Cas 7

Front 1

According to Mallor, Define a tort

Back 1

A tort is any civil wrong inflicted upon a person other than by a breach of contract.

Front 2

According to Mallor,list the 4 types of wrongfulness and describe

Back 2

1 Intent - desire to cause certainconsequences
2 Recklessness - A concious indifference to a known high risk of harm
3 Negligence - Conduct that falls below the level necessary to protect others against harm
4 Strict Liability - Liability irrespective of fault

Front 3

According to Mallor,whatare the differences in the burden of proof in a civil vs. criminal case?

Back 3

Civil - Proponderence of Evidence (less stringfent than
Criminal - Beyond a reasonable doubt

Front 4

According to Mallor, List the 2 major types of damages recoverable under cases and give examples

Back 4

1 Compensatory Damages (tangible and intangible: like medical expenses vs. damage to reputation)
2 Puntiitve Damages - for flagrant wrongness is becoming greater part

Front 5

According to Mallor, List the 3 elements of a negligence case that a plaintiff must prove to recover:

Back 5

1 a breach of duty by the defendant
2 actual injury suffered by the plaintiff
3 actual and proximate causation between the breach and the injury

Front 6

According to Mallor, List the 2 traditional defenses in a negligence case and the 2 newer defenses

Back 6

Traditional 1 - contributory negligence
Traditional 2 - assumption of risk
Newer 1 - compareitive negligence
Newer 2 - Comparitive fault

Front 7

According to Mallor, List the 3 classifications of people who enter your land and you owe a duty to:

Back 7

1 Invitees - business people and public people who are lawfully on your land
2 Licensees - the privelege to enter land dependent on landowner (social guests/family/soliciters)
3 Trespassers

Front 8

According to Mallor, Define "Negligence Per Se"

Back 8

There must be a violation of a law by defendant, in addition the palintiff must be the type of person protected by said law and suffer a harm the law or statute was intended to protect against. Baldwin vs. GTE South (phone booth case were there waqs a law on locations of phone booths)

Front 9

According to Mallor, Describe the principle of Res Ipso Loquitur"

Back 9

"Thing speaks for itself"
applies when:
1 - The defendant has exclusive control of the instrumentality of harm
2 - the harm that occurred would not normally occur in the absence of negligence
3 the plaintiff was in no way responsible for his own injury

Front 10

According to Mallor, Describe Contibutory Negligence

Back 10

Th plaintiff's failure to excersize reasonable care for her own safety. This can be a complete defense unless the the plaintiff can show the defendant had the "last clear chance" to avoid the injury

Front 11

According to Mallor, Describe Comparitive Negligence

Back 11

The courts determine the relative negligence of the parties and award damages in proportion to the degree of negligence determined. Also there is the pure system where percentages always apply or the "mixed system" where the dedfendant must be at least 50% at harm to pay any damages

Front 12

According to Mallor, Describe Assumption of risk:

Back 12

The palintiffs VOLUNTARY consent to a KNOWN danger

Front 13

According to Mallor, Describe Strict Liability

Back 13

Liability without fault or irrespective of fault
-no intent to harm
2 most common (abnormally dangerous activities and sale of defective dangerous products)

Front 14

According to Mallor, List the two things that a tort reform legislation can do and give some examples

Back 14

1 - Limits plaintiff's ability to get a judgement and
2 - Limits the damages a plaintiff can recover once they get a judgement
EX1 - Restricitng the liability of social hosts or businesses for the damages caused by intoxicating people to whom they serve alchohol
EX2 statutory limits on punitive damages
EX3 Med-Mal has seem some statutory caps on claims and also forcing mediation before trial

Front 15

According to Mallor, Define Recklessness

Back 15

willful disregard for another's safety

Front 16

According to Mallor, Define Negligence

Back 16

A person or group causing injury failed to excersize reasonable care in their action or inaction

Front 17

According to Mallor, list 4 reasons for the 20th century's adaptation of "Pro-Consumer" Rules

Back 17

1- There is less of a percieved need to protect manufacturers of defective goods in a viable industrial economy
2- Long distributioin chains means that consumers no longer deal directly with the parties responsible for the defects
3 - Large corporations dominate the economy and people have less bargaining power.
4 - Complexity of goods have made buyer inspections more difficult

Front 18

According to Mallor, How has the switch from "caveot emtor" to "caveot venditor" led ot socializtion of risk?

Back 18

Caveot Emptor - "let buyer beware"
Caveot Venditor "let seller beware"
A belief that sdellers/manufacturers and their insurers are best able to to bear the economic costs associated with product defects and can pass these costs on through higher prices.. hence this risk ahas become socialized.

Front 19

According to Mallor, Describe "Contractual Theories" and "Tort-based theories" of product liability

Back 19

Contractual theories involve a product warranty
tort-based theories - plaintiffs argue that the defendant was negligent or that strict liability should apply.

Front 20

According to Mallor, According to UCC section 2-313, states that an Express Warranty is created in any of 3 ways:

Back 20

1 - Any affirmation of fact or promise regarding the goods (written or oral)
2 - Any descriptions of the good - staetements/blueprints/adjectives describing goods
3 - A sample or model of goods to be sold

Front 21

According to Mallor, Desribe "Implied Warranty of Merchantability"

Back 21

Implied warranty is created by law rather than the seller's statements. UCC says goods must be merchantable (be fit for ordinary purposes for which goods are used)

Front 22

According to Mallor, Desribe "Implied Warranty of Fitness"

Back 22

a) The seller has a reason to know a particular purpose for wich the buyer requires the goods
b) the seller knows that the buyer is relying on the knowelege of the seller to select a suitable good.
c) the buyer actually relies on sellers expertise to select good.

EX: Fast guy asks if hammock weill support his weight

Front 23

According to Mallor, Describe Section 402A's requirements in a strict liability case

Back 23

A seller is liable for physical harm or property damage suffered by the ultimate user of the product if the product "was in a defective condition unreasonably dangerous to the user or consumer or to his property" Sectoin 402A requires that 2 tests are met:
1 The seller must be engaged in the business of selling the product that harmed the plaintiff
2 The product must be in a defective condition when sold, and also must be unreasonably dangerous because of that condiditon
3- the buyer did not substantially alter the product from its original form

Front 24

According to Mallor, Describe the federal Magnuson-Moss Warranty Act

Back 24

Applies to sales of consumer goods that cost more than $10
If a written warranty is written, it must be full or limited
-a full warrant promises to a) remedy any defects in the product and b) replace the product or refund the purchase price
A seller who gives a limited warranty is bound to the promises it actually makes

Front 25

According to Mallor, Section 402B lests a consumer recover from injury resulting from misrepresentations about goodds they purchased if the following 4 criteria arte met:

Back 25

1-made by a party engaged in the business of selling the same type of goods
2-made to the public by advertising, labels, or similar means
3-a fact material to the goods purchased
4-actually and justifiably relied on by the the consumer

Front 26

According to Mallor, List the 3 major kinds of damages awarded in Products liability and describe.

