The rule, which is under review now in the wake of a comment period, was published by HUD Jan. 6. It creates more stringent insurance and financial reporting guidelines for long term care providers wishing to qualify for government insured mortgages through the "Professional Liability Insurance for Sec. 232 Programs."

It requires that insurance carriers for nursing homes, including captives, have an "A"-rating from A.M. Best, be licensed by the insurance commissioner in the state where the facility is located, and meet minimum policy coverage requirements of $1-to-$3 million with a maximum deductible per occurrence of $25,000.

Mr. White said before discussions were held last month Commissioner Weicher "was not aware that the kinds of concerns we raised on the alternative market side were even there. He was trying to resolve an issue he felt was worth looking into, but he had only talked to the traditional [insurance] side."

Mr. White earlier 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."

He added that many of the long-term medical care providers, such as nursing homes, have found a way to deal with "a terrible situation in the current hard market though 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 this scenario 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 in many instances the captives or RRGs "have greater than a $25,000 deductible in order to meet the financial requirements that we have?to have them take greater risk." This places them in "a catch-22" situation, he said.

Mr. Weicher, Mr. White said, agreed to review "very carefully the input that came in during the response period and any information we might provide subsequent to that."

He added that Mr. Weicher said at the meeting that "under the circumstances there probably will need to be some modifications made based on the information that was provided."

Among those at the meeting were Lawrence Mirel, Washington, D.C. insurance commissioner; Dana Sheppard, D.C. deputy for policy; Robert H. "Skip" Myers Jr., general counsel for the National Risk Retention Association; and Chris Kramer, senior vice president with Neace Lukens in Beachwood, Ohio, who brought the rule to the attention of captive insuers at a Captive Insurance Companies Association meeting.

Sean Cassidy, general deputy assistant secretary for housing at HUD, told National Underwriter that the intent of the Notice "was to clarify and to provide additional guidance concerning professional liability insurance coverage for mortgage underwriting and asset management activities."

The major objective of the Notice, he added was to insure that health care facilities "have adequate liability insurance coverage. In addition, HUD needed to insure that liability insurance providers were well capitalized, experienced, and capable of underwriting and providing adequate insurance and claims protection."

This was necessary in light of "the deteriorating legal environment where many health care facilities are facing unprecedented risk due to an increasing number of claims from medical liability judgments," Mr. Cassidy said.

"In addition, HUD needed to insure that insurance claims would adequately protect HUD's insurance fund against project defaults and excessive claims."

HUD said of the comments it had to evaluate there were more than 20 received via a HUD multifamily Web site. After reviewing the comments, HUD said it will meet to prepare recommendations to modify Notice H04-01 and will use its procedures "to modify the Notice and make changes where appropriate."