Question 1

Which of the following is authority given to the Federal Insurance Office created by the Dodd-Frank Act?

Accepted Answer

A)  to represent the federal government in international discussions of insurance regulation 
B)  to license and charter new insurance companies that plan to operate nationally 
C)  to be the primary monitor of insurance company solvency 
D)  to be the primary regulator of all aspects of insurance 
A)  to represent the federal government in international discussions of insurance regulation 
B)  to license and charter new insurance companies that plan to operate nationally 
C)  to be the primary monitor of insurance company solvency 
D)  to be the primary regulator of all aspects of insurance A

Question 2

The major argument in favor of an optional federal charter for insurers is that

Accepted Answer

A)  small insurers need a national charter to be competitive with large insurers. 
B)  a federal charter will prevent insurer insolvencies. 
C)  a federal charter will provide greater oversight of insurer market practices. 
D)  national insurers are at a competitive disadvantage under the present system. 
A)  small insurers need a national charter to be competitive with large insurers. 
B)  a federal charter will prevent insurer insolvencies. 
C)  a federal charter will provide greater oversight of insurer market practices. 
D)  national insurers are at a competitive disadvantage under the present system. D

Question 3

Which of the following is an advantage of state regulation of insurance over federal regulation of insurance?

Accepted Answer

A)  uniformity of laws 
B)  greater efficiency 
C)  more effective in negotiating international agreements pertaining to insurance 
D)  quicker response to local insurance problems 
A)  uniformity of laws 
B)  greater efficiency 
C)  more effective in negotiating international agreements pertaining to insurance 
D)  quicker response to local insurance problems D

Question 4

Under one type of rate regulation, insurers do not have to register their rates with state regulatory authorities. 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

Accepted Answer

A)  a flex-rating law. 
B)  a prior-approval law. 
C)  a file-and-use law. 
D)  no filing required. 
A)  a flex-rating law. 
B)  a prior-approval law. 
C)  a file-and-use law. 
D)  no filing required.

Question 5

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

Accepted Answer

A)  the risk-based capital requirements. 
B)  an insurance guaranty fund. 
C)  the Insurance Regulatory Information System (IRIS). 
D)  the assessment method. 
A)  the risk-based capital requirements. 
B)  an insurance guaranty fund. 
C)  the Insurance Regulatory Information System (IRIS). 
D)  the assessment method.

Question 6

One method of ensuring the solvency of insurers is a periodic review, every three to five years, of insurers that operate on a multistate basis. This review is coordinated by the NAIC. This review is called a(n)

Accepted Answer

A)  annual report. 
B)  early warning system. 
C)  field examination. 
D)  inspection report. 
A)  annual report. 
B)  early warning system. 
C)  field examination. 
D)  inspection report.

Question 7

State X's premium tax rate is 2 percent. State Y's premium tax rate is 3 percent. State X insurers are required to pay the 3 percent rate on business written in State Y. State X requires insurers from State Y to pay a 3 percent premium tax on business written in State X, even though the premium tax rate is only 2 percent in State X. This practice is known as a

Accepted Answer

A)  tax tariff. 
B)  guaranty fund assessment. 
C)  risk-based capital requirement. 
D)  retaliatory tax law. 
A)  tax tariff. 
B)  guaranty fund assessment. 
C)  risk-based capital requirement. 
D)  retaliatory tax law.

Question 8

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

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 9

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

Accepted Answer

A)  cash 
B)  preferred stocks 
C)  real estate 
D)  office furniture 
A)  cash 
B)  preferred stocks 
C)  real estate 
D)  office furniture

Question 10

The Dodd-Frank Act created a federal body with some limited regulatory authority. For example, the organization can represent the federal government in international negotiations regarding insurance and it can preempt state law where it conflicts with negotiated international agreements. This body is called the

Accepted Answer

A)  National Insurance Bureau. 
B)  Federal Office of Insurance. 
C)  Department of International Insurance. 
D)  International Insurance Bureau. 
A)  National Insurance Bureau. 
B)  Federal Office of Insurance. 
C)  Department of International Insurance. 
D)  International Insurance Bureau.

Question 11

XYZ Mutual Insurance Company has total assets of $10 million. The policyholders' surplus is $2 million. What are XYZ Mutual's total liabilities?

Accepted Answer

A)  $4.0 million 
B)  $8.0 million 
C)  $10.0 million 
D)  $12.0 million 
A)  $4.0 million 
B)  $8.0 million 
C)  $10.0 million 
D)  $12.0 million

Question 12

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.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 13

A shortcoming of state regulation of insurance according to Congressional committees and the General Accounting Office is that state regulation

Accepted Answer

A)  leads to decentralized governmental power. 
B)  provides opportunities for innovation. 
C)  provides inadequate consumer protection. 
D)  is more responsive to local needs. 
A)  leads to decentralized governmental power. 
B)  provides opportunities for innovation. 
C)  provides inadequate consumer protection. 
D)  is more responsive to local needs.

