What are the Legal Requirements for Forming and Operating a Risk Retention Group (RRG)?
A guide for forming, licensing, and maintaining a risk retention group under federal and state law.
Risk retention groups (RRGs) offer a non-traditional liability insurance approach for businesses seeking more availability and control over their coverage solutions. Forming and operating an RRG requires navigating a unique blend of federal preemption under the Liability Risk Retention Act (LRRA) and state-level regulatory oversight. This guide outlines the legal and operational requirements RRGs must meet—from forming a new group to operating across states.
Federal Requirements for Forming and Operating a Risk Retention Group
By design, risk retention groups are purpose-driven insurance companies owned and controlled by their policyholders. Their structure was created at the federal level to help provide affordable, stable, and long-term liability coverage tailored to the shared risks of their members.
The Liability Risk Retention Act of 1986 sets national standards for RRG eligibility, authority, and operation. These apply regardless of what state the RRG is domiciled in:
1. Ownership and Membership
An RRG must be owned by its insureds, who must be engaged in similar businesses or activities in relation to liability exposures.
A risk retention group is owned by its insureds, meaning every policyholder is also a member and part-owner of the group. This member-owned structure aligns the interests of the insureds with the operations and governance of the company. Under LRRA, membership in an RRG is limited to individuals or organizations engaged in similar businesses or activities in relation to liability exposures. These commonalities can arise from shared operations, services, products, or professional practices. RRGs may not exclude eligible members in order to gain a competitive edge for their existing members.
2. Type of Coverage
An RRG can only provide liability insurance.
Risk retention groups write liability insurance exclusively and customize their offerings to meet the specific needs of their insureds. Examples of the wide variety of liability insurance written by RRGs include, but are not limited to:
Education and Institutional Liability
Schools and universities
Charter school board liability
Daycare center liability
Specialty & Niche Industry Liability
Hazardous waste transporters
Agricultural operations
Renewable energy and utility service providers
Professional and General Liability
Errors & Omissions (E&O)
Directors & Officers (D&O)
General liability for member organizations
Product liability
Medical and Healthcare Liability
Medical malpractice
Long-term care facility liability
Health professional liability
Chiropractic liability
Behavioral health / mental health provider liability
Transportation and Auto Liability
Commercial auto liability
Trucking fleet liability
Non-emergency medical transport liability
Construction and Trades Liability
General contractor liability
Subcontractor liability
Roofing, plumbing, and electrical liability
3. Single State Licensing
Risk retention groups must be chartered and licensed in one U.S. state, referred to as the “domiciliary state.”
LRRA requires an RRG to submit a plan of operations or feasibility study for approval to the chartering state insurance department before offering insurance. The plan or study must include coverages, deductibles, coverage limits, rates, and rating classification systems. The RRG must also provide any revisions to that plan if the RRG intends to offer any additional lines of liability insurance.
Selecting the right domiciliary state is one of the most important early decisions when forming a Risk Retention Group. Because the domiciliary state is the RRG’s sole regulator, its laws, regulatory philosophy, and level of experience with the risk retention group structure will directly affect how the RRG is formed, examined, and operated.
While the LRRA allows RRGs to operate nationally, only the domiciliary state has full regulatory authority. This makes it essential for RRGs to choose a domiciliary state that offers:
Experience with RRGs and captive insurance regulation
A dedicated and knowledgeable insurance department
Efficient and clear regulatory processes
Reasonable capital and surplus requirements
A reputation for fairness and accessibility to regulators
Ultimately, the choice of domicile can impact the cost, credibility, and operational flexibility of the RRG. Working with experienced advisors from the National Risk Retention Association (NRRA) can help an RRG assess which domicile is the best strategic fit.
4. Non-Domiciliary Registration
Risk retention groups may operate in other, “non-domiciliary” states without separate licensure by registering as a foreign RRG.
Once licensed in a domiciliary state, an RRG may operate in other states without separate licensure by registering as a foreign RRG under the LRRA’s preemptive authority.
Before an RRG may operate in a non-domiciliary state, the RRG must provide the state with a copy of its feasibility study that was approved by the domiciliary state as well as any revisions to that study submitted to the domiciliary state. The RRG must also provide annual audited financial statements and statements of opinion on loss and loss adjustment expense by an actuary or qualified loss specialist.
RRGs may use the NAIC Uniform Risk Retention Group Registration Form to register in non-domiciliary states. Some states ask for information not required by LRRA. NRRA provides its members with a database of these requests by state.
5. Policy Disclosure Notice (The RRG Notice)
LRRA requires risk retention groups to include a notice in insurance policies, in 10-point type, stating the RRG is not subject to all state laws and regulations, and that the insolvency guaranty fund is not available for the RRG.
Risk retention groups are required to include a policy disclosure notice, sometimes called “The RRG Notice,” on all policies written, not just those issued in non-domiciliary states. The purpose is to ensure transparency and informed consent for policyholders, since RRGs are exempt from state guaranty funds and may not be regulated by the policyholder’s home state.
The required language is:
“This policy is issued by your risk retention group. Your risk retention group may not be subject to all of the insurance laws and regulations of your State. State insurance insolvency guaranty funds are not available for your risk retention group.”
