RMI 4292 Exam 1.3

miscellaneous risk

"off balance sheet" ex: rapid premium growth

Guaranty Funds funding

"post solvency assessment", estimate liabilities and surviving insurers pay a pro-rata share based on premiums written

Paul vs. Virginia

1869; Congress cannot regulate non-interstate commerce (states regulate insurance)

McCarran-Ferguson Act

1945; states regulate insurance

An insurer will be subject to additional regulatory scrutiny if they have failed at least how many IRIS ratios?

4

Indiana has 3% premium tax rate and Georgia has 5% premium tax rate. If an insurer domiciled in Georgia acquires a license to write business in Indiana. What will Indiana charge them in premium tax rate?

5%

RBC Ratio

= actual cap/risk based cap (125% and above-adequate, Below 35%-mandatory control)

Causes of Insolvency

Inadequate prices, Excessive growth in business written compared to capital, Excessive investment risk, Catastrophe losses, Understated claim liabilities/overstated asset value

What piece of legislation overturned the South-eastern underwriter's association decision to re-establish that states regulate insurance?

McCarren-Ferguson Act

The NAIC does not have the power to pass actual legislation, but they can pass ______ legislation, which individual states can choose to pass or not.

Model

What supreme court decision first established that insurance was to be regulated by the states?

Paul vs. Virginia

NAIC's Insurance Regulatory Information System (IRIS)

a solvency screen system of 11-13 financial ratios (diff. for P/C and L/H), examiners determine a usual range for each ratio, insurers with 4 or more unusual ratios are subject to more in-depth review

Insurers must comply with rate regulation laws

adequate but not excessive, not unfairly discriminatory

Licensing insurers and Insurance Personnel

all states require property casualty insurers and some categories of insurance personnel to be licensed before operating in a state --insurers are also subject to risk based capital requirements--

Property/Casualty insurer risk categories

asset risk, credit risk, underwriting risk, miscellaneous risk

Underwriting practices

constrain insurers' ability to accept, modify, or decline applications, establish allowable classifications and restrict the timing of cancellation/nonrenewals

the goal of insurance rate regulation is to ensure that rates are adequate, but not ______

excessive

Financial Analysis Solvency Tools (FAST)

expanded set of ratios (similar to IRIS) but assigns a set of points based on each ratio result, sum ratios to provide a FAST score, points are not publicly available

What type of rate regulation allows insurers to begin using new rates as soon as they have requested a rate change with regulators (where regulators also have the opportunity to demand insurers stop using these rates at some later point)?

file-and-use

What does every state have that is meant to deal with an insolvent insurer by paying policyholder claims of the insolvent firm?

guaranty fund

Risk Based Capital (RBC) Requirements System

historically used fixed minimum capital requirements, now RBC: amount of capital an insurer has to hold would vary based on risks, if don't meet minimum requirement, subject to intervention

State Insurance Departments

insurance commissioner, largely funded through premium taxes

South-eastern underwriter's association decision

insurance companies that conduct significant portions of their business across state lines were, in fact, engaging in interstate commerce. The insurance industry could be regulated by Federal law, rather than only state laws.

Reasons for Insurance Regulation

maintain insurer solvency, access/availability to consumers, adequate but not excessive rates, fair practices

National Association of Insurance Commissioners (NAIC)

model legislation, solvency surveillance

Insurance Regulatory Activities

monitor insurer solvency, insurers hold lots of money (paid by consumers) for long periods of time, financial strength must be monitored to pay covered claims and protect the consumer

Methods of regulating rates (state made)

prior approval, file-and-use, use-and-file, flex rating, no filing

Regulating insurance policies

protect consumers from policies that are narrow, restrictive, deceptive, or noncompliant with laws/regulations

Guaranty Funds

provide coverage for personal insurance if you have coverage from an insolvent insurer (100% of states and insurers covered)

Credit risk

risk that reinsurance and other receivables prove to be uncollectable

While insurers were historically subject to only fixed capital requirements, in the early 1990's, the NAIC developed and implemented a system of _______ capital requirements

risk-based

Taxation of Insurers

state, local, and federal, states require a tax on gross premiums received from policyholders, regulatory tax laws

In order to purchase insurance from a nonadmitted insurer, you would typically have to purchase it through a _______ broker

surplus lines

Asset risk

the risk of insurer default and market value declines

underwriting risk

the risk that prices and reported claim liabilities will be inadequate compared to realized claim costs