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Exam 8: Government Regulation of Insurance

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Question 1

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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

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

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Question 2

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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.

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

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Question 3

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

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

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 must invest their separate account assets in bonds.

The Federal Insurance Office studied insurance regulation and released their Modernization Report.One recommendation was that states should move forward with a newer method of calculating policy reserves in life insurance.The new approach is based on risk analysis and risk management techniques that reflect risks more accurately than the current method.The new approach is called

The policyholders' surplus of an insurer is defined as the difference between its

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

The basis for current state regulation of insurance is

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)

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

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?

A systemic risk is a risk that

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)

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.

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

Which of the following is a method used to help ensure the solvency of insurers?

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 insurance regulation are true EXCEPT