Back 26

1- Basis of Bargain Damages - (direct economic loss of buying defective product)
2-Consequential DFamages - Personal Injury, property damage, and indirect economic loss, non-economic loss (pain and suffering)
3- Punitive Damages - to punish defendants who have acted in a outrageous fashion

Front 27

According to Mallor, Define a "Product Liability Disclaimer"

Back 27

a "Product Liability Disclaimer" is a clause wherby the seller tries to eliminate its liability under 1 or more theories of recovery

Front 28

According to Mallor, Define a "Remedy Limitation"

Back 28

A Remedy Limitation is a clause attempting to block recovery of certain damages (prevents recovery of certain types of damages but doesn'attack the palintiff's theory of recovery)

Front 29

According to Mallor, How can a seller exclude the implied waranty of merchantibility

Back 29

A seller must:
1- use the word merchantibility
2- make the disclaimer conspicuous if written

Front 30

According to Mallor, How can a seller exclude the implied waranty of fitness?

Back 30

A seller must
1-use a writing
2- make the disclaimer conspicuous

Front 31

According to Mallor, List 3 traditional products liability defenses that involve the plaintiff's behavior

Back 31

1- abnormal use
2- Assumption of Risk
3- Contibutory Negligence

Front 32

According to Miceli, what are the 2 primary social functions of tort law?

Back 32

1- To Compensate victims for their injuries
2 -to deter "unreasonably" risky behavior

Front 33

According to Miceli, what is the primary goal to an economic approach to tort law?

Back 33

primary goal to an economic approach to tort law is optimal detterence. For all those engaged in risky activities to take all cost-justified steps to minimize overall accident costs

Front 34

According to Miceli, Describe the unilateral care model

Back 34

Only the injurer can invest in in costly precaution, or care, to reduce the likelihood and severity of damages to a victim

Front 35

According to Miceli, Describe the bilateral care model

Back 35

Both injurer and victim can invest in precaution

Front 36

According to Miceli, list 3 simplifications to Miceli's model

Back 36

1 - Administrative costs of resolving tort claims are initially ignored
2- Assumes injurers themselves suffer no damages
3- The question of wether it is beneficial for the injurer and the victim to be engaged in the risky activity and at what level is ignored

Front 37

According to Miceli, At what point does x* occur under the MArginal Hand rule?

Back 37

Optimale Care occurs where the slopes of x and pD are equal. This is referred to aS THE MARGINAL HAND RULE

Front 38

According to Miceli, List a complication in applying marginal analysis to actual accident cases

Back 38

Care ussually comes in discrete bundles and does not vary continuously.

Front 39

According to Miceli, How does Equilibrium change between a "Simple Negligence" defense and "Negligence with contributory negligence" defense?

Back 39

In NAsh equilibrium both parties choose efficient care. Adding a defense of contributory negligence
1- does not distort incentives
2- does not affect the allocation of liability in equilibrium (victim bears liability)

Front 40

According to Miceli, Since negligence with contributory negligence does not affect equilibrium or liability what isd its 1 disadvantage

Back 40

It is likely costlier to administer because it requires courts to evaluate compliance with 2 2 standards of care rather than 1.

Front 41

According to Miceli, When asctivity levels matter in a unilateral model, what is preferred negligence or strict liability?

Back 41

Strict liability because the injurer will not choose the efficient activity level under negligence

Front 42

According to Miceli, What are 2 problems with liability insurance for tort law?

Back 42

1) Insurance reduces the ability of tort law to create incentives for care
2) Insurance will cause injurer to take too little care from a social perpective

Front 43

According to Miceli, list 2 methods insurers use to mitigate moral hazards

Back 43

1 - Providing premium discounts/surcharges to those who adopt/fail to adopt risk-reducing behavior
2- Offering partial coverage like high dedcutibles for lower premium

Front 44

According to Miceli,
In the model with Litigation Costs, strict liability gives inadequate incentives for injurer care for 2 reasons:

Back 44

1 - litigation costs will deter some victims from filing suit
2- the injurer will ignore the litigation costa incurred by the victims who do file suit.

Front 45

According to Miceli, Define Privity Limitation

Back 45

privity limitation means that a consumer only had the right to sue the person he had a contractual relationship with. Ex. Driver could only sue dealership, not the manufacturer of the car

Front 46

According to Miceli, What was overturned in the 1916 MacPherson vs. Buick case?

Back 46

The privity limitation was overturned

Front 47

According to Miceli, Define the Coase Thereom

Back 47

the Coase Thereom says that when parties to a legal dispute can bargain at a low cost, they will allocate recources efficiently regardfless of the assignment of liability

Front 48

According to Miceli, How do individuals tend to misperceive risks

Back 48

In a systematic way.
They tend to overestimate the low probability risks and underestimate the high probability risks

Front 49

According top Miceli, How do misperceptions affect output.

Back 49

As long as consumers expect to bear some of the losses, misperceptions will affect output.
1- If consumers overestimate risks (alpha greater than 1) output is too low (consumers demand too little of product)
2- If consumers underestimate risks (alpha less than 1) output is too high (consumers demand too much of product)

Front 50

According to Miceli, why do mispercetions by the consumer support strict liability?

Back 50

The party who more accurately perceives the risk should bear the liability in equilibrium.
The historical trend toward strict liability is supported in conjunction with the increasing complexity of most consumer products

Front 51

According to Hamilton and Ferguson, Describe a modified No-Fault plan

Back 51

-most common form of no-fault legislation
-partially restricts the right to sue but does not eliminate it
-offers a comprehensive personal injury protection package to injured auto accident victims
-in most states places a ceiling on the max personal injury benefits

Front 52

According to Hamilton and Ferguson, Define a threshold in a modified no-fault plan

Back 52

-is a boundary that must be crossed before an injured person can make a tort liability claim
-can be verbal ort monitary
-a threshold is unique element of a modified plan
-distinguishes it from a pure plan and an add-on plan

Front 53

According to Hamilton and Ferguson, Describe an Add-On no-fault plan

Back 53

-expanded version of medical payments and disability coverages
-provides benefits similar to PIP benifits in a modified plan
-NO RESTRICTION on the right to sue
-contains off-sett provision that entitle a no-fault insurer to reimbursement for no-fault benefits paid to the injured person.

