141 Intro to Financial Regulation
What are the types of licensing applications for a state's Certificate of Authority? Select all that apply. Corporate Amendment Primary Authorized Primary Amended New Expansion
"Corporate Amendment Primary Expansion"
An approach or process that is fundamentally and directly associated with achieving the mission, and underlies the Financial Solvency Framework Foundations Accreditation 7 Core Principles Preconditions Mission
7 Core Principles
The examination results could assist in formulating future analysis processes for a given company. True False
True
The additional notes to the financial statement (numbers 31-35) are common among all the annual statement types. True False
False
Which of the following is NOT a member of the NAIC? Dominican Republic Guam Northern Mariana Islands Puerto Rico Washington D.C.
Dominican Republic
A Model Regulation must be enacted by state legislation in order to become a uniform regulatory guideline. True False
False
What method of financial analysis looks at balance sheet data and compares as a proportion of the totals on that page? Trending Analysis Vertical Analysis Ratio Analysis Horizontal Analysis
Vertical Analysis
The RBC formulas include several categories of risk. For the property & casualty formula, these risks are referred to as the ______________________________. "R" Components "P" Components "C" Components "H" Components
"R" Components
If a company has direct premiums written less then ________________ in any calendar year and less than ___________________ policyholders or certificate holders of direct written policies nationwide at the end of the calendar year, then it may be exempt from filing an Audited Annual Statement. $10,000,000 ; 100 $1,000,000 ; 1,000 $100,000 ; 100 $100,000,000 ; 1,000
$1,000,000 ; 1,000
The acquisition expenses for taxes, policy issues, expenses, etc. are $480 for a 1-year policy. If the policy is effective January 1st, what amount would be shown on the GAAP income statement as acquisition expenses as of January 31st? $40 $240 $480 $120
$40
The acquisition expenses for taxes, policy issues, expenses, etc. are $480 for a 1-year policy. If the policy is effective January 1st, what amount would be shown on the SAP income statement as acquisition expenses as of January 31st? $240 $480 $40 $120
$480
A Life or P&C Company would pass the health test if the values for the premium and reserve ratios in the health statement test equal or exceed ______________ for both the current year and prior year. 100% 75% 50% 95% 90%
95%
SAP allows negative cash to be reported as ______________________. A Negative Asset An Admitted Asset A Non-Admitted Asset A Separate Liability
A Negative Asset
When was the first official meeting of the NAIC? 1871 1891 1910 1851
1871
The insurance industry in the U.S. is a huge part of the world insurance industry. In 2018, the U.S. accounted for _____________ of the total insurance premiums globally. 18% 32% 28% 10%
28%
Examiners shall conduct an examination of any company licensed within their state at least once every ____________________ to comply with the Accreditation Program standards. 5 years 2 years 3 years 7 years
5 years
A certification given to state insurance departments for meeting minimum, baseline standards of solvency regulation, especially with respect to regulation of multi-state insurers Foundations Accreditation 7 Core Principles Preconditions Mission
Accreditation
___________________ perform most of their work offsite, while ________________ perform the majority of their work onsite conducting interviews. Specialists; analysts Chief Analysts; specialists Examiners; analysts Analysts; examiners
Analysts; examiners
In order for changes or alterations made to the RBC formulas or RBC information on the statement blanks to be implemented by year-end, the changes should be adopted by _______________ of the current year. June 1st May 31st April 30th April 1st
April 30th
A life insurer's appointed actuary performs cash flow testing and determines that an additional reserve is needed for reserve adequacy (in addition to the company's aggregate reserve). Which type of reserve would be held in this situation? Formula Reserve Unearned Premium Reserve Asset Adequacy Testing Reserve Principle-Based Reserve
Asset Adequacy Testing Reserve
The Statements of Statutory Accounting Principles (SSAP) in the NAIC Accounting Practices and Procedures (AP&P) Manual supersedes the states' regulatory authority. True False
False
In statutory accounting, goodwill is the purchase price of the company less market value. True False
False SAP goodwill is calculated as the purchase price less book value.
