Missouri regulators have granted a risk retention group association's rule change request so such insurance units can transact business without state certification.
That was the good news for RRGs. The bad news? The Missouri Department of Insurance now proposes a new filing requirement for annual statements that RRGs object to.
In September, after the National Risk Retention Association sent a letter to the department, the agency dropped a requirement that a policy should be issued by an insurer “with a valid certificate of authority from the director to transact liability insurance in this state.”
NRRA maintained that the initial wording conflicted with the federal Liability Risk Retention Act (LRRA) which regulates its members, because “an RRG is not required to have such a certificate.”
However, the Missouri department has now proposed a new requirement about accounting methods that NRRA finds objectionable.
Robert H. “Skip” Myers, NRRA general counsel, explained that the department has proposed that RRGs filing their annual statements use a statutory accounting principles (SAP) format, which most RRGs do not use.
Mr. Myers said that Kevin Hall, counsel to the Missouri insurance department, argued in his introductory commentary that requiring RRGs to use statutory accounting principles in the preparation of an annual statement does not “violate the anti-discrimination provisions” of the federal LRRA.
Mr. Hall wrote that the proposed rule is valid because such statutory accounting requirements are imposed upon all licensed insurance companies in other states.
An RRG's utilization of Generally Accepted Accounting Principles (GAAP) accounting is “a matter of choice and not a legal impossibility,” Mr. Hall wrote.
NRRA in a letter to Mr. Hall, signed by NRRA Chairman Don Breakstone, responded that this determination is “wrong on several bases.” He stated that “the laws of many states that charter RRGs require that such RRGs utilize GAAP accounting.”
The letter continued that while some states “allow RRGs to opt out of GAAP accounting,” this is done “only with the permission of the commissioner. In fact, among all insurers only RRGs utilize GAAP accounting. Therefore, this requirement of Missouri law is directly aimed at only RRGs.”
It concluded that any legal standard “which only applies to a specific class is an obvious example of discrimination.”
NRRA requested in the letter that the requirement of filing an annual statement prepared under SAP principles be deleted from the proposed rule.
Mr. Myers noted that the letter to the department stated “it would not be unreasonable to ask for a translation into SAP, but to ask a company to change its form of accounting–that's the province of its domicile.”
Calls to the Missouri Department of Insurance by National Underwriter were not returned.
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