[House Hearing, 115 Congress] [From the U.S. Government Publishing Office] EXAMINING INSURANCE FOR NONPROFIT ORGANIZATIONS ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON HOUSING AND INSURANCE OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTEENTH CONGRESS FIRST SESSION __________ SEPTEMBER 28, 2017 __________ Printed for the use of the Committee on Financial Services Serial No. 115-43 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] U.S. GOVERNMENT PUBLISHING OFFICE 29-710 PDF WASHINGTON : 2018 ____________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Publishing Office, Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800 Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001 HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking Vice Chairman Member PETER T. KING, New York CAROLYN B. MALONEY, New York EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia STEVE STIVERS, Ohio AL GREEN, Texas RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota ANN WAGNER, Missouri ED PERLMUTTER, Colorado ANDY BARR, Kentucky JAMES A. HIMES, Connecticut KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio MIA LOVE, Utah DENNY HECK, Washington FRENCH HILL, Arkansas JUAN VARGAS, California TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas DAVID A. TROTT, Michigan CHARLIE CRIST, Florida BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada ALEXANDER X. MOONEY, West Virginia THOMAS MacARTHUR, New Jersey WARREN DAVIDSON, Ohio TED BUDD, North Carolina DAVID KUSTOFF, Tennessee CLAUDIA TENNEY, New York TREY HOLLINGSWORTH, Indiana Kirsten Sutton Mork, Staff Director Subcommittee on Housing and Insurance SEAN P. DUFFY, Wisconsin, Chairman DENNIS A. ROSS, Florida, Vice EMANUEL CLEAVER, Missouri, Ranking Chairman Member EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York STEVAN PEARCE, New Mexico MICHAEL E. CAPUANO, Massachusetts BILL POSEY, Florida WM. LACY CLAY, Missouri BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California STEVE STIVERS, Ohio STEPHEN F. LYNCH, Massachusetts RANDY HULTGREN, Illinois JOYCE BEATTY, Ohio KEITH J. ROTHFUS, Pennsylvania DANIEL T. KILDEE, Michigan LEE M. ZELDIN, New York JOHN K. DELANEY, Maryland DAVID A. TROTT, Michigan RUBEN KIHUEN, Nevada THOMAS MacARTHUR, New Jersey TED BUDD, North Carolina C O N T E N T S ---------- Page Hearing held on: September 28, 2017........................................... 1 Appendix: September 28, 2017........................................... 23 WITNESSES Thursday, September 28, 2017 Cothron, M. Kevin, President and Chief Executive Officer, Southeast Nonprofit Insurance Programs......................... 8 Davis, Pamela E., Founder, President, and Chief Executive Officer, Alliance of Nonprofits for Insurance.................. 5 Santos, Tom, Vice President, Federal Affairs, American Insurance Association.................................................... 7 Webel, Baird, Specialist in Financial Economics, Congressional Research Service............................................... 3 APPENDIX Prepared statements: Cothron, M. Kevin............................................ 24 Davis, Pamela E.............................................. 29 Santos, Tom.................................................. 39 Webel, Baird................................................. 47 Additional Material Submitted for the Record Duffy, Hon. Sean: Letter from The Council of Insurance Agents & Brokers, dated September 26, 2017......................................... 56 Written statement of the Cincinnati Insurance Companies...... 58 Written statement of the Independent Insurance Agents and Brokers of America......................................... 59 Written statement of the National Association of Insurance Commissioners.............................................. 65 Hultgren, Hon. Randy: Written responses to questions for the record submitted to Tom Santos................................................. 67 Luetkemeyer, Hon. Blaine: Written statement of the National Association of Mutual Insurance Companies........................................ 70 EXAMINING INSURANCE FOR NONPROFIT ORGANIZATIONS ---------- Thursday, September 28, 2017 U.S. House of Representatives, Subcommittee on Housing and Insurance, Committee on Financial Services, Washington, D.C. The subcommittee met, pursuant to notice, at 9:38 a.m., in room 2128, Rayburn House Office Building, Hon. Sean P. Duffy [chairman of the subcommittee] presiding. Members present: Representatives Duffy, Ross, Royce, Posey, Luetkemeyer, Rothfus, Zeldin, MacArthur, Budd; Cleaver, Beatty, Kildee, Kihuen, and Gonzalez. Chairman Duffy. The Subcommittee on Housing and Insurance will come to order. Without objection, the Chair is authorized to declare a recess of the subcommittee at any time. Also, without objection, members of the full Financial Services Committee who are not members of this subcommittee may participate in today's hearing for the purposes of making an opening statement and asking our witnesses questions. Today's hearing is entitled, ``Examining Insurance for Nonprofit Organizations.'' The Chair now recognizes himself for 3 minutes for an opening statement. I want to welcome our witnesses. Thank you for being here today. And I would just note that Mr. Cleaver is on his way. He is going to participate, and I am sure he is going to want to ask questions and make an opening statement as well, but welcome. Risk retention groups, or RRGs, are liability insurance companies owned by their members that allow businesses with similar needs to pool their risk together. They were originally created to address a distortion in the marketplace when product liability insurance was largely unavailable. In the 1980s, Congress expanded the types of liability insurance RRGs could offer to commercial liability as companies faced similar issues obtaining commercial liability insurance. From a regulatory standpoint, RRGs operate under a different regime than a traditional property and casualty insurance company. Whereas an insurance company is regulated in each State they offer an insurance product, RRGs' regulation is largely handled at the State in which the company is domiciled, a pretty significant difference. In the RRG regime, that company can ultimately sell products in other States without being under the same solvency regulation requirements as an admitted carrier. Now, we have had several nonprofit organizations claim that there is, once again, an availability issue in regard to property coverage. And so I think we are going to have a vigorous and lively conversation today about, should we now change the rules, expanding from liability to property coverage for nonprofits? And I know we have a lot of different opinions. The industry is probably somewhat split. I am sure that this body is split as well, but this is truly an opportunity for us to hear from you on your thoughts and opinions and provide advice and counsel to the Congress on what action, if any, you think we should take. So I am looking forward to your testimony and insight. And again, I want to welcome you to our hearing. With that, I want to recognize the Vice Chair of the subcommittee, the gentleman from Florida, Mr. Ross, for 2 minutes. Mr. Ross. Thank you, Mr. Chairman. And I thank the witnesses for being here today as well, and for their testimony. This subcommittee will discuss an issue that has been of deep importance to me for some time, and that is the insurance needs and options available for nonprofit organizations. I first started working on this subject after hearing stories from my local Boys and Girls Clubs back in central Florida who were worried about the lack of commercial insurance policies that offered the coverage they needed at an affordable price. As I dug deeper into the issue, I discovered that it was not uncommon for many of our community nonprofit organizations to be underinsured, specifically with regard to property coverage. These groups are the lifeblood of their communities. Many of them dedicate themselves to serving others in the time of need, organizing volunteers to support a good cause or helping the most vulnerable members of