Porter Flashcards

Question

Key area where surplus lines is NOT regulated.

Answer 1

rates and forms... meaning it can quickly adapt to consumer needs

Answer 2

-only specially licensed producers -insurers need to meet financial and managerial reqs -diligent search must be performed in admitted market, UNLESS... ECP + other applicable rules

Answer 3

-need a surplus lines broker -domiciliary jurisdiction reviews for solvency -surplus lines licensing needs P&C standard license capital reqs usually over 15m often reqs to be licensed in 1+ other states, need to be multiple years NO GUARANTY FUNDS!!!!!!

Answer 4

in 90s, affiliations bw insurers and banks caused questions abt who regulated (banks = federal, insurance = state)

Answer 5

-prohibits state from preventing banks from selling insurance - UW != (sales + marketing) => -banks can't form subsidiary to UW insurance (make it harder for bank to use insurer assets to avoid insolvency) -reqs bank to disclose info sharing policies (can lead to inconsistency in practice) -makes states faciliate producers ability to operate in 2+ states => NAIC Producer Licensing Model Act

Answer 6

-privacy of info -ability of states to serve global financial market adequately -consumers need or desire for integrated services

Answer 7

requires states to establish either a system of reciprocal producer licensing or uniform licensing standards

Answer 8

-state law contradicts a federal -courts determine state law interferes with purpose/results of a federal but not contradict -imposes improper burden on interstate commerce

Answer 9

U.S vs SEUA (1944) - fixing rates is part of it Robertson vs Cali (1946) - licensing of comp/agent is part FTC v National Casualty Co (1958) - selling/advertising is part of it SEC vs Variable Annuity Life (1959) - variable annuities not part SEC v National Sec (1969) - company/stockholder relationship != insurance Group Life & Health vs Royal Drug (79) - mccarran exempts BOI, not insurance companies Union Labor Life vs Pireno (82) - three criteria from group life not enough, must be reviewed case by case

Answer 10

⇒ Relationship between insurer and insured ⇒ Types of policies that can be issued ⇒ Reliability, interpretation, and enforcement of policies

Answer 11

⇒ Spreading and underwriting of risk ⇒ Direct connection between insurer & insured ⇒ Activity needs to be exclusive to entities within the insurance industry

Answer 12

Activity with 1+ of these * Insurer spreads or underwrites the policyholder’s risk * Insurer and the insured have a direct contractual agreement * Activity is unique to entities within the insurance industry receives protection from federal intervention (under MF Act)

Answer 13

prevent abuses of fraud,deceit, and misrepresentation in the sale of securities market system so investors can gain knowledge on securities to buy/sell stock orgs must register securities to sell (prospectus)

Answer 14

in 1934, in conjunction with Securities exchange act of 1934 to help regulate U.S markets

Answer 15

annual reports to shareholders 5 yrs of financial data managements discussion on liquidity/capital income statements / cash flows / balance sheets (3,2 yrs)

Answer 16

apply general corporate tax rules can deduct reserves

Answer 17

stop abuse in private pension system + employee benefits -employers took tax deductions for benefits employees didn't get - ERISA ensures participants are more informed - also set greater standards, funding levels, protection to participants

Answer 18

insurers that administer relevant benefit plans are subject to certain reponsibilities to plan fiduciaries must also verify plan benefits and comply with ERISA

Answer 19

Civil Rights Acts Age discimination in employment older workers benefit protection act americans with disabilities act

Answer 20

-works to detect and prosecute fraid -crime investigation, auto theft for example

Answer 21

dictates exact wording in certain policies can apply to surety bonds as well

Answer 22

policy forms must be prescribed & approved by ICC iCC needs 30 days notice b4 cancelling policies dictates minimum policy limits & conditions -ABOLISHED AND REPLACED IN 1995

Answer 23

-decisions from cases can change regulation -can impact DOI functions court can shut down regulator issued rule -courts interpretation for one situation can affect all insureds -court tested language usually helps insurer -can influence claims settlement procedures

Answer 24

⇒ Contract drawn up by only one party, insurer ⇒ Ambiguous language will be interpreted in favor of insured

Answer 25

⇒ Insured’s reasonable expectation of coverage will be honored

Answer 26

-provide services to insurers,agents,brokers -prompt access to legislative developments -continually watch for new regulations from state insurance departments -exert influence on NAIC, state regulators -give more accurate info on critical issues

