Chapter 1 (Classification of Insurers)

Question 1

Private insurance companies can be classified in what ways?

Answer 1

1.Ownership
2. Authority to transact business
3. Location (domicile)
4. Marketing and distribution systems
5. Rating (financial strength)

Question 2

____________ are the most common types of owenership

Answer 2

Stock Companies

Question 3

Stock companies

Answer 3

are owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses.

Question 4

Traditionally, stock companies issue _____________ policies, in which policyowners do not share in profits or losses.

Answer 4

nonparticipating

Question 5

A nonparticipating (stock) policy does not pay dividends to policyowners; however, _____________ are paid to stockholders.

Answer 5

taxable dividends

Question 6

Mutual companies

Answer 6

are owned by the policyowners and issue participating policies ( Dividends are not guaranteed.)

Question 7

Related to mutual companies with participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are, therefore, _____________.

Answer 7

nontaxable

Question 8

Before insurers may transact business in a state they must have a license (certificate of authority), where if approved they are considered ______________ and if denied approval they are considered ____________

Answer 8

Authorized or admitted, unauthorized or nonadmitted

Question 9

Insurers must obtain a ___________ prior to transacting business in this state.

Answer 9

Certificate of Authority

Question 10

Insurance companies are classified according to the _____________

Answer 10

location of incorporation (domicile)

Question 11

A domicile

Answer 11

refers to the location where an insurer is incorporated, not necessarily where the insurer conducts business.

Question 12

domestic insurer

Answer 12

is an insurance company that is incorporated in this state.

(In most cases, the company’s home office is in the state in which it was formed — the company’s domicile. For instance, a company chartered in Pennsylvania would be considered a Pennsylvania domestic company.)

Question 13

foreign insurer

Answer 13

is an insurance company that is incorporated in another state, the District of Columbia, or a territorial possession. Currently, the United States has 5 major U.S. territories

(American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands- 5 major US Territories)

(For example, a company chartered in California would be a foreign insurer within the state of New York. A company chartered in Puerto Rico will be foreign in any U.S. state.)

Question 14

alien insurer

Answer 14

is an insurance company that is incorporated outside the United States.