2/25

Question 1

In ___ (1868), the supreme court ruled that insurance wasn’t interstate commerce, and that the states rather than the federal government had the right to regulate the insurance industry.

Answer 1

Paul v. Virginia

Question 2

In ___ (1944), the court ruled that insurance was interstate commerce when conducted across state lines and was subject to federal antitrust laws.

Answer 2

US v. South-Eastern Underwriters Association

Question 3

The ___ (1945) states that continuted regulation and taxation of the insurance industry by the states are in public interest; the federal antitrust laws apply to insurance only to the extent that the insurance industry isn’t regulated by state law.

Answer 3

McCarran-Ferguson Act

Question 4

The ___ (1999) changed federal laws that earlier prevented banks, insurers, and investment firms from competing outside their core area.

Answer 4

Financial Modernization Act

Question 5

What were the four main points of the Financial Modernization Act?

Answer 5

• State insurance departments regulate insurers
• State and federal bank agencies regulate banks
• The SEC regulates the sale of securities
• The federal reserve has umbrella authority over bank affiliates that engage in underwriting insurance

Question 6

What were the four main points of the Dodd-Frank Wall Street Reform and Consumer Act (2010)?

Answer 6

• Reform the financial services industry
• Deal with destabilizing practices of commercial banks, investment firms, mortgage companies, and credit-rating agencies
• Provide protection for consumers
• Created the Financial Stability Oversight Council (FSOC)

Question 7

The ___ was created by the Dodd-Frank Wall Street Reform and Consumer Act for the purpose of identifying nonbank financial companies and insurace companies that could increase systemic risk in the economy.

Answer 7

Financial Stability Oversight Council (FSOC)

Question 8

A(n) ___ is an out-of-state insurer that’s chartered by another state, but licensed to operate in the state.

Answer 8

Foreign Insurer

Question 9

A(n) ___ is an insurer that’s chartered by a foreign country, but is licensed to operate in the state.

Answer 9

Alien Insurer

Question 10

A(n) ___ is an insurer that’s domiciled in the state.

Answer 10

Domestic Insurer

Question 11

___ are assets that an insurer can show on its statutory balance sheet in determining its financial condition.

Answer 11

Admitted assets

Question 12

How is Risk-Based Capital RBC Ratio calculated?

Answer 12

Admitted Capital divided by RBC

Question 13

___ is the inducement of a policy owner to drop an existing policy and replace it with a new one that provides little or no economic benefit to the client.

Answer 13

Twisting

Question 14

___ is the practice of giving an individual a premium reduction or some other financial adavantage not stated in the policy as inducement to purchase the policy.

Answer 14

Rebating

Question 15

Insurance laws prohibit a variety of unfair trade practices, such as…

(3 points)

Answer 15

• Misrepresentation
• Twisting
• Rebating

Question 16

The ___ has the authority to treat systemic risk and to classify nonbank financial companies, which include insurance companies, as systemically important financial institutions (SIFIs).

Answer 16

Financial Stability Oversight Council (FSOC)

Question 17

Name the four reasons for regulating insurance.

Answer 17

• Maintain insurer solvency
• Compensate for inadequate consumer knowledge
• Ensure reasonable rates
• Make insurance available

Question 18

What are the three main methods for regulating insurers?

Answer 18

• Legislation, through both state and federal laws
• Court decisions
• State insurance departments

Question 19

The Federal Insurance Office (FIO) has the authority to:

(5 points)

Answer 19

• Monitor all aspects of the insurance industry
• Identify gaps in insurance regulation and identify issues that contribute to systemic risk
• Assist the FSOC in identifying insurers that could create systemic risk
• Represent the federal government in international discussions of insurance regulation
• Negotiate international agreements with foreign countries that pertain to insurance regulation

Question 20

___ refers to the marketing practices of insurers and agents that involve interaction with insureds, claimants, or consumers.

Answer 20

Market Conduct

Question 21

___ is an arrangement by which the primary insurer that initially writes the insurance transfers to another part or all of the potential losses associated with such insurance.

Answer 21

Reinsurance

Question 22

Regarding reinsurance, the primary insurer is the ___.

Answer 22

Ceding company

Question 23

Regarding reinsurance, the insurer that accepts the insurance from the ceding company is the ___.

Answer 23

Reinsurer

Question 24

The ___ is the amount of insurance retained by the ceding company.

Answer 24

Retention limit

Question 25

The amount of insurance that is ceded to the reinsurer is known as a(n) ___.

Answer 25

Cession

Question 26

___ is when a reinsurer insures part or all of a risk with another insurer.

Answer 26

Retrocession

Question 27

Reinsurance is used to…

(6 points)

Answer 27

• Increase underwriting capacity
• Stabilize profits
• Reduce the unearned premium reserve
• Provide protection against a catastrophic loss
• Retire from business or from a line of insurance or territory
• Obtain underwriting advice on a line for which the insurer has little experience

Question 28

___ is an optional, case-by-case method that’s used when the ceding company receives an application for insurance that exceeds its retention limit

Answer 28

Facultative Reinsurance

Question 29

___ means that the primary insurer has agreed to cede insurance to the reinsurer, and the reinsurer has agreed to accept the business

Answer 29

Treaty Reinsurance

Question 30

___ represents the unearned portion of gross premiums on all outstanding policies at the time of valuation.

Answer 30

Unearned Premium Reserve