Risk Retention Groups Balance Governance, Regulation, and Growth

Risk retention groups (RRGs) require long-term planning, active member participation, and strong regulatory communication to remain viable as markets and member needs change, speakers said during the 2026 Vermont Captive Insurance Association Annual Conference.

The session, "The Future of RRGs: Risk, Regulation & Growth," featured moderator Jenna McLane, an attorney with Honigman; Heidi Rabtoy, chief examiner with the Vermont Department of Financial Regulation; Joseph Schimenti, president of Yellowstone Insurance Exchange; and Patrick Theriault, managing director of US captive management at Strategic Risk Solutions.

The panel examined the business risks associated with forming and participating in a risk retention group, the regulatory framework governing RRGs, and the difference between sustainable growth and expansion that may weaken a program.

Panelists said RRGs can be effective tools for organizations that share similar liability risks, but their structure creates practical challenges involving regulation, governance, and long-term stability.

Planning Beyond Formation

Mr. Theriault described two principal RRG structures: traditional groups, in which multiple organizations or individuals come together to share risk, and single-parent RRGs, which cover affiliated entities within one corporate organization. Traditional groups may be closed to new participants or structured to add members over time.

Regardless of the structure, the panel said planning should extend beyond formation and the start of operations. Agreements should support the organization's long-term goals and address issues such as how members join or leave the group and how the program will respond to changes in the market or its risk profile.

Mr. Schimenti discussed Yellowstone Insurance Exchange as an example. The RRG began operating in 2003 after a medical malpractice insurance crisis reduced coverage options for hospitals in several western states. It was developed primarily to serve rural hospitals, with risk management, claims, and underwriting as central components of the program.

Yellowstone adopted a 3-year planning approach that incorporated input from hospital executives, board members, and risk managers. Mr. Schimenti said the organization sought to address the immediate need for coverage while building a program that would remain viable over the long term. Mr. Theriault added that addressing governance and participation issues from the outset can make it easier to manage member departures and changes in the market.

Governance and Education

The panel repeatedly emphasized governance as a key factor in an RRG's success. Members should remain engaged in the organization, understand its objectives, and support a consistent approach to risk.

Mr. Schimenti said Yellowstone uses committees to involve members in areas such as finance, risk management, underwriting, and customer service. It also educates new executives and board members about governance, compliance, financial measures, and the roles of professional service providers.

Board members do not need to understand every detail of an actuarial analysis, Mr. Schimenti said, but they should understand key measures well enough to recognize when results require further attention.

Ms. Rabtoy also identified governance as a regulatory priority. Board members should understand the RRG's principal risks, remain actively involved in oversight, and monitor whether its policies and strategies are producing the expected results. Although RRGs may rely on service providers for expertise, their boards must still ask questions and understand the work being performed.

Ms. Rabtoy said regular communication with regulators is equally important. Discussing significant developments before an examination or financial review can help regulators understand changes affecting the RRG and allow potential concerns to be addressed early.

Regulation Across States

The panel also discussed the challenges RRGs face when registering and operating in multiple states under the federal Liability Risk Retention Act. Although federal preemption limits the authority of states other than an RRG's domicile, registration processes and regulators' experience with RRGs can vary among jurisdictions.

Ms. Rabtoy said Vermont communicates with other states about RRG oversight and participates in the National Association of Insurance Commissioners' Risk Retention Group Working Group. The group provides a forum for regulator education and is developing best practices for registration and licensing.

Panelists said multistate registrations can involve delays and extensive information requests. Experienced legal advisers, captive managers, actuaries, auditors, and other service providers can help RRGs navigate these requirements and determine when further discussion with a regulator may be appropriate.

Sustainable Growth

The panel distinguished between sustainable growth and increasing premium or membership without sufficient attention to risk. Mr. Theriault said RRGs need adequate capitalization, sound underwriting supported by actuarial analysis, effective governance, and pricing that is both competitive and sufficient to support the risks insured.

Mr. Theriault said single-parent RRGs require an ongoing commitment of capital and must be treated as separately regulated insurance companies rather than ordinary corporate subsidiaries. Traditional group RRGs should clearly define their target markets, encourage active member participation, and establish agreements that support member recruitment and retention.

Mr. Schimenti said RRGs should determine the size and membership that best fit their objectives rather than pursue growth for its own sake. Yellowstone adjusted its approach as market conditions changed, using its risk management and underwriting processes to evaluate prospective participants. Increasing premium volume by accepting risks that do not fit the program could weaken its long-term performance.

The panel concluded that RRGs must remain flexible as markets, risks, and regulatory expectations change. A sound business plan, engaged governance, appropriate capitalization, and open communication among members, service providers, and regulators provide the foundation for sustainable growth.