Some domiciles allow risk retention groups to be formed as reciprocals. A reciprocal risk retention group is an unincorporated association of individuals or entities that exchange contracts of insurance through an attorney-in-fact, which acts as an agent or manager. In a reciprocal, profits (including investment income) and losses are allocated back to each member's subscriber savings account. Essentially all income (and the related income tax) reverts back to the members. Thus, the reciprocal structure may provide a tax advantage to groups whose members are non-profit entities.

An attractive featrue of reciprocals is that new policyholders can join in a way that is fair to both them and long-standing policyholders because of the way profits and surplus contributions are accounted for. Reciprocals can also be more flexible because each one is different, based on the membership agreements and by laws. Reciprocals are governed by a few basic provisions, so management is free to be creative and draft agreements that fit its particular purpose.

A risk retention group (RRG) is a liability insurance company that is owned by its members. Under the Liability Risk Retention Act (LRRA), RRGs must be domiciled in a state. Once licensed by its state of domicile, an RRG can insure members in all states. Because the LRRA is a federal law, it preempts state regulation, making it much easier for RRGs to operate nationally. As insurance companies, RRGs retain risk.

The term ”protected cell" applies to separate participants’ risks that are segregated (protected) from other participants' risk exposures and liabilities.

The 300-29-1 principle in workers compensation. That is, for every serious accident or death, there are 29 smaller claims, usually medical only (1 in 30). But there will have been 10 times that number, or 300 incidents, that did not lead to claims of any kind. That's where you should be concentrating your loss prevention efforts.

Risk Retention Group:

Reciprocal or Reciprocal Retention Group:

Protected Cell:

Loss Prevention Rule:

The domicile of a captive insurance company is the chosen place of incorporation under whose laws and whose insurance regulations the entity will operate.

Domestically or "on shore" seventeen states, the District of Columbia and the U.S. Virgin Islands have enacted laws making them captive domiciles. "Off shore" there are many domiciles, the most popular being Bermuda. 



The term "captive" applies to a variety of different insuring organizations and, therefore, another descriptor may be appropriate. Captives are truly "Special Purpose Insurance Companies." They are created primarily to serve a single corporation (or corporate family), members of an association or the clients of a single agent or broker. The captive's founders control and direct its operations.

Seventeen states, the District of Columbia and the U.S. Virgin Islands have enacted laws that regulate these Special Purpose Insurance Companies differently than traditional commercial insurers.