our society work for a better future. Unfortunately, their commitment to charity in their community comes with a cost. Nonprofits, by the nature of their very mission, have a unique set of risks, different than almost any other commercial enterprise. And that unique risk makes them difficult to insure. In addition, many nonprofits operate on extremely thin margins, giving back all they take in and looking to maximize returns to the people they serve. That, too, contributes to the nonprofit sector's relative undesirability in the insurance market. Today, a significant number of nonprofit organizations have insurance in the form of liability coverage from a risk retention group, also known as an RRG. In the mid-1980s, Congress passed the 1986 amendments to the Liability Risk Retention Act, which expanded the lines of liability insurance that RRGs could offer to their member owners. And today, we will have a chance to discuss my draft proposal to further expand the lines of insurance an RRG may offer to include standalone property coverage. I believe that my proposal is appropriately tailored to address the issue at hand. Importantly, it includes strong consumer protections that mitigate some traditional concerns surrounding RRG expansion. I think it is a good compromise that will help fix this very real problem. I am glad to have each witness here today to share with us their experience and expertise and to help this subcommittee get a better understanding on the issue of the merits and demerits of the proposal like the Nonprofit Property Protection Act. We have a great group of witnesses, and I thank them for being here. I yield back. Chairman Duffy. The gentleman yields back. I now want to take this opportunity to welcome our witnesses. We have Mr. Baird Webel, a specialist in financial economics from the Congressional Research Service; Ms. Pamela Davis, the founder, president, and chief executive officer of Alliance for Nonprofits for Insurance; and Mr. Santos, the vice president of Federal Affairs for the American Insurance Association (AIA). And for the introduction for Mr. Cothron, I want to recognize Mr. Ross, who knows Mr. Cothron well. Mr. Ross. Thank you, Mr. Chairman. It is my distinct honor to introduce Mr. Kevin Cothron, who has been a longtime friend of mine. He is the president of Southeast Nonprofit Insurance Programs. He has over 25 years in the insurance industry. He created and manages an insurance placement program that specializes in niche insurance markets of 501(c)(3) nonprofits throughout the United States. The company performs no direct sales and works entirely through independent brokers and agents. He has been a leader in the nonprofit insurance sector for many years, and we are very fortunate to have him here today. Thank you for being here. Chairman Duffy. Wonderful. And welcome, Mr. Cothron. In a moment, the witnesses are all going to be recognized individually for 5 minutes to give an oral presentation of their testimony. And without objection, the witnesses' written statements will be made a part of the record. Once the witnesses have finished presenting their testimony, each member of the subcommittee will have 5 minutes within which to ask each of you questions. And with that, Mr. Webel, I recognize you now for 5 minutes. STATEMENT OF BAIRD WEBEL, SPECIALIST IN FINANCIAL ECONOMICS, CONGRESSIONAL RESEARCH SERVICE Mr. Webel. Thank you. Mr. Chairman, Ranking Member Cleaver, and members of the subcommittee, I would like to thank you for the opportunity to testify today. As the chairman said, my name is Baird Webel. I am a specialist in financial economics at the Congressional Research Service. And just for anybody who is watching and doesn't know this, CRS' role is to provide objective nonpartisan research and analysis to Congress. We take no position on the desirability of any specific policy. Any arguments presented in my written and oral testimony are for the purposes of informing Congress, not to advocate for a particular policy outcome. As the chairman mentioned, risk retention groups were created by Congress in the 1980s in response to problems in the liability market. And there are obviously a lot of different policy options one could have when you have insurance market problems. Congress sought to address the supply problems by essentially simplifying the regulatory structure of the liability insurance. And in doing so, they put particular limitations on the risk retention groups that resulted from this legislation. Particularly, they can only supply commercial liability insurance, and I think the ``commercial'' is important because what the presumption is to some degree is that businesses purchasing commercial insurance are going to have some measure of sophistication in the purchase of the insurance. The risk retention groups have to be owned by the policyholders. And this, I think, was an attempt to basically give the owners and the policyholders some skin in the game and some control over how the risk retention groups were going to operate, and the policyholders facing similar risks essentially should at least make the management and the judgment about the risks of these groups a little easier to manage and to face. Importantly, the Federal law prevents risk retention groups from participating in the State guaranty funds, which do provide some protection in the case of an insolvency, which means that the RRG policyholders, again by the statute, do not have this protection. A number of State laws do still apply to risk retention groups, notably relating to unfair claims practices, nondiscrimination, and State premium taxes still apply to these companies. In the 30 years since, I think that the experience in general in the risk retention market has largely followed to some degree the ups and downs of the rest of the commercial liability market. Property casualty insurance tends to move in cycles of hard markets where insurance gets expensive and difficult to obtain, frequently followed by softer markets where the insurance gets a little cheaper and a little easier. And as you might expect for a sort of niche product like risk retention groups, they tend to improve during hard markets when people are looking for these types of insurance. They grew a lot after they were first created and then sort of plateaued in the 1990s and grew a little more in the early 2000s, as we saw another hard market. Then for the last 10 years overall, you have seen pretty soft market conditions and, again, a sort of plateauing of the numbers of risk retention groups. They are a reasonably niche product. The overall premium of risk retention groups compared to property casualty insurance in general is pretty small, about $3 billion versus compared to somewhere in the realm of $600 billion for property casualty overall. But I think it is important to know that within the niches where a company can serve, they can still be important, even if the overall market may be soft. The worldwide capital markets have seen a lot of liquidity in the last 10 years. But that doesn't mean that the individual niches where property casualty insurance is sold necessarily experience the same market conditions. It is a local product that is sold under local conditions. And in order to really judge what is going on you have to look at those particular local conditions. The people who have looked into the market in general, the Commerce Department in the 1980s and GAO more recently, have generally found that risk retention groups have served a positive role in these sorts of niche markets. And so that basically concludes what I wanted to say, and I look forward to answering any questions you may have. [The prepared statement of Mr. Webel can be found on page 47 of the appendix.] Chairman Duffy. Thank you, Mr. Webel. Ms. Davis, you are now recognized for 5 minutes. STATEMENT OF PAMELA E. DAVIS, FOUNDER, PRESIDENT, AND CHIEF EXECUTIVE OFFICER, ALLIANCE OF NONPROFITS FOR INSURANCE Ms. Davis. Thank you. Mr. Chairman, Ranking Member Cleaver, and members of the subcommittee, thank you for the opportunity to testify in favor of the Nonprofit Property Protection Act, which will permit a very small subsection of established risk retention groups to provide property and auto physical damage insurance to their members. We have submitted a written statement for the record. I am the president, CEO, and founder of Alliance of Nonprofits for Insurance (ANI), a nonprofit risk retention group on whose behalf I am testifying today. ANI insures small and mid-sized community-based nonprofit organizations across the country, those in our neighborhoods who work with the most vulnerable among us. They are homeless shelters and programs for those with Alzheimer's, victims of abuse, and the developmentally disabled. They are animal rescue organizations, elder care services, drug and alcohol rehabilitation centers, school arts programs. They are foundations raising money for diabetes, heart disease, and cancer research, among many others. 