Mccloskey(3501) topic 2

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  1. Insurance is regulated on a _____ level.
  2. who oversees the state regulation of state insurance?
    the insurance commissioner or superintendent
  3. How does an insurance commissioner get his job?
    depends. They are often political appointees, but they are sometimes elected officials
  4. what does N.A.I.C stand for?
    National association of insurance commissioners
  5. How many states participate in the NAIC?
    all of them
  6. what is the NAIC?
    they make regulation uniform across states
  7. What organization reduces redundancy in insurance regulation?
    the naic
  8. How does the NAIC reduce redundancy?
    they reduce redundancy through solvency monitoring, licensing, audits, etc.
  9. _______utilizes expensive personnel on a national level and spreads the charge basis?
    the naic
  10. Approximately how many key legal events gave rise to the legal landscape of the insurance world today?
  11. What are the 6 key legal events that gave rise to the legal landscape of the insurance world today?
    • 1.paul vs. Virginia(1869)
    • 2. Sherman anti-trustact(1890)
    • 3. southeastern underwriters association decision(1944)
    • 4. McCaron -ferguson act(1945)
    • 5.the ISO case(1971)
  12. Paul vs Virginia(what happened?)
    • an insurance agent(paul) was violating Virginia laws by selling insurance for a new York company.
    • paul argued that va was incorrect as congress has a right to regulate interstate commerce
    • supreme court ruled that insurance is not interstate commerce
  13. In paul vs. Virginia; what was paul's argument?
    he argued that va was incorrect and that congress has a right to regulate interstate commerce
  14. What was the ruling in Paul vs. Virginia?
    The supreme court ruled that insurance is not interstate commerce.
  15. Sherman Anti-trust act
    an 1890 congressional act prohibiting collusion to gain monopoly
  16. How does the Sherman anti-trust act apply to the insurance industry?
    It prevents insurers from banding together to control rates and/or coverage.
  17. Southeastern underwriters association decision(1944)(what happened?)
    • SEUA was sued by the justice department for violation of the Sherman anti-trust act.
    • the case found evidence of pricing collusion
    • the supreme court ruled against seua and gave control of the insurance industry to the fed
  18. What does seua stand for?
    southeastern underwriters association
  19. what was the job of the seua before they were sued?
    perform functions such as data collection, policy forms, actuarial support etc.
  20. Who were the members of the seua?
    The seua was comprised of 200+ stock insurers in the south
  21. who was the seua sued by and why?
    they were sued by the justice department for violation of the Sherman anti-trust act
  22. How did the supreme court rule in the seua case?
    they ruled against the seua
  23. What policy changes occurred because of the southeastern underwriters association decision?
    the supreme court gave control of the insurance industry to the fed.
  24. what was the reasoning behind giving control of the insurance industry to the fed in the seua decision?
    They deemed state regulation efforts inadequate
  25. McCarron-ferguson act(1945)
    Congressional act restoring states' right to insurance regulation
  26. After passage of the McCarron-ferguson act, can te feds regulate the insurance industry at all?
    yes, the feds can regulate in cases in which states fail in their duty
  27. Post McCarron-ferguson act, who is in charge of coordinating state regulation?
    the NAIC
  28. what happened in the ISO case?
    • in 1988, iso was sued by the attorney generals
    • 7 states alleged anti trust for changes made to the cgl policies
    • it ended in an out of court settlement and iso agreed to serve only as a "statistical" agent for its members
  29. In 1971, how was the ISO created?
    It was created when six separate rating bureaus merged together
  30. What does the ISO do?
    • produces standardized policy forms
    • loss forecasting
  31. What does ISO forecast?
    expected loss(p*)
  32. True/false ISO does premium calculation for firms
  33. IN the ISO case, what did 7 states allege?
    they alleged that ISO was violating the Sherman anti trust laws for changes they made to their cgl policy forms
  34. How was the ISO case resolved?
    there was an out of court settlement(1994) and iso agreed to only serve as a "statistical" agent for its members.
  35. what order did the six key legal events happen in?