Front 54

According to Hamilton and Ferguson, Describe Choice No-Fault plans

Back 54

Insured has option at the time the policy is purchased, of choosing to be covered under no-fault insurance
- Predium reductions offered to those who select no-fault coverage
-insured gets to choose appropriate amounts of coverage for himself

Front 55

According to Hamilton and Ferguson, describe what is meant by a coordination of benefits provision, in a no-fault plan

Back 55

To Reduce the cost of Auto insurance a coordination of benefits provision is used.
-these provisions make either the health or the auto insurance primary and require that the premium for the excess insurance source be reduced accordingly.
-ussually benefits from federal or state insurance plans are (WC, disability, social security) are deducted from no-fault payments
-then health insurance plans are not reduced, but, they can recover against the no-fault plan

Front 56

According to Hamilton and Ferguson, does the primary PIP follow the auto or the insured?

Back 56

It varies can be either way, but iof both apply then pasyments are pro-rated.

Front 57

According to Hamilton and Ferguson, Described the assigned claims plan in no-fault insurance

Back 57

When no insurance is available from any source (both parties uninsured) then "assigned claims plan" kicks in.
-funded by insurance companies
-claims assigned based on volume of insurance a carrier writes in that state.
-gives insurer the right of subrogation against uninsured driver.

Front 58

According to Hamilton and Ferguson, Has no-fault insurance plans succeeded in reducing auto insurance premiums?

Back 58

The reduction in premiums has not been attained, as there is a wide gap between the no-fault plans that have been introduced and the concept of a pure no-fault insurance.
-Further change and innovation are inevitable.

Front 59

According to AAA "Current Issues in Asbestos Litigation", Since a victim 's disease is often attributed to multiple exposures over decades of use, How does a typical claimant file suit?

Back 59

-A single claimant typically files suit against 60 or more defendants
-The majority of claims are filed in state courts
-the mix of claims by state has varied dramatically over time

Front 60

According to AAA "Current Issues in Asbestos Litigation", Describe the RAND corporation's may 2005 report

Back 60

- one of the most comprensive asbestos studies of all time
- it shows that at least 730,000 claimants had filed suit through 2002 against more than 8,400 defendants
--showed that the annual number of claims increased sharply beginning in the mid to late nineties, and the nonmalignant unimpaired claimants account for most of the growth.
-there is concern due to the increase in claims because of a depletion in funds to pay future claims
-there was at least $70 billiuon paid claims due to nonmalignant claimants
RAND study does not include information past 2002.

Front 61

According to AAA "Current Issues in Asbestos Litigation", list 5 notable changes since 2002 (RAND study)

Back 61

1 - more recources to direct recources to the sickest claimants (changes to the MAnville Trust Distribution Process and state reforms imposing medical criteria to bring a claim)
2 - a decrease in claims filing in 2004-05 of less severe medical conditions
3 - additional bankruptcies, but at a lower annual rate
4 - continued federal and state reforms
5 - heightened scrutiny of potentially fraudulent claims

Front 62

According to AAA "Current Issues in Asbestos Litigation", The Manville Corporation was the largest asbestos manufacturer, they have claims experience available through 2005 describe some of the conclusions from their data

Back 62

1- more than 100,00 claims filed in '03
2- Mesothelioma claims have steadily increased due to (a - change in TDP effective that year, b- greater medical awareness and diagnossis of mesothelioma, and c - increases in claimants propensity to sue, rather than increase in disease incedence)
-nonmalignant claims have varied much more over time
-Predicts that 1.2-2.1 million claims will ultimately be filed

Front 63

According to AAA "Current Issues in Asbestos Litigation", why could dedfense costs increase in the future?

Back 63

- more defendants are now involved in litigation and defense is no longer routinely handled on a joint basis
-many defendants have abandoned settlement strategies
-newer defendants are incurring significant discovery costs as they work to understand their exposure and potential defenses
- overage disputes between the denfendants and insures, as well as between insurers and their reinsurers might increase

Front 64

According to AAA "Current Issues in Asbestos Litigation", there have been various proposals for asbestos reform, but the economic costs are uncertain, list 2 reasons for the uncertainty:

Back 64

1 - sources of information regarding asbestos claims are limited
- the time horizon for the projections span 50 years

Front 65

According ot AM Best's, "Business as never before" List 4 court decusions in 2004 that are changing the way insurers work.

Back 65

1 - Plaintiff's sought rulings on coverage disputes, payment caps, and punitive damage awards
2 - World Trade Center insurance litigation has made insurers aware of the need to document complex insurance transactions carefully
3 - Health insurers can operate knowing that the Employee Retirement Income Security Act pre-empts any state lawclaims regarding employee benefit plans
4 - Premium disclosure policies are more closely examined by life insurers as numerous lawsuits regarding modal premiums make their way through the courts

Front 66

According ot AM Best's, "Business as never before" health insurers (Cigna and Aetna) had moved their cases from state to federal court on the grounds that ERISA pre-empts any claims regarding employee benefit plans. Describe 2 benefits of ERISA

Back 66

1- Under ERISA, patients can sue an HMO or other health plan for reimbursement of denied benefits but not for damages caused by the denial.
2 - The US supreme court ruled that under ERISA, if an HMO concludes that a particular treatment isn't covered under the terms of the plan, its "denial of coverage would not be a proximate cause of any injuries arising from the denial"
-a s a result - ERISA-based plans are removed from the state statutes, which minimize risk to the insurers.

Front 67

According ot AM Best's, "Business as never before" Desribe Dimunition of value, and give facts about how different states treat it.

Back 67

Diminished value is when the market value of a car is diminished after it has been in an accident and then repaired.
-Georgia requires that the insurer refund the difference ot insureds
-43 states allow insurers to exclude dimunition in value in policy language
-18 states do not have any case law on the subject

Front 68

According ot AM Best's, "Business as never before" Was the World Trade Center 1 claim or 2 claims and why i sit important?

Back 68

A formal insurance contract was not in place at the time of the terrorist attack. Therefore the decision came down to whatever was in the different insurers binder forms.
-one jury found it to be a single loss for a a group of insurers while a second jury found it to be two occurrences for another group of insurers.

Front 69

According ot AM Best's, "Business as never before" Describe the Wallace and Gale asbestos court case by MAryland and upheld by US district court of appeals and why this case was significant.

