Exam 8: Government Regulation of Insurance

The number of title insurance companies operating in State Z is relatively low.Recently,the largest of these companies (50 percent market share)acquired the second largest company (30 percent market share).Immediately after the acquisition,the insurer raised premiums by 75 percent.This scenario demonstrates which of the following rationales for the regulation of insurance?

The near demise of American International Group (AIG)in 2008 was caused by AIG's issuance of a complex derivative.This derivative guaranteed mortgage-backed securities held by investors.As the real estate market collapsed,AIG was required to post billions of dollars of collateral that it did not have.What were the derivative loan guarantees issued by AIG called?

Reasons for regulation of insurance include which of the following? I.Maintaining insurer solvency. II.Ensuring reasonable rates.

Under one type of rate regulation,insurers are not required to file their rates with the state insurance department.However,insurers may be required to furnish rate schedules and supporting data to state officials.A fundamental assumption underlying this type of rating law is that market forces will determine the price and availability of insurance,rather than discretionary acts of regulators.This type of rate regulation is called

Grace is a life insurance agent.She is attempting to sell a large life insurance policy,but the prospective purchaser is having second thoughts.To persuade the prospective purchaser,Grace said,"I will earn a $1,000 commission if you buy this policy.I'll give you $500 of my commission if you buy the policy." In most states,what illegal sales practice will Grace be guilty of if she splits her commission with the purchaser?

The National Association of Insurance Commissioners (NAIC)administers an "early warning system" to help ensure insurance company solvency.This system uses data provided in the annual statement to identify companies that may pose a solvency risk.This early warning system is called

All of the following statements about insurance regulation are true EXCEPT

Mutual Property Insurance Company has a surplus of $2 million.According to a conservative rule of thumb,how much new net premiums can Mutual Property Insurance Company safely write?

A score derived from an individual's credit history and other factors that is used by many auto and homeowners insurers for underwriting and rating purposes is called a(n)

Shortcomings of state regulation of insurance found by Congressional committees and the General Accounting Office include all of the following EXCEPT

Which of the following is considered a nonadmitted asset for an insurer?

Which of the following statements about premium taxes is (are)true? I.They are levied by the federal government as a result of the McCarran-Ferguson Act. II.Their primary purpose is to provide funds for insurance regulation.

In 2008,the U.S.federal government stepped-in to prevent the financial failure of the world's largest insurer,the American International Group (AIG).AIG's near insolvency was caused by

Fly-By-Night Insurance Company had much larger losses than forecast.The company did not charge adequate premiums nor did the company purchase reinsurance.If Fly-By-Night becomes insolvent,which of the following will help pay the unpaid claims of the insurer?

The basis for current state regulation of insurance is

ABC Insurance Company would like to purchase a bank.For many years,ABC was not permitted under federal law to enter into banking operations.Which of the following legislative acts eliminated the prohibition that prevented banks,insurers,and investment firms from entering into one another's markets?

A systemic risk is a risk that

Which of the following statements about the use of risk-based capital requirements is (are)true? I.Insurers must have a certain amount of capital depending on the riskiness of their investments and insurance operations. II.Insurers may be required to take certain actions depending on how much capital they have relative to their risk-based capital requirements.

Which of the following statements is (are)true regarding the quality of insurance regulation? I.The quality of insurance regulation is uniform from state to state. II.All evidence suggests federal regulation of insurance would improve the quality of regulation.

Advantages cited by proponents of federal regulation of insurance include all of the following EXCEPT