Chapter 8 Vocab (Text)

Question 1

Admitted Assets

Answer 1

assets that the insurer can show on its statuatory balance sheet in determining its financial condition

Question 2

Alien Insurer

Answer 2

insurance company chartered by a foreign country and meeting certain licensing requirements

Question 3

Assessment Method

Answer 3

the major method used to raise the necessary funds to pay unpaid claims

Question 4

Credit-Based Insurance Score

Answer 4

majority of insurer’s use applicants credit record for purposes of underwriting and rating in the auto and homeowners insurance

Question 5

Domestic Insurer

Answer 5

insurer domiciled in the state; it must be licensed in the state as well as in other states where it does business

Question 6

File and Use Law

Answer 6

Law for regulating insurance rates under which companies are required only to file the rates with the state insurance department before putting them into effect

Question 7

Flex-Rating Law

Answer 7

Type of rating law in which prior approval of the rates is required only if the rates exceed a certain percentage above and below the rates previously filed

Question 8

Financial Modernization Act of 1999

Answer 8

A federal law that allows banks, insurers, investment firms, and other financial institutions to enter and compete in each other’s financial markets

Question 9

Foreign Insurer

Answer 9

Insurance company chartered by one state but licensed to do business in another

Question 10

McCarran-Ferguson Act

Answer 10

1945, states that continued regulation and taxation of the insurance industry by the states are in the public interest

Question 11

Modified Prior-Approval Law

Answer 11

a state rating law where rate changes are based solely on loss experience; the rates must be filed with the state insurance department and can be used immediately. however, if the rate change is based in rate classification or expense relationship, prior approval of the rates is necessary.

Question 12

National Association of Insurance Commissioners

Answer 12

meets periodically to discuss industry problems that might require legislation or regulation

Question 13

No Filing Required

Answer 13

Rating law where insurers are not required to file their rates with the state insurance department to file their rates with the state insurance department but may be required to furnish rate schedules and supporting data to state officials

Question 14

Paul v Virginia

Answer 14

1868 Landmark legal decision that affirmed the right of the states to regulate insurance

Question 15

Policyholders’ surplus

Answer 15

difference between an insurance company’s assets and its liabilities

Question 16

Prior-Approval Law

Answer 16

law for regulating insurance rates under which the rates must be filed and approved by the state insurance department before they can be used

Question 17

Rebating

Answer 17

a practice, illegal in almost all states, of giving a premium reduction or some other financial advantage to an individual as an inducement to purchase the policy

Question 18

Reserves

Answer 18

liability items on an insurer’s balance sheet and reflect obligations that must be met in the future

Question 19

Risk Based Capital (RBC)

Answer 19

Under NAIC standards, insurers are required to have a certain amount of capital that is based on the riskiness of their investments and operations

Question 20

South Eastern Underwriters Association

Answer 20

cooperative rating bureau that was found guilty of price fixing and other violations of the Sherman Antitrust Act

Question 21

Systemic Risk

Answer 21

Risk of collapse of an entire financial system or financial market in which the failure of a single entity or group of entities can result in the breakdown of the entire financial system

Question 22

Twisting

Answer 22

Illegal practice of inducing a policyholder to drop an existing policy in one company and then replace it with a new policy in another company through misrepresentation or incomplete information

Question 23

Use and File Law

Answer 23

A rating law that is a variation of a file and use; insurers can put into effect immediately any rate changes, but the rates must be filed with regulatory authorities within a certain period after first being used