Back 69

The courts ruled that the insurers are only liabl;e for the aggregate limits on the policy and not an unlimited amount.
Thsi si significant because policyholders have sought to shift the asbestos liability onto insurers, sometimes without regard to policy limits like policy limits on completed operations.
Wallace and Gale demonstrates that "'operations' claims can also be 'completed operations' which, in fact have an aggregate limti"

Front 70

According ot AM Best's, "Business as never before" Define Modal Premiums

Back 70

Modal premiums allow premiums to be paid more frequently than annually (monthly) - plaintiffs argue that insurers should disclose APR's and finance charges if they apply.

Front 71

According ot AM Best's, "Business as never before" why are life insurers concerned about disclosing APRs and fees associated with modal premiums?

Back 71

An Indiana professor has recommended to Insurance regulators that the information be disclosed to judge the desirability of paying monthly, and wide variations in APR's exist
-In 2003 Distrrict of Columbia's Commissioner of Insurance and Securities regulation told a seminar that failure to disclose was a an unfair trade practice.
-Insurers are taking a wait and see approach, but the risk of being sued will eventually lead to more explicit disclosures.

Front 72

According ot AM Best's, "Business as never before" What is going on with punitive damages amounts?

Back 72

A Utah case allowed an award of 145 million against state farm.
US supreme court overuled and set a single digit limit (9 million)
-Cozen O'conner Law firm study shows that punitive damages awards are rarely higher than a 4 to 1 ratio, and has made arguments to suggest this ratio should not be surpassed unless there is an agregious offense.
-although not every verdict winds up in an appeal, so insurers are still in an important fight to control punitive damage expenses.

Front 73

According ot AM Best's, "Business as never before" According ot AM Best's, "Business as never before" list the complaints of the Spitzer case vs. MArsh.

Back 73

1 - brokers and insurers fix prices and rigged bids (illegal)
2 - insurers inappropriately offered brokers contingent commissions based on the quality or volume of business they produce without proper disclosure to their clients.
- these contingent commissions were rerwards the business that MArsh steered and allocated to the insurance companies
- Lawssuit named the biggest companies (AIG, Ace Ltd., Hartford, and Munich Re.)
-Several Insurance company employees have pleaded guilty to criminal charges

Front 74

According ot AM Best's, "Business as never before" What did Bob Zeman, SVP for Property/Casualy Insurers of America say regarding the Spitzer attack on contingent commissions?

Back 74

1 - We need to differentiate between contingent commissions and bid rigging
2- Contingent commissions are not illegal if done legally, but bid rigging is illegal.

Front 75

According ot AM Best's, "Business as never before" What IS ONE of the effects of the Spitzer case already?

Back 75

1 - Most of World's largest brokers have already stopped accepting contingent commissions

Front 76

According to Musulin, Describe the 4 steps of the Excess wind procedure.

Back 76

1 - STATEWIDE loss data is accumulated by year and separated into wind and non-wind components
2 - a ratio of wind to non-wind losses is calculated by years over a long period of time (20-30 yrs). If any years ratio is in excess of 2 standard deviations of the mean then the excess losses are removed and averaged over a longer period.
3- An "excess wind factor" is then calculated. ?Normal losses = Non-Wind + Wind losses below the threshhold.
4 - The Statewide excess winf factor is then weighted with a regional excess wind factor and applied to normal losses to estimate total expected losses in an average year

Front 77

According to Musulin, List 4 assumptions about the 20-30 yr period used.

Back 77

1- Catastrophic activity is "normal" during this period
2- Population demographics are stable
3- Insured losses by peril are stable
4- Changes in coverage or construction practices do not affect the ratio of wind to non-wind losses.

Front 78

According to Musulin, List 2 defenses of the Excess Wind Procedure

Back 78

1 - It can be used effectively in situations where the basic assumptions are not violated.
2 - It uses actual insurer loss data and simple mathematical calculations that can be easily verified

Front 79

According to Musulin, List 3 disadvantages of using a computer model:

Back 79

1 - Difficulty in verifying data (amount of exposure is used which cannot be seen in annual statement)
2 - Use of Black-Box model (modeler's programs are propriety)
3 - Model Complexity (the seismic and nmeteorological simulations and damage functions are difficult ot follow)

Front 80

According to Musulin, Who were the first users of modeling technology and why?

Back 80

Reinsurers
-used to estimate Probable Maximum losses
-to price reinsurance products

Front 81

According to Musulin, Who were the second major users of modeling technology?

Back 81

Rating Orginizations like AM Best

Front 82

According to Musulin, Despite the use of 'black boxes' and proprietary information, the insurer community accepted models with relatively little controversy, List 4 reasons why.

Back 82

1 - Modeling technology was a clear technological improvemnt over the available alternatives
2 - Modeling process was not foreign to insurers
3 - Insurers benefitted from a competitive environment offering modeling services
4 - Insurers lacked a safety-net from government-sponsered windpools, leaving them little choice but to accept the modeling process used by their reinsurers and investors or face a loss of reinsurance and or capital

Front 83

According to Musulin, Describe 2 consequences if the regulators do not accept modeling technology.

Back 83

1 - A Contraction in coverage for high-risk insureds from private companies
2 - An Expansion of coverage offered by quasi-governmental entities financed through assesments or public debt.

Front 84

According to Musulin, list 4 impacts of the regulatory acceptance of models.

Back 84

1 - In short run, there will be disruptions as more focused pricing leads to insurance prices more alligned with risk
2 - not all consumers will be worse off (low risk consumers will benefit from price reductions and high risk consumers will be incented to mitigate risk)
3- In the long run aggrergate losses should be decline as risky behavior is discouraged
4 - If the impact on consumers is unnacceptable, public policy makers might decide that high risk consumers will be subsidized through residual markets and/or public sources of capital

Front 85

According to Musulin, What is the most significant effect of modeling?

Back 85

A greater rating resolution (more accurate pricing)
- Large amounts of daata required in traditional ratemaking are no longer required
-computer modeling allows for rating resolution at the zip code and construction class level

Front 86

According to Musulin, List 5 potential benefits to consumers by having a better estimate of individual loss exposure.

Back 86

1 - Comprehensibility of prices (consumers can better understand and control insurance costs once they understand the characteristics that give rise to a higher exposure to loss)
2 - Rational Behavior - Consumers will take costs into account and act accordingly
3 - Fair pricing - more accurate pricing will reduce subsidies and reward consumers who mitigate risk
4 - Reduced Information risk - Investors demand higher returns to compensate for uncertainty. improved information will reduce this uncertainty and create more capacity
5 - Stable pricing - models use long term seismic or weather data and all available information on the risk to determine loss estimates

Front 87

According to Musulin, the modeleing issue has directed regulatory attention to 2 areas, list them.

