Insureds Raise Over $1.2M to Save Troubled RRG From Liquidation

Copyright 2009 Insurance Communications The Risk Retention Reporter

April 2009

SECTION: Vol. 23, No. 4

LENGTH: 537 words

HEADLINE: Insureds Raise Over $1.2M to Save Troubled RRG From Liquidation

Faced with possible liquidation of their risk retention group in light of a $1.2 million shortfall in its net surplus, the member/insureds of NSA Risk Retention Group, Inc., a Vermont-domiciled RRG licensed in April 2004 to provide general liability insurance to independent grocery owners operating in New York and seven other states, voluntarily assessed themselves, raising over $1.2 million in less than one month, thus providing the opportunity to allow the RRG to run-off claims in an orderly rehabilitation proceeding.

The RRG, which was seized pursuant to an order issued on December 12, 2008 by the Vermont Superior Court, was placed in rehabilitation on March 9, 2009 pursuant to a petition filed by the insurance commissioner of the Vermont Department of Banking, Insurance Securities and Health Care Administration. J. David Leslie, an attorney with the Boston, Massachusetts law firm of Rackemann Sawyer & Brewster, was appointed the special deputy commissioner. According to Leslie, NSA RRG's 2008 Annual Statement reports negative "surplus as regards policyholders" of $1,856,896." Leslie notes that, "During the course of 2008, NSA RRG added approximately $4 million to loss reserves and $2.25 million to capital." However, he says, even with these contributions, an actuarial analysis "indicates negative net surplus of $1,127,804," requiring NSA to "promptly increase its net worth by at least $1.2 million in order to avoid liquidation."

With the same enthusiasm with which the members originally raised capital to begin the RRG in 2004, when a group of the independent grocery owners, most of whom had emigrated from the Dominican Republic, raised $1,680,00 in cash in just over a few hours (see RRR, July '04), NSA members again stepped up to the plate to "face their responsibilities," says Leslie, raising over $1.2 million in less than 30 days, following a members/shareholders meeting on February 25, 2009.

Leslie says that the plan going forward is "an orderly run-off of claims." As for what went wrong, he observes that the consulting actuaries attribute the RRG's problems to the fact that "liabilities were higher than the pricing model anticipated." He adds, that, "the company's product was underpriced and loss experience was worse then expected." In addition to New York, NSA RRG was registered to do business in Connecticut, Florida, Massachusetts, New Jersey, North Carolina, Pennsylvania, and Rhode Island.

Leslie is "hopeful" that all claims will be paid in the rehabilitation proceeding. He explains that, while on a GAAP basis the RRG has a negative net worth, on an economic basis, where liabilities are discounted for anticipated investment income, it has a "positive net worth." Leslie notes that throughout the process, there has been full cooperation from the NSA RRG's board, its leadership, outside counsel and manager.

Ongoing legal services for the RRG have been provided by James Clemons, a partner in the Montpelier, Vermont-based law firm of Primmer Piper Eggleston & Cramer. Captive management services have been provided by Robert Gagliardi, AIG Insurance Management Services, Inc., based in Burlington.

LOAD-DATE: April 24, 2009