Answer 27

-filing rates & loss costs -develop rating systems -collect & tabulate stats -educate members -monitor regulatory issues -research important topics -Actuarial Analysis

Answer 28

-PH may feel against insurance company -help them tackle public interest issues -PH complaints can trigger market conduct exams, basically make regulators force companies to do something

Answer 29

-redlining prohibitions -unfair claims and trade practices laws -FAIR plans -tort reform -high-risk drivers pools

Answer 30

-Legislative (House of rep & senate) - standard insurance code, statutory law creation => statutory law -Executive - insurance department (enforces and adopts regulation) and attorney general => administrative law Judicial branch - state court system => case law

Answer 31

licensing reqs - need certificate of authority to write, need to be licensed 1st reporting & filing reqs periodic exams power to post sanctions

Answer 32

org of state legislators who care mostly about insurance -improve regulation -educating legislators on issues -assist communications b/w state legislators

Answer 33

* Often directly control DOI budgets (performance reviews can affect this) * Pass the insurance laws that insurance commissioners must enforce

Answer 34

-regulators submit periodic report to legislature -commissioner submits annual report summarizing activities of dpt and status of industry which must... - list insurers closed for that year - names of companies in receivership - recs by com about laws - exhibit summarizing financial status of licensed insurers

Answer 35

Banking Contract law Fraud (many DOIs have fraud dpts now) Investments Lobbying

Answer 36

established in 1871 Coordinate the regulation of insurers operating in multiple jurisdictions uniform financial reporting was 1st step

Answer 37

* Protect the public interest * Promote competitive markets * Facilitate the fair and equitable treatment of insurance consumers * Promote the reliability, solvency, and financial solidity of insurance institutions * Support and improve state regulation of insurance

Answer 38

- scrutinizing alien insurers -track insurance issues @ federal level - pricing and coverage help -valuing securites (securities valuation office) -maintain DBs to track financial adequacy (IRIS)

Answer 39

annually elect a president, VP & secretary from among their members for one year terms

Answer 40

NAIC researches and drafts model laws -streamlines the process of new laws -states can choose to adopt, or modify -benefit from legal uniformity -produced during NAIC national meeting

Answer 41

-may view as inappropriate or unnecessary -may modify to better match needs -legislature considers many matters, NAIC not that important

Answer 42

-NAIC basic standards for solvency regulation Steps -com submits request => NAIC -NAIC review team visits dpt, interviews, reviews laws/prior exams, inspects regulatory files, gains understanding, and has closing conference to prepare a report Financial Regulation Standards Accreditation Committee and Review Team decide together

Answer 43

(LRD) * Laws and regulations used by the state must meet certain basic standards of NAIC models * Regulatory methods of the state must be acceptable * Department practices must be adequate

Answer 44

⇒ May create resentment due to some legislators who may feel accreditation usurps legislative authority ⇒ Additional and revised model law requirements create a continual need for new legislation

Answer 45

executive branch of government -either separate department within the executive branch or by a unit that is part of a larger group in the branch

Answer 46

-licensing for companies,agents,claims adj -regulate pricing -some states have no pricing laws, have legal power under powers and duties provision even w/o prior approval, states can force withdrawal of rate/coverage

Answer 47

not in public interest illegal unfairly discriminatory other, excessive, inadequate, not min standards Most states have prior approval

Answer 48

its used by all states to promote uniform financial exams

Answer 49

every few years, varies in length based on financial condition, extent of exam and number of examiners

Answer 50

⇒ Detect as early as possible those insurers in financial trouble and/or engaging in unlawful and improper activities ⇒ Develop the information needed for timely, appropriate regulatory action

Answer 51

statistical statements accounting procedures financial statements financial controls IRIS investments

Answer 52

Review how insurers do business Market Conduct Examiners Handbook -sales & advertising -UW -Pricing -Claims

Answer 53

May need to pass examinations and pay fees to obtain licenses May require that licensed agents and brokers meet continuing education requirements and conflict of interest standards to maintain their licenses

Answer 54

-practices covered in market conduct exams -may be licensed through a test and CE -may have law that com can examine their records

Answer 55

* Made it illegal to defraud, loot, or plunder an insurer * Established a multi-state approach to anti fraud activity