Back 87

1 - Ratemaking (where most focus has been)
2 - Solvency - The models offere regulators an improved tool to assess financial solidity of insurers (but if they use them for solvency it makes it difficult to deny their use in Ratemaking)

Front 88

According to Musilin, some people that full disclosure of models isn't necessary. List 4 tests that could be used as a validation process without having to fully disclose:

Back 88

1 p[redicted wind fields ina storm actually observed vs. those actually observed
2 statstics such as mean windspeed, or number of storms of certain categories for simulation vs. historical averages.
3 relative damage estimates by type of structure vs. what was actually observed in recent storms
4 predicted losses vs. actual losses

Front 89

According to Musilin, Describe the Florida Commission on Hurricane loss projection Methodology.

Back 89

-started in 1995
-commission consists of 12 people from various disciplines (meteorology, computer science, engineering, actuarial, consumer advocate, DOI)
- objective of commission is, "The legislature recognizes the need for expert evaluation of computer models and other recently developed techniques or improved actuarial methodologies for projecting hurricane losses in order to resolve conflicts amoung actuarial professionals, and in order to provide both immediate and continuing improvement in the sophistication of actuarial methods used to set rates charged to consumer"

Front 90

According to Musilin, describe the results to date of the Florida Commission on Hurricane loss projection Methodology.

Back 90

-test data submitted to modelers
- outside experts visited modelers and evaluated their techniques
- outside experts shared their findings with commission
- in '96 the commission adopted model standards and specifications
- modelers were offered the opportunuity to respond to those standards and specifications
- modelers will make presentation to commission to argue that their models are sufficient
- if approved insurers could use models in rate filings

Front 91

According to Musilin, list 2 powerful disincentives for unscrupulous insurers to manipulate model results

Back 91

1 - if rates are inflated, the insurer could loss business
2 - inflated loss estimates could: a) put downward pressure on financial ratings and increase the need for and cost of reinsurance and b)depress earnings and adversly affect stock price

Front 92

According to Musilin, list 3 safeguards against manipulating model results

Back 92

1 - Require a legal affidavit attesting that the user has not manipulated assumptions
2 - require a formal opinion from the modeler or the proper execution of the model when run by the insurer
3 - Have modelers provide regulators with rate ranges that reflect geographic, building structure, and deductible options

Front 93

According to Musilin, List 2 issues for states with major CAT exposure

Back 93

1 - Availability problems if you do not allow insurers to charge for high risk exposures
2 - national and regional market disruptions

Front 94

According to Musilin, Regulators and insurers need to work together or we would see these 3 consequences:

Back 94

1 - availability shortages
2 - continuing market disruptions
3 - degraded claims paying ability

Front 95

According to Brady, define "Anti-Rebating Laws"

Back 95

Laws that prohibit agents, brokers and insurers from returning portions of premiums as incentive to applicants to purchase insurance.

Front 96

According to Brady, What were the 27 officers of the South-Eastern Underwriter Assoctiaons indicted for? (5 things)

Back 96

1 - price fixing premiums and agents commissions
2 - coercion tactics to force non-SEUA members to abide with SEUA rules
3 - continuing agreement and concert of action to take control of 90% of the fired and allied lines market
4 - withdrawing rights of SEUA agents if they did business with non-SEUA companies
5 - threatening insurance consumers who did not purchase insurance from SEUA

Front 97

According to Brady, The SEUA case was first dismissed in district court on what grounds?

Back 97

Paul vs. Virginia was the defense (insurance not interstate commerce)

Front 98

According to Brady, describe 'Paul vs. Virginia'

Back 98

'Paul vs. Virginia' was a ruling that insurance was not interstate commerce, insurance should be regulated by the states, and insurance was not subject to federal regulation and anti-trust laws

Front 99

According to Brady,what was the final ruling in the supreme court of the SEUA case?

Back 99

SEUA Decision - Court ruled that insurance was interstate commerce, subject to federal regulation and Sherman Act and other anti-trust legislation. (Clayton Act, Robinson-Patman Act, Federal Trade Commission Act)

Front 100

According to Brady, list 4 arguments to support federal regulation of insurance in the SEUA case?

Back 100

1 - insurance is inter-related, interdendent, and integrated accross states
2 - only 18 of the 200 members of the SEUA were domiciled in one of the six SEUA states
3 - bothe before and after PAul vs. Virginia, intangible products such as electrical impulses of telegraph transmissions were subject to federal legislation
4 - other business make sales contracts in states where they are not headquartered and they are subject to federal regulation.

Front 101

According to Brady, describe the Sherman act.

Back 101

This act prohibits collusion in attemts to gain monopoly poower

Front 102

According to Brady, describe the results of the McCarran Ferguson act:

Back 102

Decision that it was in the public interest for states to regulate insurance and federal government regulates to the extent that states do not. Also, federal Sherman Act applies for boycott, coecion, intimidation.

Front 103

According to Brady, in the McCarran Ferguson act congress could regain control if the following were not met.

Back 103

1 - State legislation could not supercede federal legislation regarding boycott, coercion, and intimidation
2 - if congress passes a specific law regarding the insurance industry, federal law supercedes any state regulation in the areas addressed by the federal legislation.

Front 104

According to Brady, after McCarran ferguson act, the NAIC wrote 2 model rate regulation bills, 1 applied to liability insurer the other for fire, marine, and inland marine. What were the 2 purposes?

Back 104

1 - to ensure that rates were not excessive, unfairly discriminatory and adequate
2 - low cooperation in setting rates as long as it did not hinder competition

Front 105

According to Brady, after McCarran ferguson act, the NAIC wrote 2 model rate regulation bills, 1 applied to liability insurer the other for fire, marine, and inland marine. What 4 things did the bill require?

Back 105

1 - Required prior approval of rates
2 - explained how to file rates
3 - described the role of rate organizations
4 - recommended anti-rebating provisions in states that did not already have such laws.

Front 106

According to Brady, with the purpose of preventing the Federal Trade Commision act, the NAIC adopted the "act relating to unfair methods of competition and unfair deceptive acts and practices in the business of insurance" List 8 prohibited activities:

Back 106

1 - misrepresentation and false advertising of policies
2 - false information and false advertising in general
3 - defamation
4 - boycott, coercion, and intimidation
5 - false financial statements
6 - stock operation and advisory board contracts
7 - unfair discrimination
8 - rebating

Front 107

According to Brady "State Insurance Departments", what branch of the state government is the insurance department a part of?

Back 107

Executive Branch!

Front 108

According to Brady "State Insurance Departments", List 4 arguments for an ELECTED insurance commissioner.