Which participant in the financial examination provides examiners with insight on company management, operating results, current events, etc.; May participate in exam interviews and follows up on exam findings Chief Examiner Supervising Examiner Examiner-in-Charge Staff Examiner Financial Analyst Specialist
Financial Analyst
_________________ ____________________ created the first insurance company in the United States in ____________. Benjamin Franklin ; 1752 Nathaniel Hawthorn ; 1756 George Washington ; 1789 Samuel Paul ; 1762
Benjamin Franklin ; 1752
A company may share its RBC results with all of the following EXCEPT: NAIC Analyst Better Business Bureau State Regulator Examiner-in-Charge
Better Business Bureau
If a licensed property and casualty company passes the health test, which annual statement would it be required to file? The state would require them to file both annual statements. The Property and Casualty Statement It is up to the state to determine which statement to file. The Health Statement
It is up to the state to determine which statement to file.
List the Core Principles in the correct order. __ Regulatory Control of Significant, Broad-Based Risk-Related Transactions / Activities __ Preventative and Corrective Measures, including Enforcement __ On-Site Risk-Focused Examinations __ Regulatory Reporting, Disclosure, and Transparency __ Exiting the Market and Receivership __ Off-Site Monitoring and Analysis __ Reserves, Capital Adequacy, and Solvency
CP #1 - Regulatory Reporting, Disclosure, and Transparency CP #2 - Off-Site Monitoring and Analysis CP #3 - On-Site Risk-Focused Examinations CP #4 - Reserves, Capital Adequacy, and Solvency CP #5 - Regulatory Control of Significant, Broad-Based Risk-Related Transactions / Activities CP #6 - Preventative and Corrective Measures, including Enforcement CP #7 - Exiting the Market and Receivership
Which participant in the financial examination is responsible for the overall financial exam function in each state; Schedules examinations, assigns staff, coordinates with other state examiners, approves examination plans, reviews and approves exam findings Chief Examiner Supervising Examiner Examiner-in-Charge Staff Examiner Financial Analyst Specialist
Chief Examiner
If a company's RBC ratio is greater than or equal to 150% but less than 200% and a Trend Test is triggered, then the company is at what action level? No Action Regulatory Action Level Company Action Level Mandatory Action Level
Company Action Level
Which participant in the financial examination coordinates all on-site examination activities; Manages and reviews the work of exam staff and specialist in the exam; Primary point of contact for insurer Chief Examiner Supervising Examiner Examiner-in-Charge Staff Examiner Financial Analyst Specialist
Examiner-in-Charge
If you wanted to view the latest examination report for a company, you would select which iSite+ tool? PICS FEETS IRIS ATS
FEETS
A company may use favorable RBC ratios in its promotional advertisements as a way to distinguish itself from other insurers. True False
False
A limited-scope examination satisfies the requirement to perform an examination at least once every five years as discussed in the Model Law on Examinations. True False
False
As long as a company files an Audited Annual Statement, it does not have to file any other annual statements. True False
False
If a company is licensed as a property and casualty insurer in a state and it has separate accounts, it would also file the Separate Accounts statement. True False
False
If an insurer has a contract with a reinsurer, then the policyholder has a contract with the reinsurer. True False
False
If the valuation date of a reserve is 12/01/2020, then the reserve would include all claims that occurred in the year 2020. True False
False
If you wanted to quickly find information about a company such as the company status, filing status, state of domicile, business type, or incorporated date, you would select the Jumpstart category within iSite+. True False
False
Office furniture is an admitted asset in statutory accounting. True False
False
Why were statutory accounting principles designed? To help meet the needs of creditors To help Senior Management better manage their companies For insurance regulators to help monitor the solvency of insurance companies To ensure that all insurance companies maintain the same capital and reserve requirements
For insurance regulators to help monitor the solvency of insurance companies
The ___________________ is populated by the state of domicile when there is an acquisition or a merge and is intended to facilitate communication and avoid duplication of effort. Licensing Report Level 1 Report Form B Filing Form A Filing
Form A Filing
If a property and casualty claim analyst of an insurer enters a dollar amount for a claim reserve based on a set standard before research is done on the claim, this is an example of a ____________________________________________. Total Incurred Loss Formula Reserve Case Reserve Claim in Transit
Formula Reserve
The interaction of the risk-focused approach, peer pressure / checks and balances, and ongoing collaboration based on consenus Foundations Accreditation 7 Core Principles Preconditions Mission
Foundations
_________________________ is known as the study of how losses cumulate over time to predict how recent losses are likely to develop. Future indicators Development triangles Use development Loss development
Loss development