Answer 56

* Restraints on budgets * Lack of insurance fraud laws

Answer 57

disinterested person/business appointed to receive, protect, and account for money or other property due a receiver appointment creates a receiver(ship)

Answer 58

* Liabilities exceed assets * Insurance company refused to submit books, records, accounts or affairs to insurance department * Insurer willfully violates its charter or any other state law

Answer 59

Amount new stock insurer needs to provide ABOVE minimum capital

Answer 60

Amount of surplus existing insurers need to continue writing

Answer 61

Lines of Business (more hazardous = more capital) Ownership type (stock insurers lower cuz can issue stock, captives lower as well, repriocals higher)

Answer 62

regulator needs access to books and records (in- state) usually required to have an in-state office (create jobs, easier access) Exam.... min capital and surplus good management records in order forms and rates have approval

Answer 63

better than start-up, gone through rigor of another state 2-3 yrs annual statements, recent financial exam copy financial statements (SAP, maybe GAAP) needs certificate of compliance from dom state Holding insurer registration statement = if in holding system cant shift business to affiliate in the new state

Answer 64

⇒ Only experienced insurers are acceptable candidates ⇒ Exceptions if insurer has substantial capital, owned by an insurer with lengthy history, or if the department is satisfied with the application for other reasons ⇒ Prevent start-ups from engaging in multistate licensing projects in initial years of operation

Answer 65

need to select a state as port of entry for U.S branch establishment needs data required for foreign insurer as well as U.S manager Trust agreement Certificate of alien funds on deposit

Answer 66

rates are set before costs are known regulatory environment differs by state has many information sharing and joint product development mechanisms

Answer 67

little regulation individualized risks no statistical info knowledgeable buyers and sellers

Answer 68

only informational filings * Highly individualized risks * No statistical info to justify rates * Diverse coverages and classification

Answer 69

rate manuals filed, little review * Less detailed stat plan and ratemaking data * Fewer statistically based rating factors * Subjective risk evaluation * Less credible loss experience

Answer 70

filed, little review * No stat plan or ratemaking data * Few rating or risk evaluation factors * Underwriting and exposure identification key to controlling losses * Driven more by business expense than by insured losses

Answer 71

general regulation -sophisticated buyers

Answer 72

review rates/plan * Legally required or socially desirable for consumers to purchase * Uninformed consumers * Highly uniform stat plan with credible rate data * Complex rates and classification system

Answer 73

close regulation, pripr approval of rates * Legally required of most employers * Costly, widespread business * Complex rating and classification system

Answer 74

a. Partially explains the rate regulatory system b. Regulatory attention can be greatest for issues that attract substantial voter interest and are easy for policymakers to understand

Answer 75

1. A rate is an estimate of the expected value of future costs 2. A rate provides for all costs associated with the transfer of risk 3. A rate provides for the costs associated with an individual risk transfer 4. A rate is reasonable and not excessive, inadequate, or unfairly discriminatory

Answer 76

collect and report loss experience examples. ISO, NCCI, NAII

Answer 77

Yes (Anti-Trust concerns) which led to ISO (& others) stopped filing final rates in the 90s only do loss costs and trends now

Answer 78

formal set of directions for reporting losses (and possibly expenses) to a statistical agent

Answer 79

loss development loss trending developing classification systems and class relativities make filings to DOI / develop forms / producing statistical reports to regulators

Answer 80

* Mandatory corrective action * Administrative supervision * Receiverships, rehabilitation, and liquidation

Answer 81

How effective is state regulation? How much of the cost is passed on to PH and tax payers? Do GFs diminsh the pressure on regulators to shut down insurers? Does it make consumers less concerned about selecting good insurers?

Answer 82

to allow liabilities to go unmatched by assets to pay for them

Answer 83

* Rapid premium growth * Inadequate rates and reserves * Unusual expenses, such as unexpected catastrophic losses * Lax controls over managing general agents * Uncollectible reinsurance * Fraud always rapid premium growth

Answer 84

knows mergers and acquisitions can cover up bad operations, NAIC can intervene discreetly

Answer 85

a. Fact finding b. Implementation of regulatory action to control financial difficulties facing insurers

Answer 86

regulators from multiple states examine an insurer IRIS + FAST != intervention, judgement is needed management has actuaries / accountants to assist in preparing, evaluating, and auditing financial reports, SAO needed