Back 108

1 - appointed commissioner might not be aware of the publics concerns
2 - appointed commissioner might feel inclined to yield to the interests of whoever appointed him, wheras an elected commissioner is not obligated to a certain group.
3 - an elected official is elected for a full term, whereas an appointed commissioner is subject to dismissal
-an appointed commissioner is more likely not to make changes from prior commissioners.

Front 109

According to Brady "State Insurance Departments", List 4 arguments for an appointed commissioner

Back 109

- no need to campaign for funds
- would be experienced and knowelegable (some states require an expert)
- is less likely to be swayed by public opinion
- will not be perceived as a politician

Front 110

According to Brady "State Insurance Departments", List 9 typical duties of the insurance commissioner

Back 110

1 overseeing operation of the insurance department
2 promulgating orders, rules, and regulations to administer insurance laws
3 issuing licenses to insurances to insurance company's agents and brokers
4 reviewing pricing and coverage
5 performing financial and market conduct exams
6 holding hearings on insurance laws
7 taking actions against violations of law
8 issuing annual reports on the status of the status of the states's insurance department.
9 maintaining records of department activities.

Front 111

According to Brady "State Insurance Departments", describe regulatory philosophy and regulatory style.

Back 111

REgulatory philosophy is the attitude and regulatory style is the approach.

Front 112

According to Brady "State Insurance Departments", why id important for an insurance department to have agood relationship with the state legislature.

Back 112

Since insurance dfepartments compete with other state regulatory agencies for share of a limited budget, lobbying for the departments needs is important. A good relationship with the legislature can result in insurance issues being addressed on a regular basis and in a beneficial manner.

Front 113

According to Brady "State Insurance Departments", Desribe the function of the liscensing department within the department:

Back 113

All insurance departments deal with the liscensing of insurance companies and agents. Both insurance companies angents must meet certain requirements and pay fees that vary by state.

Front 114

According to Brady "State Insurance Departments", other than the liscensing department, what is th eother major depoartment within the insurance department?

Back 114

Coverage and Pricing Regulation

Front 115

According to Brady "State Insurance Departments", List the 4 different types of filing lws for P&C lines.

Back 115

1 Prior Approval
2 File and Use
3 Use and File
4 No File

Front 116

According to Brady "State Insurance Departments", List the 5 most common reasons for disapproval of a filing

Back 116

1 not in the public interest
2 illegal
3 unfairly discriminatory
4 excessive or inadequate
5 not meeting minimum standards

Front 117

According to Brady "State Insurance Departments", Regulators can do financial and market conduct exams, descrtibe financial exams:

Back 117

Financial Examinstions include:
1 - annual audits by CPA's
2 - Actuarial Opinions on Loss Reserves
3 - can include the use of the annual statement
3 - the NAIC publishes the "Financial Condition Examiners handbook" to detect a) early detection of financial trouble or unlawful activity, and b) develop information for timely, appropriate regulatory action

Front 118

According to Brady "State Insurance Departments", Describe IRIS:

Back 118

Insuance Regulatory Information System,
1 for regulators as a guide to help highlight insurers needing financial scrutiny
2 to asses a company's finacial situation by examining certain financial ratios

Front 119

According to Brady "State Insurance Departments", Regulators can do financial and market conduct exams, descrtibe market conduct exams:

Back 119

Review ways in which insurer does business including:
1 advertising
2 underwriting
3 pricing
4 claims handling
5 policy issuance

Front 120

According to Brady "State Insurance Departments", List 2 main reasons why every state insurance department does NOT have a fraud bureau:

Back 120

1 restraints on budgets
2 lack of insurance fraud laws

Front 121

According to Brady "State Insurance Departments", Regulators are responsible for the functions of receivership, rehabilitation, and liquidation. List 3 grounds for rehabilitation.

Back 121

1 liabilities exceed assets
2 insurer refuses to submit its books, records, etc. to commisssioner
3 Insurer willfully violates its charter or articles of incorporation or any state law.

Front 122

According to Brady "State Insurance Departments", ins. departments are responsible for protection and education of consumers. list 5 of these types of activities:

Back 122

1 help with claims
2 compalints
3 inquiries from general public
4 offer eductional programs (insurance and loss prevention)
5 Publish information about guides for purchase of insurance

Front 123

According to Brady "State Insurance Departments", List 4 functions of the General Counsell of the insurance department

Back 123

1 Give legal opinions on legislation
2 assist in drafting admisnistrative rules and regs
3 Represent the insurance regulators in non-criminal proceedings
4 offer legal advice on insurance issues

Front 124

According to Brady "State Insurance Departments", Give 5 reasons why the position of legislative liason is important:

Back 124

1 testimony needs to be given
2 misconceptions addressed
3 supporting data offered
4 questions answered
5 advice to assist legislature's dealings with insurance codes and related laws.

Front 125

According to Brady "State Insurance Departments", List 4 sources for regulatory funding

Back 125

1 Premium taxes
2 Fees and assesments
3 appropriation from the state treasury
4 Fines and penalties

Front 126

According to Brady "State Insurance Departments", which 2 states have regulatory insurance commissions and describe their functions

Back 126

Louisiana and Oklahoma
-purpose is to regulate insurance pricing

Front 127

According to Brady "State legislatures and the NAIC", List 6 ways a legislature can influence the dept. of Ins.

Back 127

1 enactment of laws
2 deliberations about laws
3 hearings
4 investigations
5 reports
6 control budget

Front 128

According to Brady "State legislatures and the NAIC", list 3 forms of legislative investigations

Back 128

1 requiring annual reports
2 completing performance reviews
3 conducting audits of state insurance departments

Front 129

According to Brady "State legislatures and the NAIC", List 6 types on non-insurance laws that a legislature can influence the insurance environment.

Back 129

1 Banking (some fed banks can sell insurance)
2 Contracts
3 Premiums (monthly premiums)
4 Fraud
5 Investments
6 Lobbying

Front 130

According to Brady "State legislatures and the NAIC", What was one of the first steps to creating effective insurance regulation by the NAIC?

Back 130

Uniform Financial reporting

Front 131

According to Brady "State legislatures and the NAIC", What are 3 objectives of the NAIC?

Back 131

1 Promote public interest through fair and equitable treatment
2 Solvency
3 Maintain and improve effective regulation

Front 132

According to Brady "State legislatures and the NAIC", what is a NAIc model law?