Which annual statement blank is called the ""orange blank""? Life Annual Statement Blank Fraternal Annual Statement Blank Property & Casualty Annual Statement Blank Health Annual Statement Blank
Health Annual Statement Blank
In Phase 5 of the risk-focused examination process, if you have determined that limited or no detail procedures are necessary to be performed and procedures may be limited to analysis, what is the risk assessment? No Residual Risk Low Residual Risk Moderate Residual Risk High Residual Risk
Low Residual Risk
What is a life insurance reserve that defers recognition of realized capital gains and losses resulting from changes in the general level of interest rates? Unearned Premium Reserve Asset Valuation Reserve Interest Maintenance Reserve Tax Reserve
Interest Maintenance Reserve
In 1945, the U.S. Congress enacted the __________________________________ to ensure that the states had the right to regulate the business of insurance without interference from federal regulation, as long as federal laws do not provide intervention. Dodd-Frank Act Clayton Act Gramm-Leach-Bliley Act McCarran-Ferguson Act
McCarran-Ferguson Act
The context of the Framework which is to protect policyholders / claimants / beneficiaries first and foremost, while also facilitating an effective and efficient marketplace for insurance products Foundations Accreditation 7 Core Principles Preconditions Mission
Mission
Which of the following allows you to change your iSite+ password? Help Summary Reports Email My Profile
My Profile
What are the two most common types of search criteria that a regulator would utilize when searching company data in iSite+? NAIC Cocode Name Company Status Statement Type Active Status
NAIC Cocode Name
What sections are the holding company analysis procedures divided into? Select all that apply. Non-Lead State Procedures Expansion State Procedures Multi-State Procedures Lead State Procedures
Non-Lead State Procedures Lead State Procedures
Which of the following are common reporting elements that are uniform among all annual statement types? Select all that apply. RBC Ratios Notes to Financial Statement 1-28 Claims General Interrogatories Part 2 Direct Writings
Notes to Financial Statement 1-28 Claims
When a State Insurance Commissioner allows a company to deviate from what is required in the Accounting Practices and Procedures Manual, or in state law, this is an example of a _________________________________. Non-Admitted Practice Liability General Accounting Principle Permitted Practices
Permitted Practices
Which of the following iSite+ tools would you use if you wanted to set up an alert to notify you by email when a particular company filed certain data? Personalized Information Capture System Financial Exam Electronic Tracking System Line Reports Analyst Notes
Personalized Information Capture System
In what phase of the risk-focused examination process might you conduct an interview with a company's Operations Officer to determine how the company is structured? Phase 5 Phase 2 Phase 1 Phase 4 Phase 3
Phase 1
What phases of the examination process does an analyst provide assistance to the examiner? Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 6 Phase 7
Phase 1 Phase 6 Phase 7
List the descriptions of the phases of the risk-focused examination process in the correct order. ____ Determine Residual Risk ____ Understand the Company and Identify Key Functional Areas to Review ____ Establish / Conduct Exam Procedures ____ Prioritization and Supervisory Plan ____ Risk Mitigation Strategy / Controls ____ Exam Report and Management Letter ____ Identify and Assess Inherent Risk in Activities
Phase 1: Understand the Company and Identify Key Functional Areas to Review Phase 2: Identify and Assess Inherent Risk in Activities Phase 3: Risk Mitigation Strategy / Controls Phase 4: Determine Residual Risk Phase 5: Establish / Conduct Exam Procedures Phase 6: Prioritization and Supervisory Plan Phase 7: Exam Report and Management Letter
Ensures that regulators have appropriate regulatory authority over insurers, operates independently of political interference, maintains an adequate staff of sufficiently trained personnel, and treats confidential information appropriately Foundations Accreditation 7 Core Principles Preconditions Mission
Preconditions
______________________________ is known as the value of future cash taking into consideration the time value of money by discounting at a given rate of interest. Present value Unearned premium Asset valuation Assumed premium
Present value
Which of the following are elected officers of the NAIC? Select all that apply. Director Chief Executive Officer President Elect Chief Operating Officer Secretary-Treasurer
President Elect Secretary-Treasurer (in addition to the President and Vice President)
What is the goal of the analysis and regulation of an insurer's financial status? Select all that apply. Prevent Insolvencies Ensure Liquidity to Meet Obligations to Company Shareholders Set Capital Limits and Reserves Protect Policyholders Ensure Liquidity to Meet Claim Obligations Protect Company Executives
Prevent Insolvencies Protect Policyholders Ensure Liquidity to Meet Claim Obligations
Reporting Direct Losses Incurred and Direct Losses Unpaid is only included on the Schedule T page for which annual statement? Property & Casualty Life Health Fraternal
Property & Casualty