Answer 87

* Perform certain actions to reduce its liabilities * Limit its new or renewal business on products that are not guaranteed renewable * Reduce its general and commission expenses by specified methods * Increase its capital and surplus * Suspend or limit dividend payments to stockholders / policyholders * Limit or withdraw from specified investments * File reports concerning the value of its assets * Document the adequacy of its premium rates

Answer 88

- can seek approval from court to take formal control, to rehab needs legal permission to... (do anything important!) ⇒ Selling or transferring assets or inforce business or using them as collateral ⇒ Withdrawing, lending, or investing funds ⇒ Incurring debt ⇒ Accepting new premiums ⇒ Renewing policies that are not guaranteed for renewal ⇒ Merging with another insurer

Answer 89

⇒ How accurate are loss reserves? ⇒ If assets were liquidated quickly to meet current creditor demands, what would proceeds be? ⇒ Has management enacted measures that are stringent enough to stem the operating losses? ⇒ Is the insurer’s reinsurance adequate and collectible?

Answer 90

very severe financial difficulties - place in receivership type of bankruptcy where a receiver is appointed who formulates plan to distribute assets complex activities bw receivers, courts, GFs 2 outcomes rehab liquidiation

Answer 91

impaired insurer continues to exist after receivership compare A to L, if feasible try to find an investor to invest capital for equity rehab usually retired executive or lawyer - needs to stabilize cash flows and protect assets from creditor claims prelude to liquidation, almost always

Answer 92

⇒ How will loss reserves develop ⇒ Can expenses be trimmed, and how fast ⇒ How far are rates from being actuarially adequate to meet costs ⇒ Can rates be raised without destroying the company’s ability to market to its desired market segment

Answer 93

bankrupt org doesnt have enough assets to pay all creditors usually receivership => liquidation is a few months 2 options (1) transfer all business to another insurer (2) sell all assets and terminate all business

Answer 94

⇒ Continue coverage, subject to specified maximum amounts, and be credited with a specified percentage of the account value with a new carrier ⇒ Discontinue coverage and receive a specified smaller percentage of the account value in cash

Answer 95

Appt by com Has broad powers to seize and dispose of insurer’s assets, hire and fire personnel, enter contracts and lawsuits, and manage affairs of company 2 tasks (1) freeze and quantify liabilities (2) marshal assets and liquidate them

Answer 96

* Give notices of liquidation to creditors and policyholders and inform them of their right to file claims * Cancel policy coverage * Notify agents of their duties in the liquidation * Identify, sell, and collect assets * Recover any improperly transferred assets

Answer 97

liquidations are so complex, led to states creating these to manage

Answer 98

* Costs and expenses of administering the liquidation * Partial payment of debts to employees for service rendered within one year of the order for liquidation * All claims for policy losses incurred * Claims for unearned premiums and claims of general creditors

Answer 99

not-for-profit unincorporated entity established by state law ensured to protect PH from insolvent insurer

Answer 100

Lines (C- STORM), no RRGs, surplus lines, pools UEP has stated limit max covered claim (except WC) claim deductibe + policy deductible net worth deductible insurer needs to be deemed insolvent by court and placed in liquidation

Answer 101

any insurer covering lines incl is a member director of fund has broad authority to organize assessment made based on WP (incl lines) some states have 2% or so cap on assessments studies show GFs have had sufficient capacity

Answer 102

* Insurers are directly assessed for the operation of guaranty funds * Competition is distorted ⇒ Insurers that can aggressively market or loosely underwrite can gain a greater share of market

Answer 103

a. Insurer can’t use the fact that the guaranty fund exists to help sell business b. Needs to provide new policyholders with a guaranty fund disclaimer

Answer 104

may suspend or revoke license

Answer 105

No, only policyholders

Answer 106

* Each state guaranty fund must decide how much to assess for the policyholders living in its state * State of domicile has primary authority, but each state involved must approve * Due to differing guaranty fund coverages and laws, establishing a single settlement plan for an insolvency involving many states can be complex

Answer 107

Can make recommendation to state regulator about actions needed to take to prevent insolvency Can actively participate in the correction activities for those companies which show financial difficulties

Answer 108

Full accreditation review must be completed every 5 years pre-accreditation review performed the year before the full review interim annual reviews

Porter Flashcards

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