How are Risk Retention Groups (RRGs) Regulated?
A Guide to Domiciliary and Non-Domiciliary State Oversight
Risk Retention Groups: A Different Type of Insurance Carrier
The Risk Retention Group (RRG) company structure was created when Congress enacted the 1986 Liability Risk Retention Act (LRRA, codified at 15 U.S.C. §§ 3901–3906) as a response to the unavailability and unaffordability of liability insurance. LRRA allowed businesses or organizations facing similar risks to join together to form a risk retention group to insure against liability risks as an alternative to traditional insurance, which may not meet those businesses’ particular needs, be too costly, or be difficult to obtain.
Unlike traditional carriers, which sell to the general public seeking to generate profit, risk retention groups provide liability coverage exclusively, which they sell to their group members only.
By design, RRGs are unique and purpose-driven companies, created to serve the interests of their policyholders (their members) and provide them with a long-term, stable coverage solution through both hard and soft markets.
Risk retention groups are regulated differently from traditional carriers as well.
How are Risk Retention Groups Regulated?
Risk retention groups are chartered (licensed and regulated) by a single state, known as the domiciliary state. Once chartered, an RRG can operate in all other states as a “foreign” RRG by filing the appropriate registration paperwork. Regardless of how many states an RRG operates in, it is regulated solely by its domiciliary state, and federal law limits how much other states can govern its operations. The LRRA determines how an RRG can be regulated and by whom. This is unlike traditional insurers, which must obtain a separate license in every state where they conduct business and must adhere to state-specific regulation requirements in each of those states.
How Do Domiciliary States Regulate Risk Retention Groups Chartered in Their State?
An RRG’s domiciliary state serves as the RRG’s primary and sole insurance regulator. As such, it handles everything from licensing and financial oversight to enforcing solvency standards. This includes regulation in the following areas and can differ from state to state:
Licensing and Formation
The domiciliary state is responsible for chartering (licensing) the RRG as an insurance company. The domiciliary state approves the RRG’s legal structure, articles of incorporation and bylaws, initial capital and surplus requirements, and plan of operation or feasibility study.
Financial Oversight
The domiciliary state conducts regular financial examinations of the RRG (typically every 3–5 years). The domiciliary reviews solvency, reserve adequacy, reinsurance arrangements, and annual financial statements.
Operational Regulation
The domiciliary state oversees the RRG’s daily operation including business practices, underwriting and rate setting, claims handling and dispute resolution, corporate governance, and board conduct.
Compliance and Enforcement
If the RRG is financially impaired or operating unsafely, the domiciliary state can take action such as issuing corrective actions or fines, entering into rehabilitation or conservation proceedings, and liquidation if necessary.
Reporting and Filings
RRGs must file the following with their domiciliary state:
Annual and quarterly financial statements
Actuarial opinions
Revisions to their plan of operation
Notices of material events (e.g., changes in management, ownership, risk profile)
All other states (non-domiciliary states) must defer to domiciliary state regulation, except where explicitly allowed under federal law. Risk Retention groups must choose their domiciliary state with care, as attitudes towards RRGs from state to state vary greatly. Most RRGs choose to domicile in states with experience regulating captive insurance companies, RRG-specific knowledgeable insurance departments, and favorable regulatory environments.
Can a Non-Domiciliary State Regulate a Foreign Risk Retention Group?
Risk retention groups are exempt from most non-domiciliary state laws (with some exceptions). Unless the LRRA expressly grants permission, any attempt by a state other than the RRG’s chartering state to impose additional insurance laws or regulatory requirements is preempted by federal law under 15 U.S.C. § 3902(a).
Lawful Non-Domiciliary State Regulation
While non-domiciliary states are broadly prohibited from regulating the operations of RRGs, the LRRA includes a narrow set of statutory exceptions—specific areas where states are allowed to take regulatory action. These exceptions are listed in 15 U.S.C. § 3902(a)(1)(A)–(I) and are designed to protect consumers and preserve basic state-level oversight without undermining the federal framework. Below is a summary of those exceptions and the purposes they serve under the LRRA.
Unfair Claims Settlement Laws
Non-domiciliary states can require RRGs to follow state unfair claims settlement laws, such as handling claims promptly and fairly, investigating thoroughly before denying a claim, communicating clearly and responding in a timely way, etc.
The Intention of LRRA: Even though RRGs are not licensed in that state, they must still treat claimants fairly under that state’s laws when processing claims.
Taxes and Fees
A risk retention group can be asked to pay the same taxes that other insurers, brokers, or policyholders would have to pay in that state— but the state can’t treat RRGs differently or unfairly when doing so.