The __________________ was created to reduce the number of procedures done each quarter and to allow states to devote more time and resources to insurance holding company analysis. Benchmarking Sheet Annual Level 1 for Troubled Insurers Vertical Analysis Procedure Quarterly Level 1 for Non-Troubled Insurers
Quarterly Level 1 for Non-Troubled Insurers
In addition to the Executive Committee, there are eight standing committees that are consistently maintained by the NAIC and provide guidance and oversight of the regulatory system. True False
True
GAAP requires premium to be recognized on a pro-rata basis (daily pro-rata or monthly pro-rata). This results in the recording of an unearned premium liability for the portion of premium received but not yet earned. How is premium recognized for SAP purposes? Recognize Premium as Determined by Insurer Same as GAAP Recognize When Received None of the Answers Listed are Correct
Same as GAAP However, GAAP does not differentiate between unearned and advanced. There is only one category unearned on a GAAP statement, whereas SAP breaks them into separate line items.
Issuance of surplus notes requires the approval of the domiciliary insurance department. True False
True
RBC results are not designed to prevent insolvency. True False
True
Which participant in the financial examination provides technical support to the exam team in specific areas of expertise as necessary (may include IT, actuarial, reinsurance, and investments)? Chief Examiner Supervising Examiner Examiner-in-Charge Staff Examiner Financial Analyst Specialist
Specialist
Which participant in the financial examination conducts examination test work and becomes knowledgeable about company operations? Chief Examiner Supervising Examiner Examiner-in-Charge Staff Examiner Financial Analyst Specialist
Staff Examiner
Which of the following is an overall opinion about the reasonableness of the property & casualty premium and loss reserves booked by management, and may also contain some narrative about significant risks to solvency? Statutory Accounting Principles Attestation Management's Best Estimate Statement of Actuarial Opinion Management's Opinion
Statement of Actuarial Opinion
Which participant in the financial examination coordinates and oversees the work of multiple examinations at one time; Receives other responsibilities as delegated by the Chief Examiner Chief Examiner Supervising Examiner Examiner-in-Charge Staff Examiner Financial Analyst Specialist
Supervising Examiner
The Enterprise Risk Report (Form F) is intended to identify events or activities of the affiliates of an insurer that could pose a material adverse effect on the insurer. True False
True
Statutory accounting recognizes a liability when which of the following occurs? Select all that apply. The liability can be reasonably estimated. The payment of the liability is probable. The liability is paid. When the company decides to recognize the liability.
The liability can be reasonably estimated. The payment of the liability is probable.
The Scoring Report provides a set of ""weighted"" financial ratios that allow an analyst to prioritize insurers. True False
True
Accreditation is a certification given to a state insurance department once it has demonstrated that it has met and continues to meet a wide range of legal, financial, functional, and organizational standards. True False
True
Both SAP and GAAP accrue and recognize investment income as it is earned. True False
True
Disabled Life Reserves are only held for long-term coverages where there is the possibility of recurring future claim payments such as long-term disability and long-term care. True False
True
For property and casualty reserves, SAP requires management to record its best estimate of the liability. True False
True
Under statutory accounting, EDP equipment and operating system software are limited to 3% of adjusted capital and surplus. Which of the following is considered operating system software? Select all that apply. Excel Windows Internet Explorer None of the Answer Listed are Correct UNIX
Windows UNIX
If a company is at a Regulatory Action Level, how many days does it have to submit an RBC action plan to the state? Within 30 Days of the Action Level Event The state would immediately place the insurer under regulatory control. Within 90 Days of the Action Level Event Within 45 Days of the Action Level Event
Within 45 Days of the Action Level Event
Which of the following is NOT an NAIC approved annual statement filing type? Property & Casualty Protected Cell Workers' Compensation Health
Workers' Compensation
If a state insurance department accepts a financial examination report from a contract who completed the exam without supervision, would the state be in non-compliance with the accreditation standards? Yes No
Yes
What is a covariance adjustment? a. A mathematical adjustment used to reduce the aggregate amount of RBC in recognition of the fact that the surplus risk will not be simultaneously impaired by reductions in all risks at the same time. b. A square root calculation used to increase the RBC ratio in order to identify surplus risk and assess an action level. c. A mathematical adjustment used to increase the aggregate amount of RBC in recognition of the fact that the surplus risk could be impaired by reductions in all risks at the same time. d. A square root calculation used to increase the aggregate amount of RBC in recognition of the fact that the surplus risk could be impaired by reductions in all risks at the same time.