Back 132

The NAIC has reccommended insurance regulation in the form of hundreds of model laws. It occurs when the entire NAIC membership votes to adopt a committews recommendation

Front 133

According to Brady "State legislatures and the NAIC", Model laws can be changed by legislatures, take years to be adopted or not be adopted at all. Give 4 reasons for this

Back 133

1 Some may be viewed as unneccesary because other state laws are viewed as sufficient
2 decide to modify a model law to meet their particular state's needs or to better coalesce with other laws
3 legislature might not have a session every year or sessions might be too brief.
4 abundance of other items for legislature to look at.

Front 134

According to Brady "State legislatures and the NAIC", in 1998 the NAIC introduced its Accredation Program to have basic standards so that regulators would have basic standards for solvency regulation. List the 3 criteria for accreditation

Back 134

1 The laws and regulations of a state must meet certain basic standards of NAIC models
2 The regulatory methods of the state must be acceptable
3 Department practices must be adequate

Front 135

According to Brady "State legislatures and the NAIC", The research division of the NAIC does a lot of work to support the regulators, list 6 main activities performed by the research division:

Back 135

1 Giving information to the state insurance departments
2 Helping the staffs with technical and regulatory questions
3 giving information to federal and state agencies
4 Helping to develop the NAIC financial and statistical datatabases
5 providing pertinent statistical material and research studies
6 Giving other NAIC departments support through research

Front 136

According to Brady "State legislatures and the NAIC", List 3 porimary areas of importance dealt with by the research department:

Back 136

1 Statistics
2 Insurance Issues
3 Advice on pricing and coverage regulation

Front 137

According to Brady "State legislatures and the NAIC", list 3 databases maintained by the NAIC to keep track of problem people and companies:

Back 137

1 Regulatory Information Retrieval System (RIRS) names of people ort companies that have had regulatory or disciplinary action taken against them
2 Special Activities Database (SAD) - names of people/companies who have had charges brought against them or been investigated, might have been involved in fraud
3 Complaints Database System (CDS)

Front 138

According to Brady "State legislatures and the NAIC", What does the Securities Valuation office do?

Back 138

monitors the quality and the value of investments of insurance companies

Front 139

According to Brady "The Role of Others in Insurance Regulation," list 4 other entities that play a role in insurance regulation:

Back 139

1 the courts
2 the insurance industry
3 consumers
4 other interest groups

Front 140

According to Brady "The Role of Others in Insurance Regulation," list 4 areas in which the courts have influenced insurance regulation

Back 140

1 effect of court decisions on state insurance department activities
2 policy language
3 policy coverage
4 claims settlement

Front 141

According to Brady "The Role of Others in Insurance Regulation," List 3 vehicles for the insurance industry to influence regulation

Back 141

1 Trade Associations
2 Advisory Organization
3 Individual Insurance Companies

Front 142

According to Brady "The Role of Others in Insurance Regulation," List 2 functions of insurance Trade Associations

Back 142

1 Access to legislative developments and use association personnel as their lobbying forum
2 participate on committees in drafting new legislation or influencing changes to pending legislation

Front 143

According to Brady "The Role of Others in Insurance Regulation," Describe Insurance Advisory Organizations

Back 143

1 not as active as trade associations in shaping regulation
2 non-profits working on behalf of companies
3 primarily deal with the filing of rates or propspective loss costs
4 provide valueable services to memeber insurers.

Front 144

According to Brady "The Role of Others in Insurance Regulation," list 6 valueable services provided to memeber insurers by Insurance Advisory organizations:

Back 144

1 develop rating systems
2 collect and tabulate statistics
3 research topics important to memebers
4 Provide a forum for discussion on important topics
5 educate members, regulators and public on particular issues
6 Monitor regulatory issues of concern ot members

Front 145

According to Brady "The Role of Others in Insurance Regulation," List 2 ways insurance companies influence regulation

Back 145

1 Provide Expert testimony
2 providing NAIC with technical expertise

Front 146

According to Brady "The Role of Others in Insurance Regulation," what is the most influential consumer group and what has it done?

Back 146

PUBLIC CITIZEN

- automobile seatbelt/safety laws
- distrusts any action by insurance companies
- demonstartes influence by having its members testify before congressional committees

Front 147

According to Brady "The Role of Others in Insurance Regulation," list 7 major concerns of consumer groups in the 1990's

Back 147

1 auto rates can be lowered and service improved
2 insurance industry is inefficient
3 state regulators are too weak
4 ratemaking has perverse incentives regarding cost cutting and safety
5 structural reform is needed in regulation
6 competition must be increased
7 health insurance is the #1 crisis that needs to be addressed

Front 148

According to Brady "The Role of Others in Insurance Regulation," How do Consumer groups influence the NAIC?

Back 148

Consumer groups influence the NAIC by informing members of NAIC task forces, working groups, and comittees about perceived problems. The NAIC can use this information in developing model laws.

Front 149

According to Wagner 'Rating Bureaus', list 3 goals of early rating bureaus in the 1800's.

Back 149

1 establish and maintain adeqauate rates
2 control excessive commissions
3 standardize policy forms

Front 150

According to Wagner 'Rating Bureaus', In 1866, insurers formed the national board of fire insurance underwriters (NBFIU) list its 2 goals

Back 150

1 control rates and commissions
2 terminate agents who did not support and maintain board mandated rates.

Front 151

According to Wagner 'Rating Bureaus', in late 1800's regional bureaus were formed, list 4 ways they differed from the NBFIU.

Back 151

1 focused on insurer's conduct not agents
2 creating compacts with insurers to distance them from ratemaking and enforcement
3 force non-member insurers to become members by reducing rates
4 creating stampin offices to review rates and underwriting

Front 152

According to Wagner 'Rating Bureaus', The merritt committee was formed in New York to investigate non-life insurance. list 4 of its findings:

Back 152

1 fire rate problem was 2-fold (making of rate and maintenance of rate
2 insuirer's should be able to combine to eliminate rate wars caused by competition
3 having bureau rates would reduce expenses
4 more credible rates would result from insurers pooling their premium and loss data.

Front 153

According to Wagner 'Rating Bureaus', The merritt committee also looked at what extent states should be able to regulate. List 4 results

Back 153

1 life insurance commissions ands acquisition expenses limited (but not stock fire companies)
2 the bureau system prevented large increases in commissions
3 mutuals had advantage over stock companies, because they could declare dividends and have lower prices and commissions
4 NAIC adopted Inland MArine rules to limit what could be called IM. This closed a loophole for using non-regulated IM coverage.