80 percent of our member insureds have annual budgets of $1 million or less. These little nonprofits got into the business of insurance because commercial insurance carriers walked away from them. They never wanted to be in the insurance business but were forced into it to be able to serve our communities. We are successfully insuring these organizations for difficult risks, such as auto liability and sexual abuse and employment practices liability. We offer a vast array of free consulting and educational services, such as employment risk management and driver training to our members whose small budgets do not allow them to purchase or provide these services. But our future ability to continue to offer assistance to these organizations is now in danger. Commercial insurers, when they are willing to offer coverage for these unusual risks represented by nonprofits, will provide it only as a bundled package. That is, these small nonprofits must purchase the liability insurance and the property insurance together as a package, somewhat like a cable triple play package. However, by Federal law, as an RRG, ANI is only allowed to offer liability insurance to our member insureds. Since ANI's inception, only one insurance company has offered the standalone property and auto physical damage policies that small and mid-sized members of ANI need. Several years ago, that company told us that the program is too small to be viable in the long term because of the requirements of filing and reporting in 50 States. And they advised us to look for other options. We asked our insurance brokers and agents who work with nonprofits to find other commercial insurance companies to provide the standalone property and auto physical damage that their clients need. They told us in no uncertain terms that there were no markets available. Every insurance carrier required that to purchase the property, the nonprofit would also have to purchase liability from them at the same time. Hearing that, we engaged Guy Carpenter to conduct an independent study to see whether there were insurance department filings that we had overlooked, because surely there was some other carrier that would provide this coverage. Guy Carpenter's research demonstrated that only one other company has filed the property form that our members need. But that filing requires that the commercial insurance company sell the property and liability together as a bundled package. The property cannot be sold on a standalone basis. We had exhausted all of our options for market-based solutions and our future viability without the Nonprofit Property Protection Act is now in danger. To address consumer protections, there are provisions included in the bill that require any RRG authorized to offer property insurance to: one, have a minimum of $10 million in threshold capital, although the domicile regulator may require more; and two, to have a minimum of 10 years' experience offering liability insurance. And to make sure the bill will correct only this market failure and not interfere with an otherwise well-functioning commercial property market, the bill allows RRGs to offer these coverages only to their members that are 501(c)(3) nonprofits. And any single nonprofit may be insured for only up to $50 million in total insured value because it is presumed that larger nonprofits will have the market clout to be able to purchase this in the standard marketplace. In closing, ANI offers important specialized coverages and risk management services for community-based organizations serving some of the most vulnerable in our communities. We help those organizations provide their services safely and efficiently as possible to make sure that scarce resources are directed back into our communities. Standalone property and auto physical damage insurance is essential for these RRG members, but it is not available from the commercial marketplace. This bill would allow nonprofits to solve that problem for themselves without requiring any government resources so they may continue to do their important work in our communities. Thank you. [The prepared statement of Ms. Davis can be found on page 29 of the appendix.] Chairman Duffy. Thank you, Ms. Davis. Mr. Santos, you are now recognized for 5 minutes. STATEMENT OF TOM SANTOS, VICE PRESIDENT, FEDERAL AFFAIRS, AMERICAN INSURANCE ASSOCIATION Mr. Santos. Thank you, Mr. Chairman. Chairman Duffy, Ranking Member Cleaver, members of the subcommittee, thank you for inviting me to testify at today's hearing. I am Tom Santos, vice president of Federal Affairs at the American Insurance Association (AIA), and I am pleased to provide AIA's perspective on what we believe is the critical aspect of today's hearing: whether to expand Federal preemption contained in the Liability Risk Retention Act. AIA represents approximately 330 of the Nation's leading insurance companies that provide all lines of property and casualty insurance to consumers and businesses in the United States and around the world. AIA members write more than $117 billion annually in U.S. property and casualty premiums and approximately $225 billion annually in worldwide premiums. Our members have a strong interest in ensuring a competitive marketplace where the regulatory approach focuses on policyholder protection through appropriate financial standards applied equitably. We recognize that risk retention groups have played a role in the commercial liability insurance market for more than 25 years, and we applaud the important work that many nonprofits do in communities all across the United States. However, there is no demonstrable national availability problem in commercial property insurance markets. And considering that RRGs operate under a substantially different and less rigorous regulatory regime, AIA opposes further expansion of the Risk Retention Act to include commercial property insurance. Over the years, there have been several proposals to expand the Risk Retention Act to allow RRGs to offer commercial property. Most recently, these proposals have focused on not- for-profit 501(c)(3) organizations. Proponents that argue for expanding the LRA suggest an insurance availability problem exists. They also argue that nonprofit organizations are unable to easily acquire property coverage from the traditional insurance markets. That is not the case. Proponents themselves acknowledge that nonprofits can secure property coverage in the marketplace. The fact that nonprofit organizations are able to secure property coverage, even if combined, is evidence that there is no availability or market crisis in the commercial market for property insurance. Today's property insurance marketplace is extremely competitive, with insurers offering commercial property and liability products at affordable and appropriate rates. In fact, property insurers are looking to expand offerings and enter into new markets, as evidenced by shrinking markets of last resort for property insurance in some of the toughest markets in the country. With regard to insurance for nonprofits, many AIA member companies have dedicated business operations specifically designed to meet the needs and address those of nonprofit entities, giving nonprofits the ability to purchase commercial property insurance in the private market from a wide selection