a. A mathematical adjustment used to reduce the aggregate amount of RBC in recognition of the fact that the surplus risk will not be simultaneously impaired by reductions in all risks at the same time.
There are four main areas of risk that the NAIC's RBC ratio system focuses on. What are they? a. Asset Risk, Business Risk, Interest Rate Risk, and Underwriting Risk b. Asset Risk, Liability Risk, Interest Rate Risk, and Underwriting Risk c. Asset Risk, Excessive Growth Risk, Interest Rate Risk, and Underwriting Risk d. Asset Risk, Business Risk, Interest Rate Risk, and Covariance Risk
a. Asset Risk, Business Risk, Interest Rate Risk, and Underwriting Risk
Why is the business of insurance regulated in the United States? a. Due to the size and complexity of the insurance industry, and to protect the public interest by ensuring that insurance companies maintain solvency to satisfy claim obligations when they arise, as well as compete in a fair market. b. The NAIC requires strict regulation that each state provide a detailed look at an insurance company's financial statement on a quarterly and annual basis. c. To protect policyholders and stakeholders from fraudulent activities by the insurance company. d. Insurance is regulated in the United States to protect insurance companies from fraudulent claims and ensure that they remain in business.
a. Due to the size and complexity of the insurance industry, and to protect the public interest by ensuring that insurance companies maintain solvency to satisfy claim obligations when they arise, as well as compete in a fair market.
Which of the following is TRUE about life insurance reserves? a. For companies subject to principle-based reserves (PBR), VM-31 sets forth PBR Actuarial Report requirements. b. Formula reserves are no longer required for any type of product. c. Principle-based reserves (PBR) do not apply to variable annuities. d. Principle-based reserves (PBR) are required for all life insurance contracts regardless of when they were issued.
a. For companies subject to principle-based reserves (PBR), VM-31 sets forth PBR Actuarial Report requirements.
Which of the following criteria makes the U.S. insurance regulatory system unique in the world? Select all that apply. a. Relies on an extensive system of peer review, communication, and collaborative effort that produce checks and balances in regulatory oversight. b. Requires risk-focused financial surveillance including off-site monitoring, on-site examinations, and requires solvency-related laws, rules, and guidelines. c. Ensures coordination and communication by adopting uniform laws and regulations across all states. d. Includes a diversity of perspectives with compromise that leads to centrist solutions.
a. Relies on an extensive system of peer review, communication, and collaborative effort that produce checks and balances in regulatory oversight. d. Includes a diversity of perspectives with compromise that leads to centrist solutions.
Which of the following is a TRUE statement about life insurance principle-based reserves? a. The reserve is calculated using one or more methods, or one of more assumptions determined by the company. b. The reserve is calculated using a prescribed formula and prescribed mortality and interest rate assumptions. c. The reserve is intended to offset potential credit-related investment losses. d. Principle-based reserves only apply for fixed deferred annuities.
a. The reserve is calculated using one or more methods, or one of more assumptions determined by the company.
What is the primary purpose of a risk-focused financial examination? a. To review and evaluate an insurer's business processes and controls (including the quality and reliability of corporate governance) to assist in assessing the insurer's current and prospective solvency. b. To review and evaluate an insurer's financial statements and identify areas where the insurer is lacking in liquidity. c. To evaluate an insurer's business plan including a detailed look at the insurer's balance sheet to ensure it has enough assets, cash flow, and proper investments to prevent prospective solvency for the upcoming year. d. Provides a comprehensive, comparable, consistent basis of accounting for insurers that allows for analysis, examination, and review by state regulators.
a. To review and evaluate an insurer's business processes and controls (including the quality and reliability of corporate governance) to assist in assessing the insurer's current and prospective solvency.