The Intention of LRRA: States can charge RRGs the same taxes they charge other insurance players, but they cannot impose extra or RRG-specific taxes that do not apply equally to other insurers.
Registration
A Risk Retention Group must register in any state where it does business and officially appoint the state’s insurance commissioner to receive legal documents on its behalf — but only for the purpose of being served with lawsuits or other legal notices. This does not give the commissioner power to regulate or control the RRG.
The Intention of LRRA: Even though an RRG is not licensed in non-domiciliary states, this ensures those states have a legal point of contact if a policyholder, claimant, or third party needs to sue or serve documents.
Financial Examinations
A non-domiciliary state can conduct its own financial examination of an RRG, but only if 1) the domiciliary state refuses to conduct or start an exam and 2) the exam must be coordinated with the domiciliary state to avoid unnecessary duplication or repeating what’s already been done.
The Intention of LRRA: This exclusion balances the LRRA’s intent to centralize regulation with the need for oversight in exceptional cases. It allows other states to step in only if the domiciliary state refuses to do their job.
Lawful Court Orders Concerning Financial Impairment
If the non-domiciliary state commences delinquency proceedings due to the domiciliary state refusing to conduct a financial exam, the RRG must comply with any lawful court order.
The Intention of LRRA: To allow for enforcement of a non-domiciliary’s state rights to conduct financial examination in the appropriate case.
Deceptive, False, or Fraudulent Practices
RRGs must follow state laws prohibiting deceptive, false, or fraudulent practices. An injunction for deceptive, false, or fraudulent conduct can only be issued by a court of competent jurisdiction.
The Intention of LRRA: This helps protect against bad practices while still limiting state overreach.
Injunctions for Financial Instability
If a non-domiciliary state alleges the financial impairment of an RRG, it can only obtain an injunction from a court of competent jurisdiction.
The Intention of LRRA: This prevents states from using assertion of a financial impairment to prevent an RRG from doing business in the state.
In summary, these exceptions are the only areas where non-domiciliary states can regulate RRGs, and they are found in 15 U.S. Code § 3902(a)(1)(A)–(I).
The RRG Notice
The non-domicile state can require risk retention groups to include a notice in insurance policies that the RRG is not subject to all of the non-domiciliary state’s laws and that there is no state insolvency guaranty fund available.
The Intention of LRRA: This ensures that policy holders know about RRG single state regulatory structure.
Illegal Non-Domiciliary State Regulation
Due to the lack of understanding in the insurance industry of how RRGs are permitted to operate, many states have tried and continue to attempt to regulate RRGs in ways that are illegal and/or go beyond the boundaries of LRRA’s exemptions.
Examples of common illegal attempts from non-domiciliary states to regulate RRGs include:
Requiring an RRG to be licensed in their state to do business.
Charging RRGs fees, including filing and renewal fees.
Requiring RRGs to meet extra paperwork or registration hurdles that LRRA doesn’t allow.
Banning or restricting RRGs from operating in their state.
Banning or restricting who RRGs can or can’t do business with in their state.
Making it harder for RRG members to operate in the state simply because they are an RRG.
What Happens When Non-Domiciliary States Try to Illegally Regulate Risk Retention Groups?
If a non-domiciliary state tries to impose an illegal or unauthorized regulation on a foreign RRG, the RRG can challenge the action in court. RRGs have a well-established right under the LRRA to sue when a non-domiciliary state oversteps its bounds. The RRG can file a lawsuit in federal or state court to block enforcement of the unlawful regulation. Courts have repeatedly upheld the preemptive nature of LRRA and have invalidated state laws that go beyond what’s expressly allowed in the statute.
A Win for One RRG is a Win for All RRGs (and vice versa)
Because illegal non-domicile regulation affects all RRGs doing business in that state, it is important for RRGs to stick together and collectively push back against illegal regulations. This is imperative for the wellbeing and long-term viability of all RRGs for the following reasons:
Federal protections are only as strong as their enforcement
The Liability Risk Retention Act (LRRA) gives RRGs powerful rights, but non-domiciliary states sometimes test the limits or ignore preemption, hoping individual RRGs won’t challenge them. If RRGs don’t push back, bad regulations can take root and set damaging precedents.
Unified action strengthens legal and political influence
Under NRRA’s program promoting reputational marketing, when RRGs act together through litigation, advocacy, or industry associations like the National Risk Retention Association (NRRA) they are able to:
Educate and assist one another
Amplify their voice
Share the burden of legal costs
Attract attention from regulators, courts, and even Congress
Prevent states from isolating and targeting one RRG at a time
One state’s overreach affects all RRGs
If a single state successfully imposes unlawful requirements on one RRG, other states may follow suit. This erodes the core advantage and differentiation of an RRG model: national operation under a single domiciliary state license.