of insurers. Again, simply put, there is no market failure that warrants the extreme step of expanding the Risk Retention Act's Federal preemption into commercial property insurance. AIA has long argued that the most important consumer protection when it comes to insurance is the ability of the insurer to pay claims when an insured has a loss. This is particularly true when faced with a significant loss from a major event such as a terrorist attack or a large natural catastrophe. A risk retention group insolvency would leave policyholders and its impacted community without the financial support at the very time they need it most. This impact would be particularly acute for nonprofit organizations serving the most vulnerable in our communities. We are not alone in our concerns about RRG insolvency. A 2011 report by the Government Accountability Office noted that some RRG representatives and State regulators, ``expressed concerns about whether RRGs would be adequately capitalized to write commercial property coverage.'' Further, in looking at property and casualty impairments, a 2015 A.M. Best special report revealed a rise in risk retention group impairments during the period from 2000 to 2015. In addition, the National Association of Insurance Commissioners have noted that RRGs have gone into receivership at a much higher rate than admitted property and casualty insurers. Thus, concerns about capital adequacy and solvency regulation must be addressed before any expansion of commercial writing by risk retention groups is even considered. Again, we see no demonstrable national availability crisis that would warrant such a significant expansion of the Risk Retention Act and there are options for risk retention groups if they wanted to get into the commercial property space. They could become licensed admitted carriers. There are other corporate structures of which they could avail themselves. Thank you for the opportunity to present our views this morning. We look forward to your questions. [The prepared statement of Mr. Santos can be found on page 39 of the appendix.] Chairman Duffy. Thank you, Mr. Santos. Mr. Cothron, you are now recognized for 5 minutes. STATEMENT OF M. KEVIN COTHRON, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SOUTHEAST NONPROFIT INSURANCE PROGRAMS Mr. Cothron. Mr. Chairman, Ranking Member Cleaver, Congressman Ross, and members of the subcommittee, I would like to thank you for the opportunity to testify today in support of the Nonprofit Property Protection Act. The majority of nonprofits that I work with are small to mid-sized social service organizations. These nonprofits have limited funding, but provide invaluable services within their communities. I have been in the insurance industry for 25 years and have worked with 501(c)(3) nonprofits throughout the southeast. The type of nonprofits that we work with are senior care centers, foster care and adoption agencies, mental health services, homeless shelters, and animal rescue groups, among many others. In my experience we have had an ongoing crisis in trying to secure property coverage for small to mid-sized 501(c)(3) nonprofits. The challenge these small to mid-sized nonprofits have in securing property insurance is they have to rely on commercial insurance companies, and there are few of these companies that will insure this type of risk. And insurance companies that will insure nonprofits typically only provide the property insurance if they are also getting the liability insurance, thereby creating what is called a package program. The package programs are offered on an all-or-nothing basis, meaning the nonprofit cannot purchase the property insurance from the insurance company unless the liability insurance is also purchased from the same company. When the insurance carrier offers a package program to a nonprofit they typically charge more for liability insurance than what the nonprofit would pay if they were getting the liability insurance from a risk retention group. I work extensively with a risk retention group for nonprofits, but unfortunately, the risk retention group is prohibited from being able to provide property insurance. In most States, an insurance company, an insurance mutual captive or even an insurance trust can provide all lines of commercial insurance coverage, including property. Only a risk retention group is restricted to providing only liability coverage to nonprofits. This is unfair to nonprofits who prefer to have their coverage and services with a risk retention group. It also creates an unfair market advantage for the insurance companies. It has been my practice in my business to work with insurance companies, including risk retention groups. I believe in offering the best possible coverage to clients at a reasonable cost. I think insurance is more than just a piece of paper with coverage terms, and that the industry should provide risk management services to the nonprofits. It has been my experience with risk retention groups that they provide insurance with broader, specialized coverages and services that are tailored to a nonprofit's actual needs. For example, I know that my clients really appreciate the risk retention group's loss control services, that will help them train their employees and volunteer drivers, as well as providing them with advice on how to navigate complex employment law and help them avoid claims and litigation. While I never worked with an RRG or a commercial insurance company that claims to always offer the lowest price, I have done many comparisons that demonstrate when a nonprofit is forced to purchase a package policy on an all-or-nothing basis from a commercial insurance company, the nonprofit is typically paying a higher price in annual liability premium in order to get the property coverage. Most nonprofits I work with have limited operating funds and are receiving all or some of their funding from State, Federal, or local governments. The nonprofit has been entrusted with the taxpayers' money and should not have to spend an unnecessary high amount on insurance. This added undue expense in turn negatively impacts the amount of services that they can provide to their communities. By allowing a risk retention group the ability to provide property insurance, the nonprofit will receive more competitive pricing from all the insurance options that are available and still be able to benefit from the specialized coverages and services they value. I work with over 100 brokers, and I can state without hesitation that we need risk retention groups for nonprofits to be able to provide property to serve the small to mid-sized nonprofits that choose to be a member of a risk retention group and benefit from their strong niche focus and loss control resources. These RRGs are already providing coverage for the difficult liability exposures and are presently able to provide multi- million limits for a van full of children, but they are prohibited from insuring a dent on the van. There is no reason risk retention groups should not be able to provide property and auto physical damage, particularly with the strong consumer protections that are included in the bill. I strongly support the Nonprofit Property Protection Act, and ask that you please pass this bill as soon as possible. Thank you. [The prepared statement of Mr. Cothron can be found on page 24 of the appendix.] Chairman Duffy. I want to thank the witnesses for their opening statements. The Chair now recognizes himself for 5 minutes for questions. Let us drill into the problem, if there is a problem. So maybe if I can have everyone answer this question, is there an agreement that nonprofits cannot exclusively buy property insurance? Ms. Davis, what do you think? Ms. Davis. The qualifier really needs to be the standalone property and auto physical damage coverage. If a nonprofit wants to purchase the property, they have to buy it from a commercial market. And they have to buy it as a bundled package with the liability together with the property. But we sell only liability and so the nonprofits can't get the standalone property. Chairman Duffy. Mr. Santos, do you agree with