6. Compliance with Certain Non-Domiciliary State Laws (LRRA Exceptions)
Risk retention groups must comply with a list of non-domiciliary regulatory exceptions (see 15 U.S. Code § 3902(a)(1)(A)–(I))
Although LRRA broadly preempts most non-domiciliary state insurance laws, it does carve out a narrow set of exceptions that RRGs must comply with when operating in other states. These include state laws governing unfair claims settlement practices. These limited exceptions are designed to protect insureds and ensure fair claims practices—while still preserving the RRG’s right to operate under the regulatory authority of a single domiciliary state.
The LRRA establishes clear eligibility and operating standards for all RRGs. These protections are designed to allow RRGs to operate efficiently across state lines while ensuring transparency and consumer protections.
Domiciliary State Laws for Forming and Operating a Risk Retention Group
While the LRRA sets federal standards for forming and operating a risk retention group, it delegates licensing authority and the day-to-day corporate and operational requirements to the RRG’s chartering (domiciliary) state, which applies its own insurance standards when evaluating and approving new RRGs. Common domiciliary requirements include:
Legal Structure
Risk retention groups may be formed as a stock insurance company, a mutual insurance company, or a reciprocal exchange. Regardless of format, all RRGs are licensed and regulated as insurance companies by their domiciliary state, and must meet applicable standards for solvency, reporting, and corporate governance.
Minimum Capital and Surplus
To form and operate a Risk Retention Group, every group must meet minimum capital and surplus requirements, which are set by the domiciliary state. These financial thresholds are a core part of state insurance regulation and are designed to ensure the RRG has enough resources to cover its liabilities, withstand unexpected losses, and operate safely in the interests of its members. Each state sets its own minimums, and these amounts may vary depending on the type of entity (stock company, mutual, reciprocal), the lines of liability insurance offered, and the RRG’s business plan and risk profile.
Governing Board
Risk retention groups are governed by a Board of Directors elected by the member-policyholders. This board is responsible for overseeing the company’s operations, governance policies, and long-term strategy. The board typically makes key decisions about reinsurance, service provider relationships, and financial oversight. Many domiciliary states require at least one board member to be a resident of the state to maintain regulatory accountability. The board plays a central role in ensuring the RRG fulfills its obligations to members while remaining in compliance with both state and federal law.
Principal Place of Business
Every RRG must establish a principal place of business and designate a registered agent in its domiciliary state to receive legal notices and service of process. While some states require a physical office presence or in-state employees, many allow core functions to be outsourced to service providers with regulatory approval. Regardless of where day-to-day operations occur, the domiciliary state must always maintain regulatory oversight and access to the RRG’s key documentation and leadership.
Required Service Providers
In addition to selecting a domicile, every risk retention group must establish relationships with key service providers to ensure compliance, solvency, and sound operations. These partners are typically required by the domiciliary state and are essential to the RRG’s successful formation and management.
Captive Manager
All RRGs are required to retain a licensed captive manager, who acts as the operational and administrative liaison between the RRG and the domiciliary insurance department. The captive manager assists with regulatory filings, facilitates financial reporting, and helps the board fulfill its governance obligations.
Independent CPA
An RRG must engage an independent certified public accountant to prepare and certify its annual financial statements. These reports are submitted to the domiciliary state to demonstrate the RRG’s financial health and solvency.
Qualified Actuary
A qualified actuary must prepare a formal opinion on the RRG’s loss reserves and projections. This actuarial analysis is a regulatory requirement and a critical part of the RRG’s annual financial submissions.
Legal Counsel and Reinsurance Advisors
Most RRGs also retain legal counsel with experience in insurance and regulatory law, particularly during the formation process and in navigating LRRA-related preemption issues. NRRA provides its members with a toolkit that contains helpful information and best practices on RRG formation, policy writing, and litigation scenarios. In addition, if the RRG intends to purchase reinsurance, it may engage a reinsurance intermediary to evaluate market options and secure appropriate coverage.
While LRRA governs eligibility and national operation, each RRG must still comply with the full regulatory framework of its domiciliary state. The domiciliary regulator plays a critical role as the group’s primary supervisor and gatekeeper for ongoing compliance.
RRG Accountability and Oversight
Although an alternative to traditional liability insurance, RRGs are no less diligently regulated and scrutinized, and its domiciliary regulators are held to the same accreditation standards that apply to their regulation of traditional insurers.
Domiciliary regulation of risk retention groups is a robust process dictated by NAIC accreditation standards. Their regulators require the same key filings as they do of traditional insurers. RRGs are subject to regular exams and audits by their domiciliary regulators. The NAIC accreditation teams review the domiciliary regulators’ handling of risk retention groups rigorously.
Summary
The LRRA offers a powerful framework for RRGs that allows businesses to create and control their own liability insurance programs. RRGs must meet strict federal standards and fulfill the operational, financial, and governance requirements of a licensed insurer in their chosen domicile. Understanding both sides of this regulatory equation is key to building a compliant, well-managed, and resilient risk retention group.
Additional Resources for Risk Retention Groups
NRRA is the largest community and resource for risk retention groups in the country. Membership includes access to helpful resources for RRGs and companies that do business with them including:
The NRRA RRG Toolkit for RRG owners and operators that provides information and best practices on RRG formation, policy writing, and litigation scenarios.
Information on non-domiciliary state-specific attitudes and registration practices concerning RRGs.
Networking and discussions with risk retention group experts and leaders at NRRA-hosted trainings and events.
Connections to trusted service providers that are knowledgeable about RRGs.
The latest news and developments regarding regulatory updates and legislative changes that are impacting RRGs.
Become a member of NRRA today to be part of our community dedicated to advocacy, support, education & connections for risk retention groups.