    • 1.paul v Virginia(1869)
    • 2. Sherman anti-trust act(1890)
    • 3. seua decision(1944)
    • 4. McCarron ferguson act(1945)
    • 5.iso case(1994)
    • 6.gramm-leach Bliley act(1996)
  36. Financial services modernization act
    another name for the gramm-leach Bliley act
  37. what is another name for te gramm leach Bliley act?
    financial services modernization act
  38. What is the gramm leach Bliley act
    • an act passed in 1996 that deregulated elements of the financial industry
    • allows financial companies to compete in banking, insurance and securities
  39. Prior to GLB, what were companies not allowed to do?
    • Companies were not allowed to engage in business in more than one of the following industries:
    • insurance
    • banking
    • securities
  40. What is an example of a post-glb merger?
  41. What is a variable annuity?
    annuities with investment in stock
  42. What is variable life insurance?
    Life insurance where mortality is partially financed by investment in stock.
  43. What is an example of something good that came from glb?
    cat bonds
  44. What do cat bonds allow insurers to do?
    issue debt to help finance catastrophic losses through the risk linked securitization of catastrophic risks
  45. The buyer of a cat bond provides a large upfront investment in return for:
    • periodic interest pmts over the life of the bond
    • repayment o the principle at the end of the bonds term
    • (insurer has the right to reduce or eliminate investment if cat loss occurs)
  46. Why would investors buy cat bonds?
    • high interest than is available from other bond issuers of a similar default risk
    • Investor can use cat bonds to diversify their investment portfolio because cats are not correlated with financial markets
    • (particularly helpful to non-stock insurers)
  47. true/false cat bonds are ties to that of an insurers specific losses?
  48. What are the cat bond triggers?
    • indemnity
    • modeled loss
    • index
    • parametric
  49. modeled loss(cat bond trigger)
    exposure portfolio is modeled and results of a model must exceed a certain threshold
  50. index(cat bond trigger)
    when industry losses from peril exceeds a certain threshold
  51. parametric(cat bond trigger)
    • Indexed to the actual cat disaster
    • (such as windspeed, hurricane category, amt of rain etc)
  52. indemnity(cat bond trigger)
    tied to that insurer's specific losses
  53. What is the bad thing that came out of GLB
    mortgaged backed securities
  54. securitization of mortgages
    the act of bundling mortgages as an investment and selling it as a security. the security is based on the risk they (mortgages)default
  55. Alien insurer
    An insurer that is not incorporated in the united states
  56. What are the four types of insurers that are incorporated in the US?
    • Domestic
    • foreign
    • admitted
    • nonadmitted
  57. Domestic insurer
    an insurer incorporated in the state I which it is selling coverage
  58. Foreign insurer
    an insurer incorporated outside the stae in which it is selling coveage
  59. Admitted insurer
    an insurer licensed to do business in a given state
  60. nonadmitted insurer
    not licensed to do business in a given state.
  61. If an insurer is nonadmitted in a state can they still sell insurance there?
    • They can only sell excess and surplus
    • also the customer can only buy if they demonstrate that they cannot buy from a licensed insurer
  62. What are the advantages of licensed insurers for policyholders?
    • they are protected by regulatory efforts because of:
    • solvency monitoring
    • access to guaranty funds
    • rate regulation
  63. What are advantages of licensed insurers for insurers?
    they have marketing priority for their products
  64. What are the main reasons for insurance regulation?
    • consumer protection
    • especially for individuals and small businesses
  65. Insurers are compelled to assure that insurance is available because of_________laws.
  66. compulsory law
    requirement by law
  67. why insurance demand constant over time?
    • compulsory laws
    • lenders-require to decrease default risk
  68. solvency regulation
    • standardization of accounting methods
    • statutory accounting principles
  69. standard accounting principles
    accounting method chosen by NAIC to measure insurer solvency
  70. _______ provides the most "pessimistic" conditions for measuring insurer solvency.
    sap(statutory accounting principles)
  71. Do insurers go bankrupt?
    no, they go insolvent.
  72. Who declares an insurer insolvent?
    an insurer is declared insolvent by the commissioner of the domiciled state.
  73. What may happen prior to insolvency declaration?
    the insurance commissioner may meet with executives, limit underwriting, and review claims
  74. Guaranty fund
    a fund that is set up by the commissioner for an insolvent insurer
  75. What does a guaranty fund cover?
    policyholders,claimants,and policyholders with pre-paid premium
  76. Under a guaranty fund, are corporations covered?
    no, only businesses and small businesses
  77. what are the coverage limits of a guaranty fund?