that? Mr. Santos. I don't. I think there are products available in the marketplace. In fact, previously the proponents have done a comparison where they have suggested they could purchase a monoline property coverage and when paired up with the monoline liability product combined or standalone products, they were more expensive. But a combined package produced a product that was both more economical for the insurer to produce and cheaper for the insured to purchase. Chairman Duffy. And quickly, Mr. Cothron and Mr. Webel, do you want to weigh in on this? Because I think we have to identify whether there really is a problem. Mr. Cothron. Yes, there is a problem. The commercial insurance carriers will only offer it as a package. I have worked with independent brokers. I don't do direct sales. I work with independent brokers throughout the southeast, and there is not a week that goes by that I am not contacted by a broker searching for a property market that will write a nonprofit on a monoline basis, and that product is just not there. Chairman Duffy. Mr. Webel? Mr. Webel. I would say from what I have seen that there is probably not a problem at a national level, but that it is entirely possible that you might see some individual niche problems. Chairman Duffy. Did you also want an expansion to auto, too, Ms. Davis? Ms. Davis. The answer is yes. This is auto physical damage. We actually-- Chairman Duffy. So is it fair to say that you can actually buy auto insurance that is unbundled? Ms. Davis. We write auto liability insurance and other carriers write the liability. It is the auto physical damage that we are not allowed to write as a risk retention group. So just to clarify, we presently now insure plenty of vans that carry kids and insure that up to $10 million. But if that van is in an accident, we are not allowed to fix a dent in the bumper. Chairman Duffy. Okay. Mr. Santos, do you agree with that? Mr. Santos. Again, there may be individual instances in particular communities, but it is not a national problem. I think one of the questions is, if they are covering the liability, is that vehicle not insured for property damage or are they purchasing it from someplace else? Chairman Duffy. Okay. So we are not going to get an agreement on whether or not we have a problem. I expected that. But if we want to have an expansion, why don't we just have the risk retention groups become insurance companies and become licensed in each of our States that they want to do business? What is the problem with walking down that path instead of expanding this exclusion? Mr. Santos, do you see a problem with that? Mr. Santos. In fact, that is what we think companies should do. I would highlight also they may not need to go as far as to become an admitted licensed carrier in every State in which they operate, although that would certainly provide the most rigorous consumer protection and the most rigorous solvency oversight. There are other avenues that they could do without this sort of broad Federal preemption that the Risk Retention Act provides. Chairman Duffy. Mr. Cothron? Mr. Cothron. There is no practical purpose to becoming an insurance company. The purpose behind that would be if they want to insure numerous types of businesses. But a risk retention group specializes in a unique niche market. So if you only want to do 501(c)(3)s, which is all a risk-- this bill pertains to nonprofits, and an insurance company won't do just nonprofits. Chairman Duffy. But this is is just--it is pretty fair to say that when in the business of insurance, all kinds of insurers can come in and say, I have a really specific niche market, therefore, I shouldn't be subject to State laws, and I shouldn't be licensed in a certain State because I am a certain niche market. Everyone could make that argument, right? Mr. Cothron. The risk retention groups are subject to laws. They are regulated. Chairman Duffy. In each State? Mr. Cothron. Ms. Davis would be better able to answer that question, but there are State laws that apply in each and every State. Chairman Duffy. I know that, but not all the laws in regard to insurance. Some of the laws I believe do. Let me just--my time is almost up. If I can quickly just ask, a risk retention group doesn't have access to the State guaranty fund, is that correct, if that risk retention group becomes insolvent? Mr. Webel? Mr. Webel. Yes, that is correct, by Federal statute. Chairman Duffy. Ms. Davis? Ms. Davis. I would just-- Chairman Duffy. Do you agree? Ms. Davis. I would just like to add that there are lots of different forms of insurance providers, and we really need that innovation. There are many types of insurance that are not subject to guaranty funds. It is certainly not just risk retention groups. So this is really an innovative solution that Congress has put forward because we have member nonprofits in 50 States, so we have to cover the whole country with very, very small premiums. And there is very little difference now in the regulation of risk retention groups and traditional insurance companies because the NAIC has done wonderful work to make sure there is uniformity in that. Chairman Duffy. Thank you, Ms. Davis. My time has expired. I now recognize the gentleman from Missouri, Mr. Cleaver, the ranking member of the subcommittee, for 5 minutes. Mr. Cleaver. Thank you, Mr. Chairman. In my real life I am a United Methodist Pastor, and we have to deal with this issue all over the country with the United Methodist Church. In fact, I live in the United Methodist building across the street. And this is something that is not some issue that there is not a lot of interest in. We are interested. I have been on this committee for 13 years. A few months before the economic collapse in 2008, the insurance rating companies sat at that same table and told us that the economy was essentially healthy, that the corporate community, based on their investigations and surveys, showed that everything was solid just a few months before the collapse. And I am always skeptical of them now, but as it relates to the RRGs, there is no rating. There is no examination of solvency, no financial ratings from the rating agencies. Does that disturb you? Anybody? Ms. Davis. I would like to address that. Actually, there are many regulations that apply to risk retention groups, and they are very, very significant regulations that are very much like the traditional insurance companies. And the NAIC has done a tremendous amount of work over 30 years to make sure that the regulation of risk retention groups is very, very similar now to traditional. Mr. Cleaver. Financial rating agencies? Ms. Davis. Let me speak to that. We actually are rated as an A.M. Best A-rated insurance company. So yes, the premier rating service for insurance companies rates us as A-rated excellent. So that is very important to us and we are very proud of that. Mr. Cleaver. Who does the rating? Ms. Davis. It is A.M. Best. It is the most prominent rating agency for insurance companies, and our financial rating with them is an ``A.'' Mr. Cleaver. Yours, then? Ms. Davis. Yes. Mr. Cleaver. Anyone else? Everybody embraces the-- Mr. Cothron. In the bill itself there is a lot of structure in there regarding capital, financial security of an RRG itself. And again, this is pertaining just to 501(c)(3)s. It is not making it available to all risk retention groups within the marketplace, but those that specifically deal with 501(c)(3) nonprofits. Mr. Santos. Mr. Cleaver, just an additional comment? I think the A.M. Best ratings are important, but I think it is important to remember that we are trying to determine what the right public policy solution here is. So any number of companies may have a good rating from A.M. Best, either a risk retention group or a traditional property company. The fundamental question is, should we be expanding the Risk Retention Act? One point I would want to clarify is while the NAIC does have some solvency regulation in the State of domicile for the risk retention group, they are not subject to those capital solvency requirements in every State in which they operate. Mr. Cleaver. Do you agree that the