Question 14

A life insurance company based in Canada was licensed to operate in Massachusetts. When operating in Massachusetts, the Canadian insurer would be considered a(n)

Accepted Answer

A)  domestic insurer. 
B)  captive insurer. 
C)  foreign insurer. 
D)  alien insurer. 
A)  domestic insurer. 
B)  captive insurer. 
C)  foreign insurer. 
D)  alien insurer.

Question 15

The risk-based capital requirements for life insurers are based on a formula that considers four types of risk. One risk reflects whether the insurer will have enough surplus if claims are higher than expected. This risk is called

Accepted Answer

A)  asset risk. 
B)  insurance risk. 
C)  interest rate risk. 
D)  business risk. 
A)  asset risk. 
B)  insurance risk. 
C)  interest rate risk. 
D)  business risk.

Question 16

All of the following are arguments in favor of using an applicant's credit record in personal lines underwriting EXCEPT

Accepted Answer

A)  Most consumers have good credit records and benefit when credit history is used as a rating factor. 
B)  Use of credit data in underwriting and rating eliminates price discrimination against minority groups when they purchase insurance. 
C)  Underwriting and rating may be more consistent if applicants' credit histories are considered. 
D)  There is high correlation between an applicant's credit record and future claims experience. 
A)  Most consumers have good credit records and benefit when credit history is used as a rating factor. 
B)  Use of credit data in underwriting and rating eliminates price discrimination against minority groups when they purchase insurance. 
C)  Underwriting and rating may be more consistent if applicants' credit histories are considered. 
D)  There is high correlation between an applicant's credit record and future claims experience.

Question 17

Under one type of rating law, insurers are free to change rates and to use modified rates immediately. However, the new rate must be filed with regulators within a specified period, such as 60 days after the modified rate is employed. This type of rating law is called

Accepted Answer

A)  prior approval. 
B)  file-and-use. 
C)  use-and-file. 
D)  flex rating. 
A)  prior approval. 
B)  file-and-use. 
C)  use-and-file. 
D)  flex rating.

Question 18

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.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 19

An insurance company incorporated in another state has been licensed to operate in your state. In your state, the insurer would be considered a(n)

Accepted Answer

A)  nonadmitted insurer. 
B)  foreign insurer. 
C)  alien insurer. 
D)  reciprocal insurer. 
A)  nonadmitted insurer. 
B)  foreign insurer. 
C)  alien insurer. 
D)  reciprocal insurer.

Question 20

Which of the following statements about the regulation of life insurance companies is (are) true?
I.The percentage of assets a life insurance company may invest in a specific type of asset (e.g., stocks or bonds) is generally limited by law.
II.The purpose of limiting the accumulation of surplus is to prevent an insurer from increasing its surplus at the expense of policyowner dividends.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Exam 8: Government Regulation of Insurance

Which of the following is authority given to the Federal Insurance Office created by the Dodd-Frank Act?

The major argument in favor of an optional federal charter for insurers is that

Which of the following is an advantage of state regulation of insurance over federal regulation of insurance?

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

One method of ensuring the solvency of insurers is a periodic review, every three to five years, of insurers that operate on a multistate basis. This review is coordinated by the NAIC. This review is called a(n)

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

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

XYZ Mutual Insurance Company has total assets of $10 million. The policyholders' surplus is $2 million. What are XYZ Mutual's total liabilities?

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.

A shortcoming of state regulation of insurance according to Congressional committees and the General Accounting Office is that state regulation

A life insurance company based in Canada was licensed to operate in Massachusetts. When operating in Massachusetts, the Canadian insurer would be considered a(n)

The risk-based capital requirements for life insurers are based on a formula that considers four types of risk. One risk reflects whether the insurer will have enough surplus if claims are higher than expected. This risk is called

All of the following are arguments in favor of using an applicant's credit record in personal lines underwriting EXCEPT

Under one type of rating law, insurers are free to change rates and to use modified rates immediately. However, the new rate must be filed with regulators within a specified period, such as 60 days after the modified rate is employed. This type of rating law is called

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.

An insurance company incorporated in another state has been licensed to operate in your state. In your state, the insurer would be considered a(n)

Risk and Its Treatment

Insurance and Risk

Introduction to Risk Management

Enterprise Risk Management and Related Topics

Types of Insurers and Marketing Systems

Insurance Company Operations

Financial Operations of Insurers

Fundamental Legal Principles

Analysis of Insurance Contracts

Life Insurance

Life Insurance Contractual Provisions

Buying Life Insurance

Annuities and Individual Retirement Accounts

Health-Care Reform; Individual Health Insurance Coverages

Employee Benefits: Group Life and Health Insurance

Employee Benefits: Retirement Plans

Social Insurance

The Liability Risk

Auto Insurance

Auto Insurance (continued)

Homeowners Insurance, Section I

Homeowners Insurance, Section II

Other Property and Liability Insurance Coverages

Commercial Property Insurance

Commercial Liability Insurance

Crime Insurance and Surety Bonds

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