Courts respond to patterns, not just isolated cases
When courts see multiple RRGs harmed in similar ways, they are more likely to rule in favor of the industry, issue broad decisions that clarify and reinforce LRRA preemption, and deter future overreach.
Protecting the future of the RRG model
The RRG model exists to serve industry-specific, member-owned liability insurance needs - especially in hard-to-insure or underserved markets. If illegal state-level interference goes unchecked, new RRG formation could stall, existing RRGs might exit key states, and the success of this alternative insurance solution would be at risk.
Successful Action Against Illegal Non-Domiciliary State Regulation
The National Risk Retention Association works to monitor and intervene in illegal/regulatory overreach cases by supporting litigation, filing amicus briefs, and advocating at the NAIC or federal level to protect RRG rights.
Over the years, NRRAs’ work has helped to preserve the rights of RRGs. Some examples of successful precedent set to uphold these rights include the following:
Non-domiciliary states cannot impose additional licensing, capital, registration, fees or filing requirements on RRGs beyond what is expressly allowed in the LRRA.
Example:
In NRRA vs. Brown (1996), the court struck down Louisiana’s attempt to illegally regulate RRGs by requiring $5 million in capital and surplus, mandating a $100,000 bond, collecting a $1,000 annual registration fee, and demanding additional plans of operation. Joining with three risk retention groups, NRRA successfully challenged these requirements, as the state’s actions were preempted by the LRRA.
States cannot use state laws or requirements to indirectly block RRGs from operating because doing so is discriminatory and violates the LRRA’s federal preemption.
Example:
In National Warranty Insurance Co. vs. Greenfield (2000), Oregon required that reimbursement insurance for service contracts be written by an “authorized” (i.e., state-licensed) insurer. The court ruled that Oregon’s requirement was discriminatory towards RRGs.
Non-domiciliary state regulators cannot decide whether an entity qualifies as an RRG, redefine the scope of “liability insurance” under federal law, or enforce cease-and-desist orders without going through a court.
Example:
In Auto Dealers RRG vs. Poizner (2008), the California Department of Insurance (CDI) issued a challenge to a “cease and desist” order to Auto Dealers RRG, claiming that Auto Dealers RRG 1) was not a valid RRG under the LRRA, 2) was selling “contractual liability,” which California argued was not covered under the LRRA, and 3) could be blocked administratively by the CDI without court action. The court sided with Auto Dealers RRG, explaining 1) only the domiciliary state and the federal court system can determine the validity of an RRG 2) contractual liability (such as coverage for dealer warranties or service contracts) is within the federal definition of “liability insurance,” and 3) non-domiciliary states must seek court injunctions to restrict an RRG and that cease and desist orders are illegal.
A state cannot apply a law that indirectly regulates an RRG’s coverage decisions, claims handling, or legal exposure, unless the LRRA expressly allows it.
Examples:
In Allied Professionals Ins. Co. RRG vs. Wadsworth (2014) and Reis v. OOIDA Risk Retention Group (2018), the court held that the LRRA preempts state “direct action” statutes.
In Speece vs. Allied Professionals Insurance Co. (2015), the court ruled that the LRRA preempts state laws which prohibit the enforcement of “arbitration” clauses in RRG insurance contracts.
Conclusion
Risk Retention Groups operate under a carefully defined federal framework established by the Liability Risk Retention Act (LRRA). This framework allows RRGs to deliver specialized, member-owned liability insurance across state lines while avoiding the burden of redundant, conflicting regulation in each jurisdiction. At the same time, it preserves essential protections, financial oversight, and legal accountability.
Protecting the integrity of the RRG model and ensuring its continued success requires both legal clarity and coordinated advocacy across the industry.
Resources to Learn More About RRG Regulatory Laws and Updates
Risk Retention Groups
Membership to the National Risk Retention Association provides RRGs with the knowledge and resources to stay up to date, compliant, and involved with current and ongoing regulatory issues concerning RRGs. This includes, among other things:
Advocacy/legislation updates of illegal regulatory activity that NRRA is tracking or actively fighting against
The nation’s largest network of risk retention groups and the leading experts in retention groups
A database of state registration requirements
Access to Directors & Officers training and other training
Discounted rates to our National Conference for RRGs
NRRA is a nonprofit and membership dues directly support its advocacy efforts for RRGs.
Companies That Do Business With Risk Retention Groups
Attending the annual NRRA National Conference provides companies that do business with RRGs with extensive education on RRGs, important regulatory and legislative updates, and the latest trends in the industry.
Regulators and Insurance Commissioners
NRRA is in the process of developing Risk Retention Group educational training that will be available soon, designed specifically for regulators and insurance commissioners.