    • large buyers of insurance and risk managers not eligible
    • only 300,000 per person or business covered
  78. Who is covered under a guaranty fund?
    • policyholders
    • claimants
    • policyholders with pre paid premium
  79. How are guaranty funds financed?
    • the funds are available from reinsurance and investments to pay unpaid claims
    • surviving insurers in state assessed charge based on market share
  80. Form regulation
    regulation of policy forms, endorsements, and applications
  81. Insurance is a contract of_______.
    adhesion(this protects the consumer)
  82. Ambiguity in a policy will usually be judged by the courts in favor of ____________?
    the policy holder
  83. t/f courts have defined insurer obligations
  84. What are he two main goals of rate regulation?
    affordability and adequacy
  85. What happens if expected losses and claims are greater than prices permitted by regulators?
    it could result in lack of availability of coverage
  86. If there are few options for high risk people, what d state regulators do?
    they set up state pools
  87. regulated rates are_______
    non discriminatory
  88. redlining
    failure to provide insurance in a certain geographic region
  89. types of rate regulation(5)
    • mandatory rate law
    • prior approval laws
    • file and use laws
    • flex ratng
    • open competition
  90. what is an example of a state with mandatory rate laws?
    north Carolina for its auto insurance
  91. when a state or bureau sets a rate
    mandatory rate law
  92. issues with mandatory rate laws?
    Rates may not b set at an appropriate amount, or insurers may decline to write policies.
  93. prior approval laws
    a type of rate regulation law where a rate (or rate increase) must be approved by the state before it can be used
  94. What are problems with prior approval laws?
    • delays are an issue which may make the rate increase inadequate when finally approved
    • when claims inflation is high this can be a big problem
  95. file and use laws
    changes must be filed with the state, but then changes can be used immediately after filing
  96. t/f file and use laws are more in line with a free market structure
  97. what happens when a problem arises with file and use laws?
    states reserve the right to revoke the rates
  98. flex rating
    a rate regulation tool where insurers only need approval if the rate exceeds a certain percentage above or below previously filed rates.
  99. ______ restricts lowering or raising rates too much, but allows for quick reaction to changing market conditions in a short period of time
    flex rating
  100. open competition
    no restrictions on rate regulation
  101. what type of rate regulation is common in commercial lines, but not used often in personal lines?
    open competition.
  102. What way of rate regulation is essentially driven by supply and demand`
    open competition
  103. contingent commissions
    fees paid based on the volume and profitability of insurance placed by brokers/agents
  104. _________ provides incentive for producers to underwrite and source risks more carefully
    contingent commissions
  105. t/f contingent commissions crate a conflict of interest
  106. bid rigging
    • in 2004, spritzer(ag of ny) filed a suit against a group of brokers and insurers
    • they alleged that contingent commissions give incentive for brokers to recommend more expensive coverage
    • the investigation turned up bid rigging evidence 
  107. Companies that were involved in the bid rigging scandal(that paid settlements) were
    marsh,aon,willis,chubb,aig,liberty mutual and zurich
  108. Who no longer participates in contingent commissions?
    aon and marsh
  109. reliance
    a large, prominent financial conglomerate(headquartered in philly) with significant property-casualty operations(top 10) that failed due to a multitude of reasons including a controversial ceo named saul steinburg and an overly ambitious expansion strategy
  110. Timeline of reliance's demise?
    • troubles became apparent in 1999
    • attempts at restructuring failed
    • it was placed in receivership in 2001
  111. who was the ceo of reliance
    saul steinburg
  112. what are the biggest measurement issues to property casualty insurers(2)
    under pricing and under reserving
  113. _____ and _______ proceed cautiously with lagging information
    regulators ad rating agencies
  114. t/f capital does not need to be assessed against risks a firm faces
  115. t/f size and importance of insurer can make regulators and raters even more cautious
  116. ratio limitations
    • there is no ratio measure tat provides "real time" indication of under pricing, poor underwriting, and under reserving
    • performance measures lab behind these practices, especially for long tail lines
  117. true/false regulators and raters are reluctant to use subjective indicators to issue warnings
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Mccloskey(3501) topic 2
2014-09-28 00:35:37
RMI 3501 Exam

rmi 3501(mccloskey) topic 2
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