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exam 6 NEW > NAIC US Ins Reg & Solvency > Flashcards

NAIC US Ins Reg & Solvency Flashcards

1
Q

2 goals of insurance regulation

2 types of regulation within the regulatory framework

A
  1. protect policyholders
  2. insurer financial stability & reliability

by combining

  1. financial reguilation
  2. market regulation
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2
Q

Financial regulation 3 stage process

A
  1. mitigate – minimize risks from the beginning
  2. financial oversight – use tools to spot weak insurers + uniform reporting to compare across companies
  3. insolvency backstop – receivership & state guaranty funds
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3
Q

What is market regulation

what does it focus on

A

market regulation oversight of insurer’s behavior

focus

treatment of policyholders

competition

statistical reporting

licensing

consumer assistance

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4
Q

Market regulation techniques (6)

A

onsite exams

date analysis

correspondence

interviews

interrogatories

questionnaires

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5
Q

Criteria for evaluating success of solvency regulation (5)

A
  1. insolvency frequency
  2. prevented insolvencies (not all)
  3. cost vs benefit
  4. effective rehabilitation – fix weak companies
  5. overall level of market competition
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6
Q

Potential impact of over-regulation vs. under-regulation

A

over-regulation: cost is passed to consumers (eliminating all insolvencies would be too costly)

vs. under-regulation: insolvencies cost taxpayers & consumers

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7
Q

Describe US regulatory system for insurance companies

A

national system of state based solvency tests

( erformed by each state DOI & commissioner)

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8
Q

7 US Insurance Financial Solvency Core Principles POORER-C

A
  1. Prevention & correction (restrict NB, require business plan)
  2. Off-site monitoring & analysis – (sec filings, rate filing, rating agency reports)
  3. On-site exam- (risk focused – focus on higher risk companies, examine management&financial strength)
  4. Reporting – (standarized financial statements)
  5. Exiting market – (receivership& guaranty funds)
  6. Regulatory control of risky transactions
  7. Capital adequacy – (RBC)
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9
Q

Preventative & corrective actions regulator can take (4)

A
  1. restrict/reduce new or renewal business
  2. restrict/reduce certain investments
  3. require business improvement plan (CAL RBC 150-200)
  4. require financial reports
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10
Q

Hazardous financial conditions of insurer

A
  1. adverse results in examinations or financial analysis
  2. insolvency of holding co or reinsurer
  3. bad management
  4. providing inaccurate info
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11
Q

Actions an at-risk insurer can take to avoid insolvency

A
  1. Buy reinsurance
  2. Exit LOB
  3. Raise rates
  4. Tighten UW
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12
Q

3 stages to oversight in ‘Financial Surveillance Program’

designed to do?

A

limiting risk via system design: investment requirements & limits

financial oversight & intervention Powers: intervene if see hazardous financial conditions such as adverse results in examinatin or insolvency of holding company

Regulatory Backstop: RBC calc & formula

not designed to eliminate all insolvencies but rather minimze number & effect on consumers

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13
Q

Requirements of NAIC Own Risk and Solvency Requirements (ORSA) Guidance Manual (3)

A

Maintain risk management framework

Regularly conduct ORSA

Submit ORSA report to state commish

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14
Q

Justify limited regulation of reinsurers historically

A

Reinsurer & primary has equal negotiating leverage & product knowledge

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15
Q

credit for reinsurance is given to primary under 2 scenarios

why is credit given so easily?

A
  1. Reinsurer licensed in USA
  2. reinsurer NOT licensed in USA BUT posted collateral in USA

avoid the various foreign country regulations

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16
Q

Recomendations and goals of NAIC adoption of ‘Reinsurance Framework’ (2)

A

rec 1 = Proposed federal legislation (Reinsurance Regulatory Modernization Act) but did not pass

goal 1 = Uniform regulation across all states

rec 2 = facilitate cross border reinsurance transactions

goal 2= promote competition + protect insurers/policyholders from reinsurer insolvency

17
Q

Non-Admitted & Reinsurance Reform Act of 2010 (part of Dodd Frank) (3)

A
  1. Credit for reinsurance - a state can NOT deny credit IF primary’s domiciliary state granted the credit
  2. Insolvency regulation - reinsuer’s domiciliary state is given full responsibility
  3. Collateral reforms - states may proceed
18
Q

NAIC adopted Credit for Reinsurance Model Law & Credit for Reinsurance Model

what did it do (2)?

A

Collateral requirements; reduce collateral if certified (based on financial strength, timely claim payments, license in qualified jurisdiction)

Certification: States can certify insurer OR use other state’s certification

19
Q

why not add cat risk charge to RBC?

A

modeling approach has higher costs

modling approach can’t be compared acorss companies

RBC formula can be compared across companies and easy to calculate

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