RRGs are subject to less stringent State regulatory schemes? Ms. Davis. May I comment on that? Mr. Cleaver. Would you? Go ahead. Ms. Davis. I would like to say that statement was true 30 years ago, but the NAIC has done a tremendous amount, as I say, of work. And now, for example, we must submit our financials to all States in which we operate every year, the annual statement. We are subject to the same examinations, the risk focus examinations that every other insurance company is. We are required to comply with the same investment regulations, the same annual annual audit requirements, the same actuarial opinion. And I do want to point out that we have quite a bit of control by the other States that we are not domiciled in. For example, if a State in which we are not domiciled does not think that we are doing a good job, they have the ability to ask our State regulator to do an examination. And if our State regulator does not do that, then the other State has the opportunity to do the financial examination themselves. And if they don't like what they find in that examination, they can actually go to court and have us shut down. So there are a lot of protections that are offered to the non-domicile States through the Risk Retention Act. And it has been very well-thought out and I think it is quite strong regulation for the type of entity we are where we can insure only one type of organization, and we can only do one sort of coverage. It is a very, very limited ability to write this just for 501(c)(3) nonprofits. So we are very, very different than a traditional insurance company. And I think the way we are regulated reflects that different sort of company. It allows innovation to have a different sort of regulation. Not less strict, just different. Mr. Cleaver. I am out of time, so thank you very much. Mr. Ross [presiding]. Thank you. I will now recognize myself for 5 minutes. Ms. Davis, it has been well over 30 years since the Risk Retention Act was amended to allow for liability. Obviously, this is not a new concept. Obviously, there was a need 30 years ago. Today, we are here because we are seeing a market need that is stressing the resources of our nonprofits. Could you further explain under the proposed Nonprofit Property Protection Act, the additional consumer protections? Because I think what we are trying to do--look, we are not trying to take over a market. We believe in them. There is probably nobody more in favor of free market insurance than I am in this Congress. And yet, I also do have a compassionate side of me that realizes that nonprofits use their resources, that are so limited, to serve their clients. For example, let us take Goodwill. Their risk is a very homogeneous risk. It is a greater risk because of the clientele they serve. We have seen this in workers' compensation in the State of Florida where we had to go after and being able to allow legislatively for the creation of groups to sell workers' compensation because the commercial market didn't want to take that risk. And now we are saying, okay, but we are going to let you take the liability risk in the open market if you take the property risk. Where do your resources go? So my question to you is, to make sure that we are not looking at trying to expand the markets or that we put RRGs into the insurance business, which they are not, what protections are we offering that would make sure not only for consumers but also for the market so that we could alleviate-- as you pointed out, Guy Carpenter has shown you can't find a monoline product out there? That is evidence. That is pretty strong. Guy Carpenter is a pretty well-known organization that brokers insurance. So how can you alleviate some of the concerns of my colleagues that this is just not an expansion into an insurance market for the sake of profit? Ms. Davis. Thank you very much. Those are really good comments. I will remind you that, again, we are a nonprofit- owned company so there is no one gaining from this bill except for the thousands of nonprofits that are our members. So there is no individual to gain any profit from this. Also, we can only insure this very narrow niche, and I would remind you also-- Mr. Ross. And you have to have solvency. Ms. Davis. Yes. Mr. Ross. You have to have-- Ms. Davis. Yes. And that is in the protections in the bill--$10 million of minimum capital that is required before you can write property--10 years of writing the more difficult liability insurance, which before you can write property, and then it is still limited to only 501(c)(3) nonprofits that have demonstrated that there is a market need. And we don't want to disrupt the otherwise functioning market where there is coverage. And so again, you have rightly limited this to $50 million total insured value so that only nonprofits that are small and mid-sized can benefit from this bill. So there are a lot of really well-thought-out restrictions in this bill that you have put in, I think, because you have listened. Mr. Ross. Mr. Cothron, we, being Floridians, have just seen another devastating storm season that is not yet over in our State. We saw in 2004 what happened to the property market. We saw that there was an expansion of a State-run property insurer that private markets ran. They did rate filings for increases in rates, and it had an adverse effect, not only on commercial insurance but also on nonprofits. What do you anticipate is going to be the state of the property market in the State of Florida following this storm season? And would it not be in the best interest of these nonprofits, again, who have very stressed resources, to be able to have an opportunity to find property insurance through an RRG? Mr. Cothron. First of all, the market had been pretty soft for years because we hadn't had that many-- Mr. Ross. That is why I asked that, yes. Mr. Cothron. --natural catastrophes. Correct. On the heels of two hurricanes this year, the market is going to get very what we call a hard market. The insurance companies are going to draw a much stricter line on who they won't insure and what type of business they won't insure. Mr. Ross. Why don't they want to insure nonprofits? Mr. Cothron. Because they will insure a nonprofit if they have large enough insured values. I have met with a lot of property carriers. I cannot find one on a monoline basis who will insure a nonprofit unless their total insured value is $100 million or more. Now, these small nonprofits in a community that is working out of a donated house, provide a-- Mr. Ross. So my Alliance for Independence nonprofit back home that has 70-some clientele that they serve doesn't have that type. So what do they do? Mr. Cothron. They either end up underinsured in the marketplace or they are forced into these package policies where they are paying a lot more for insurance than they would have to if the availability was there with a risk retention group. Mr. Ross. Thank you. I see my time has expired. I recognize the gentlelady from Ohio, Mrs. Beatty. Mrs. Beatty. Thank you very much, Mr. Chairman and to our ranking member. First, let me thank the panel for being here today. My question centers around one of the biggest concerns with expanding the Liability Risk Retention Act is that the risk retention groups do not have access to State guaranty funds. And we have been hearing a lot this morning about floods and hurricanes and so with the rising frequency of the wildfires in the northwest, the earthquakes, the flash floods and the hurricanes, coupled with the fact that any one of these storms has the ability to force insurance companies into solvency, what happens to the consumers if their risk retention group goes insolvent and they do not have access to the State guaranty funds? Mr. Webel. Basically in that kind of situation the assets that are left in the risk retention group would be used to pay off policies to the extent that there are assets in the risk retention group. And if there are insufficient assets to pay off the policies, then some of the policies would end up being unpaid. Mrs. Beatty. Is this a valid concern and would limiting the ability of the risk retention groups with