Which of the following make up the two-pronged test for the Model Law Development Criteria? Select all that apply. a. Must be a best practice guideline that can include handbooks, guidance, white papers, and bulletins and provide peer-reviewed best thinking and offer the states a suite of guidance and options. b. NAIC Members are committed to devoting significant regulatory and association resources to educate, communicate, and support a Model that has been adopted by the Membership. c. The issue that is the subject of the Model Law necessitates a minimum national standard and / or requires uniformity amongst all states. d. The idea that is the issue for the subject of the Model Law must originate by a member state of the NAIC. e. The issue that is the subject of the Model Law must be supported by at least 10 states and have the backing of all elected NAIC Officers.
b. NAIC Members are committed to devoting significant regulatory and association resources to educate, communicate, and support a Model that has been adopted by the Membership. c. The issue that is the subject of the Model Law necessitates a minimum national standard and / or requires uniformity amongst all states.
Control of certain broad-based risk-related transactions / activities of insurers is important because these transactions: a. can substantially increase the dollar value of claims paid to policyholders. b. can affect risk, are not part of the day-to-day routine of underwriting and issuing insurance, and / or have broad social and equity consequences. c. are part of the day-to-day routine of underwriting and are considered heavily when issuing insurance policies and generally have broad social or financial consequences. d. are always considered ""off balance sheet"" activities.
b. can affect risk, are not part of the day-to-day routine of underwriting and issuing insurance, and / or have broad social and equity consequences.
The _____________________ sheet provides basic guidance on where the ratio should fall when applying ratio analysis. trending horizontal analysis liquidity benchmarking
benchmarking
The Registration Statement (Form B) required by the Insurance Holding Company System Regulatory Act requires which of the following to be included? a. Agreements and transactions in force between the insurer and non-affiliated entities. b. Identity and relationship to the insurer of only the parent entity within the group. c. All agreements and transactions that are in force between the insurer and its affiliates. d. Financial statements for all entities within the holding company system.
c. All agreements and transactions that are in force between the insurer and its affiliates.
All of the following are key points to the Model Law on Examinations EXCEPT: a. Exams must comply with the NAIC's Financial Condition Examiners Handbook. b. Exams must be conducted every 5 years to comply with the Accreditation Program. c. Your state may accept an examination report prepared by the domicile state if the state is an accredited state. d. Your state may accept an exam conducted by a non-accredited state.
c. Your state may accept an exam conducted by a non-accredited state.
Vertical analysis is frequently known as ___________________ while horizontal analysis is also known as _______________________ analysis. ratio; trending basic; common trending; common size common size; trending
common size; trending
Which of the following is a control of risk provided by the Insurance Holding Company System Model Regulation and Regulatory Act? a. All subsidiaries of any entity within a holding company system must submit annual financial statement filings to the NAIC b. Any transactions with affiliates must be complete before the annual statement filing c. Investments of any subsidiary are to be approved by the Commissioner d. Acquisitions involving change in control are to be approved by the Commissioner
d. Acquisitions involving change in control are to be approved by the Commissioner
Which statement describes the purpose of risk-based capital? a. Used to calculate the maximum capital and surplus for a reporting entity to support its overall business operations based on the size and risk profile of the insurance company. b. Used to calculate the risk associated with the capital and surplus for a reporting entity to support its overall business operations based on the size of the insurance company. c. Used to calculate the amount of capital and surplus for a reporting entity to support its overall business operations. d. Used to calculate the minimum capital and surplus for a reporting entity to support its overall business operations based on the size and risk profile of the insurance company.
d. Used to calculate the minimum capital and surplus for a reporting entity to support its overall business operations based on the size and risk profile of the insurance company.
With property & casualty premium reserves, insurers _________________ the premium over the period of expected claim coverage. earn pay subtract delay
earn
A ____________________ examination does not require examiners to review every aspect of the insurance company, but consider all aspects of an insurer's business practices before selecting certain functions and activities to focus on. full-scope limited-focus limited-scope risk-scope
full-scope
