very difficult market."

The issue was spotlighted last week in Scottsdale, Ariz., at the Captive Insurance Companies Association's annual conference by Chris Kramer, senior vice president with Neace Lukens Management Services, a captive management company in Beachwood, Ohio. Neace Lukens, he said, had recently notified him of the situation.

Mr. White said that many of the long term care providers, such as nursing homes, have found a way to deal with "a terrible situation in the current hard market through a risk retention group or other alternative market mechanism," and now "their captive is being required to be rated and have an A-rating."

Mr. White said the situation would present two problems. The first is that many of the captives and RRGs have been recently established. "We have been stringent in our requirements and make sure they are strategically focused and do have the right underpinning," he said. "But they aren't rated and many of them aren't old enough even if they wanted to be rated."

The second, he said, is that limiting the deductible to $25,000 per occurrence imposes limitations for captives or RRGs trying to negotiate coverage. "They need flexibility in order to make their programs work," he said.

Mr. White added that HUD, while trying to satisfy its constituency, "may be creating problems for a different constituency." He said he has identified who should be addressed at HUD and hopes to schedule a meeting as soon as possible. He noted that HUD needs to "reevaluate the situation so that these nursing homes aren't put in a very, very bad situation."

According to Lancaster Pollard Mortgage Company in Columbus, Ohio, about half of all long term care professional liability risks are insured by some form of alternative risk transfer, most of which are not rated by A.M. Best.

Scott Moore, president of Lancaster Pollard, said in a statement that the new HUD guidelines could limit financing options for long term care facilities. He said that providers should learn more about the impact of the notice and direct comments to HUD and state associations.

Alternative insurance associations, including CICA and the National Risk Retention Association, have been notifying members to contact Michael McCullough, director, office of multifamily housing development, 451 7th St. SW, room 6138, Washington, D.C. 20410-5000, or by e-mail at [email protected].