at least $10 million in capital or surplus to be allowed to offer property insurance be enough to mitigate these concerns? Mr. Webel. Again, I think it certainly is a concern. It is real that they do not participate in the guaranty funds. The thing is, in one sense commercial policies--the guaranty funds limits are compared to some commercial policies relatively low. So it is entirely possible that in the higher level commercial insurance the guaranty fund protection isn't going to do that much in the end. If you have a $1 million or a $2 million claim and the limit is $300,000, you are looking at possible losses on that anyway. Any solvency regulation that is going to stop a company from going insolvent is certainly going to help. But no solvency regulation is going to completely stop the possibility of a company going insolvent. Ms. Davis. Could I comment on that? Mrs. Beatty. Yes, please. Ms. Davis. Thank you. I would like to point out that we already are authorized to insure and we insure organizations for their own liability up to $10 million. So we don't have a guaranty fund at this point, but we certainly have much higher limits already on the liability side that we have done it very responsibly and we will continue to do so through reinsurance and other risk spreading. But also I would like to point out that many types of insurance companies are not part of the guaranty fund, that we are not unusual in that way. In fact, we have offered to be part of the guaranty fund with this bill, and we would be happy to do so, but it has been the insurance companies that have opposed our being part of the guaranty fund. But we would like to have that privilege if we could. And I will also point out that adding property to the liability that we now insure will actually lower our risk because it allows us to hold different types of risk and actually brings us a lower cost of risk and will make us less risky rather than more risky by being able to add the property to the liability. Mrs. Beatty. Does anyone else want to comment before my time runs out? Mr. Cothron. One quick comment? Also, when we look at risk that, whether it is an insurance company or a risk retention group retains, none of them that I am aware of bear 100 percent of the risk. They all insure risk to a certain level and then they purchase reinsurance behind that. So once a claim expense gets to a certain level, the cost is then borne by the reinsurance carrier that is behind it. So all of the companies out there and all of the RRGs that I am aware of lay off their risk to reinsurance carriers for that sole purpose. Mrs. Beatty. Okay. We are not going to leave you out, so-- Mr. Santos. Yes, thank you. I think there is an important distinction here. One is admitted carriers are subject to the solvency and capital requirements of every State in which they operate. So in the example you gave of a large catastrophe or an event, you may have concentration of risk there. And State regulatory agencies, they weigh the capital requirements of that insurer in the State in which those properties are insured. And then the capital requirements are set based on their risk profile. So putting a number in the Federal statute and then allowing that entity to write risks all across the country, we think presents a considerable problem and puts policyholders at risk in the type of events that you just outlined. Mrs. Beatty. Okay. Thank you, Mr. Chairman, and I yield back. Mr. Ross. Thank you. The Chair now recognizes the gentleman from Missouri, Mr. Luetkemeyer, for 5 minutes. Mr. Luetkemeyer. Thank you, Mr. Chairman, and I also ask for unanimous consent that the statement from the National Association of Mutual Insurance Companies be entered into the record. Mr. Ross. Without objection, it is so ordered. Mr. Luetkemeyer. Thank you. This is kind of an interesting hearing this morning. I am always willing to listen to situations where we can improve the situation and allow more private sector competition, more choices for consumers, but along the way we need to find and make sure we have a problem. The NAMIC letter that I have here this morning indicates that they don't feel that there is a problem. So, if we have insurance companies that want to expand, that is fine, but I guess it goes back to the structure of the RRGs. They can become insurance companies, can you not, Ms. Davis? Can't you become an insurance company and then fall underneath all of the other things so that you can expand services? Ms. Davis. We would not be able to do that. It is not financially possible because recall we are very different in our structure because we-- Mr. Luetkemeyer. Yes, I understand that, but that is like it is the same situation we have with a lot of other entities, whether banks and credit unions and you wind up with the farm credit services versus banks. You have a lot of entities that started out with a very narrow purview, a narrow band of where they are supposed to be operating and suddenly they want to get beyond that, which is fine. But once they get beyond that, they need to become the entity that they are competing against. And so my concern is that if you want to become an insurance company, become an insurance company and fall under the rules and regulations to be capitalized in the same way. Do you have reinsurance? Ms. Davis. Yes, of course we have reinsurance. And in fact, if we were able to insure the property, we would reinsure it as well. We insure property in California. We are authorized in a risk pool in California, and we have been doing the property risk there. And we actually-- Mr. Luetkemeyer. So in California, you sell liability and property already? Ms. Davis. Yes, we do. And through a different entity, not through the risk retention group. But my point there was that we actually reinsure this risk in excess of $100,000. We are just trying to make this efficient for nonprofits. We are not trying to take on all this risk ourselves. We only take on risk on the property up to $100,000, and all the rest of the risk is back in the commercial insurance market. So we are really just trying to make an efficient solution, something that our nonprofit members need. We are not trying to do more than we can. We are very well- capitalized. We are very aware our work is that we need to protect these nonprofits. Mr. Luetkemeyer. I am not against you, but I am also concerned that when you start getting into a different area, you have to behave differently. Your company has to be structured differently. That is just the way it works. Life insurance companies are completely different than property and casualty companies. They are structured differently. They are capitalized differently. They are reinsured differently. What you are asking us to do today is to allow you to retain your RRG status and expand to become something completely different and still be that same entity. Nobody else does that. It is very difficult to get past this and I am trying to get my head wrapped around this, but when you have the ability to change your structure so that you can do this, which you don't want to do apparently, but yet you can do it, I am a little on the reluctant side to go along with this. So-- Ms. Davis. Sir, I think-- Mr. Luetkemeyer. --educate me. Ms. Davis. Excuse me. I think we are just trying to get the right regulation, keeping in mind that we are-- Mr. Luetkemeyer. And the regulation is a whole other part of this, but structure is what I am concerned about. You have to be structured differently. Now, Mr. Santos, you have stated a number of times that there are plenty of companies out there that will allow or that will do what the RRGs are wanting to expand and get into. Can you name two or three? I am not trying to promote their names, but they act like there is nobody out there. Can you give me two or three names of folks who can do this? Mr. Santos. I am reluctant to identify any particular company, but, as you well know, Mr. Luetkemeyer, there are approximately 2,500 companies, property insurance companies across the country. I do know that there are some who offer a wide range of products for not-for-profit