In response to a hard insurance market in the mid 1908's, Congress passed the Liability Risk Retention Act of 1986. The legislation was intended to simplify the regulatory process for affinity groups such as doctors, real estate developers etc, who wanted to find an alternative to the and unavailability high cost of certain types of insurance coverage. The Act created two new legal statuses: Risk Purchasing Groups and Risk Retention Groups.

Risk Purchasing Groups are simply groups (individuals or companies) that want to join together to buy insurance at group rates. The Act prohibits states from placing certain restriction on these groups.

Risk Retention Groups (RRG) are insurance companies formed by an affinity group that enjoy an important regulatory status. Basically, the Act allows an affinity group to form an insurance company is one state (a sort of "home domicile") and be automatically qualified to do business in the other 49 states.

In theory an RRG only has to file with the states outside its home domicile:

* a plan of operation or a feasibility study which includes the coverage, deductibles, coverage limits, rates, and rating classification systems for each line of insurance the group intends to offer, and;

* a copy of the group's annual audited financial statement submitted to the State in which the group is chartered, and;

* a reserve statement prepared by a qualified actuary.

In practice, state bureaucrats have proven very difficult to subordinate. There have been numerous suits against various states that have thrown up impediments that seem at odds with the Act.