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Exam 8: Government Regulation of Insurance

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Question 1

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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?

A) guaranty fund
B) premium rebates
C) risk-based capital
D) admitted assets

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Question 2

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A systemic risk is a risk that

A) can be eliminated through diversification.
B) can be the cause of the collapse of an entire system.
C) can be insured privately.
D) can be easily contained so that it does not spread.

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Question 3

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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.

Which of the following statements about the regulation of insurance company investments is (are) true? I.The purpose of regulating insurance company investments is to prevent insurers from making unsound investments which could threaten their solvency. II.Life insurers can invest an unlimited amount of their assets in common stocks.

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.

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 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

One provision of the Dodd-Frank Act was creation of the Financial Stability Oversight Council.This council is charged with identifying nonbank financial companies that could increase the risk of collapse of the entire financial system.This risk is called

In which of the following did the Court decide that insurance was interstate commerce when conducted across state lines,and therefore was subject to federal regulation?

During the financial crisis,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

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

All of the following statements about the methods of regulating insurance are true EXCEPT

The major reasons for insurer insolvency include which of the following? I.Inadequate pricing and loss reserves II.Rapid growth and inadequate surplus

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)

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)

By misrepresenting the true facts,Gretchen was able to convince a client to drop a life insurance policy with another company and to purchase a policy from the company that Gretchen represents.Gretchen has engaged in an illegal sales practice called

Which of the following is a principal method of ensuring the solvency of insurers?

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.

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