entities, providing all forms of nonprofit services, whether it be teen shelters or diabetes or cancer associations and the like, so they go from large to small. Mr. Luetkemeyer. Okay. Mr. Santos. They do that. We can get you a list-- Mr. Luetkemeyer. I guess I would go back to my original point. I am not against what you are trying to do, but there is a difference in the coverages you are trying to offer compared to what you are offering now. And that means the structure of your entity has to change to be able to accommodate that. You can't be the same thing you are today if you are going to change what you do tomorrow. With that, Mr. Chairman, I yield back. Mr. Ross. The gentleman yields back. We are having votes. What we are going to do is we are going to take one more round of questions from the gentleman from Pennsylvania, and then we are going to recess. We probably will not be back after votes, so I will ask that those Members who do have questions, if you would submit them for the record and we will see to it that our panel gets them. And with that, I will recognize the gentleman from Pennsylvania, Mr. Rothfus, for 5 minutes. Mr. Rothfus. Thank you, Mr. Chairman. Mr. Webel, you wrote in your testimony that the total premium volume for the 236 RRGs currently operating is about $3 billion. How does this compare to the overall market for liability insurance? Mr. Webel. I don't know that I have the figure for liability in front of me. As I said, it is relatively small compared to the overall property casualty, but I-- Mr. Rothfus. We will follow up with you and see if you can get that data for us. Mr. Webel. Absolutely. Mr. Rothfus. Do you know whether there is a significant difference in the premiums that nonprofits are paying for liability insurance from RRGs versus the admitted property casualty insurers? Mr. Webel. I haven't seen the figures, but just from regulation, the costs of regulation for an RRG are going to be less because it is a single State regulation. And that essentially is the whole point of the RRG structure. If you didn't have lower costs because of this regulation, essentially the entire RRG construct from the Congress there wouldn't be any point. Mr. Rothfus. Is the RRG market share growing or shrinking right now? Mr. Webel. I think that it has been--the numbers have been shrinking of individual RRGs. The premium has been relatively flat, growing a little bit for the past 5 to 10 years. Mr. Rothfus. You framed this issue in your testimony as a question of availability versus reliability. You also referenced the same A.M. Best report as Mr. Santos, which highlights a significant trend of RRG impairments over the years. Clearly, expanding the scope of business that RRGs can engage in would broaden availability. Do you have any research on whether it would harm the reliability of these firms? Mr. Webel. I think that the reliability to some degree can go either way because I think it is true that as you broaden a risk pool, you can make an insurance company more stable because they are covering differential risks that are unlikely to both sort of come due at the same time. So in that way, expanding it might improve your liability because you are no longer a monoline structure. But a lot of it does come down to the regulation of the individual States that are overseeing the RRGs and each of those individual States making sure that as an RRG entered the property market, they are adequately capitalized to do so. Mr. Rothfus. This conversation we have been having this morning--by the way, all of you did really well with the testimony, so thank you for giving us some good background on this issue. But Ms. Davis, do many RRGs convert to admitted insurance companies? Ms. Davis. I am not aware that this happens very often. They have to be very, very large to make that even a financial possibility as the other individual, Mr. Webel, said. This is why the Risk Retention Act was created, because if you have members, a very small number of members in all 50 States, you need to have the structure that risk retention groups make available. I would like to point out that I believe the receiverships increasing with risk retention groups, a lot of those are voluntary where they just don't see the need for the particular risk retention group anymore. I didn't want that to be implied to be because they are in financial trouble. I believe in many cases they have just put themselves into liquidation. Mr. Rothfus. Thank you. Mr. Chairman, I yield the balance of my time to the gentleman from New Jersey. Mr. MacArthur. I thank the gentleman. Mr. Webel, if a State wanted to do what the nonprofits are asking, and that is retain the risk on auto physical damage and property, could States allow that or does Federal law currently preempt? Mr. Webel. Federal law preempts in the sense of a risk retention group may only under the Federal law write liability insurance. If a State--there is nothing stopping a State from recognizing another insurance company coming into their State without requiring a license. So if a State sort of wanted to create what would be a similar structure as an RRG in terms of a recognition of another State's regulation without requiring a license, a State could do that. Mr. MacArthur. Yes. I would just like to point out from my perspective that when risk retention groups were created, there was a public policy interest in the Federal Government being involved. Liability claims involve other people who are damaged if there are not adequate resources, adequate capital to pay those claims. This is fundamentally different. These are organizations who are talking about their own losses. They are the only ones who lose if they are not adequately insured. That is true. There is no real public policy interest. I get why Congress is sort of forced to consider this, but it is really odd to me that the United States Congress is trying to figure out how nonprofits retain or transfer risk. And it seems to me we would do well to find a way to put this back to the States. If States want to allow it, I am fine with it. If States want to impose capital requirements, I am fine with that, too. But this to me is fundamentally different than liability claims, and I just think that we need to find a way to put this back where it belongs. States adequately govern insurance matters, and I just think this is--I get why we are here. But this is an odd place for us to have to be to tell nonprofits whether to retain risk or transfer it or how to transfer it. If you lose your property, you have lost your own property, nobody else's. And with that, I yield back. Thank you. Mr. Ross. Thank you. The gentleman yields back. Before we adjourn, I have been asked to ask Ms. Davis to clarify a statement in her opening that, ``the best rating of A excellent and see that we have thrived, even though we have been handed the most difficult of these risks, such as sexual abuse and professional liability with no ability to balance these long-tail lines with short-tail property.'' Could you clarify that just a little bit? Ms. Davis. Yes, absolutely. Risk retention groups have been put in the position of holding a whole portfolio of stocks and not being allowed to hold bonds. We have been forced to do the most difficult of these risks. Sexual abuse and auto risks are extremely difficult to do. We took it on because the insurance industry wouldn't do it. And I can tell you that actually being able to offer the property would actually lower our risk because then we would have a balanced portfolio, and nonprofits would be able to benefit from having the property and the liability together. Mr. Ross. Balanced against the long tail, I guess, is the-- Ms. Davis. Absolutely, very much. It's unlikely that both things are going to have difficulty at the same time, and this would greatly help us to balance that risk. Mr. Ross. Thank you. The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. And with that, this hearing stands adjourned. Thank you all for being here. [Whereupon, at 10:38 a.m., the hearing was adjourned.] A P P E N D I X September 28, 2017 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]