Front 154

According to Wagner 'Rating Bureaus', list 3 ways bureaus tried to forestall competition

Back 154

1 sparking judicial/legislative activity to inhibit the use of non-bureau rates
2 bureaus preventing insurer's from being partial subscribers
3 bureaus challenging independent insurers rate filings or member's deviation filings

Front 155

According to Wagner 'Rating Bureaus', List the 3 conclusions of the US SEnates antitrust and Monopoly Committee(O'Mahoney Committee)

Back 155

1 competition should be the prime regulator of insurance
2 rate setting in concert represented the most serious threat to the competitive market
3 urged state regulators to use a 'file and use' system

Front 156

According to Wagner 'Rating Bureaus', shortly after the O'Mahoney committe these 3 things happened

Back 156

1 rate hearings and litigation were brought to a close
2 rate enforcement activities were stopped
3 insurers began to view the bureaus role as a "provider of services"

Front 157

According to Wagner 'Rating Bureaus', In the 20th century, rating bureaus consolidated to save money list 2 noteworthy ones.

Back 157

1 The Insurance Rating Bureau
2 ISO

Front 158

According to Wagner 'Rating Bureaus', Rating bureaus gradually have become advisory organizations, list services provided in fire underwriting and in Work comp

Back 158

Fire - town grading, and commercial fire scheduling rating
WC - experience rating

Front 159

According to Wagner 'Rating Bureaus', bureaus also serve as statistical agents for their members, list 1 major function of this

Back 159

gather, compile, submit to state regulators premium and loss data. This info tool for regulators to gauge U/W performanc eby line, class and territory

Front 160

According to Wagner 'Rating Bureaus', in 1988 20 state attorney generals filed antitrust lawsuits against ISO relating to the standardized policy language for commercial GL. List 3 changers ISO made in response:

Back 160

1 majority of the board will consist of public members
2 ISO prepared loss costs without input from industry committees
3 ISO staff become responsible for policy form development, with reliance on outside recources
3

Front 161

According to Wagner 'Rating Bureaus', in 1997 ISO became a for profit organization, describe two changes which illustrate why the insurance industry no longer owns ISO

Back 161

1 - insurer members only could elect 3 of 11 board members
2 - ISO employees and management have partial ownership and elect the remaining board members

Front 162

According to Wagner 'Rating Bureaus', In the 1980's and 90's, advisory orgainizations assesments went down by 50% of premium, list 4 reasons for this reduction:

Back 162

1 consolidations
2 insurers having option to become independent
3 availability of different levels of service ot purchase
4 savings that resulted from technology

Front 163

According to Wagner 'Rating Bureaus', list 3 ways advisory organizations enhance competition in the marketplace

Back 163

1 providing new companies with pricing assistance and policy language (easy entry)
2 assisting small carriers
3 focusing on the creation and maintenence of specialty products

Front 164

According to Harrington "Rate regulation in the 20th century", Describe a timeline of these dates: 1945, 1940's-1950's, 60's - 70's, 80's-90's

Back 164

1945 - McCarran/Ferguson - rate regulation reaches full bloom
40's-50's - prior approval, bureau rates
60's-70's - bureau rates break down, use of competitive rating in some states
80's-90's - large commercial rates largely deregulated

Front 165

According to Harrington "Rate regulation in the 20th century", in 60's many states went to competitive rating from prior approval, list 4 reasons for this

Back 165

1 movement away from bureau rates
2 increased administrative costs of multiple rate filings by insurers
3 solvency regulation became more important
4 hopes that price competition would stymie affordability problems

Front 166

According to Harrington "Rate regulation in the 20th century", rapid growth in claims costs in the 70's and 80's caused states to respond in these 4 ways:

Back 166

1 Prop 103 in California
2 in 80's WC rates were widely supressed
3 development of residual market mechanisms
4 rate of return regulation

Front 167

According to Harrington "Rate regulation in the 20th century", Competition creates incentives to do these 4 things for insurers:

Back 167

1 forecast costs accurately
2 price and underwrite as to avoid adverse selection
3 create refined system of rate classification
4 minimize claim costs and settlement expense

Front 168

According to Harrington "Rate regulation in the 20th century", competitive rating and risk classification has these 3 additional impacts

Back 168

1 promotes coverage availability
2 provides incentives for high risk buyers to control losses
3 smaller residual markets

Front 169

According to Harrington "Rate regulation in the 20th century", List 5 consumer advocacy arguments for regulation

Back 169

1 the insurance industry limited exemption form federal antirust laws facilitates collusion
2 consumers need protection from inadvertantly purchasing high priced coverage
3 when insurance is cumpolsory, regulation is needed
4 rate supression is good for affordability and will encourage people to buy
5 restrictions on classification will lead to fairness

Front 170

According to Harrington "Rate regulation in the 20th century", list 5 possible adverse effects of prior approval witrh regulatory lag

Back 170

1 administrative costs high
2 delays make it hard to keep up with trends
3 greater variation in coverage ability over time
4 greater variability in insurer profits
5 higher long-run prices

Front 171

According to Harrington "Rate regulation in the 20th century", list 3 possible adverse effects of prior approval with binding rate floors

Back 171

1 inefficient non-price competition (excessive service)
2 slower expansion of efficient firms
3 higher prices

Front 172

According to Harrington "Rate regulation in the 20th century", list 6 possible adverse effects of prior approval with average rate suppression

Back 172

1 larger residual market
2 reduced service
3 increased risk for insurers and increased solvency risk
4 adverse spillover on other states
5 reduced insurer investment infrastructure
6 reduced entry and increased exit

Front 173

According to Harrington "Rate regulation in the 20th century", list possible adverse effects of restrictions on classification residual market ceilings

Back 173

1 costs of enforcement of classification compliance
2 large residual markets
3 high prices for low risk insureds
4 low loss-control incentives for high risk insureds and vice-versa

Front 174

According to Brady, "Governments role in regulation", federal government can declare state laws void for these 3 reasons:

Back 174

1 state law Contradicts federal law
2 court determines there isw interference with federal law
3 stste law imposes improper burden on interstate commerce

Front 175

According to Brady, "Governments role in regulation", after maccarran/ferguson act states were given primary regulatory control except in these 3 situations

Back 175

1 situations of boycott, coercion and intimidation
2 when federal antitrust laws apply
3 specific federal laws aimed at regulation of insurance

Front 176

According to Brady, "Governments role in regulation", list 3 us supreme court cases that helped define the term, the "business of insurance"

Back 176

1944 - SE Underwriters case
1946 - Robertson vs. California (dealt with liscensing of companies/agents)
1958 - FTC vs. National Casualy Co. (advertising and selling policies)

Front 177

According to Scedule F, List the 3 Purposes of Schedule F

Back 177

1) Provide SUPPORTING DATA for assumed and ceded reinsurance accounting entries
2) Develop PROVISION FOR REINSURANCE
3) Restate the balance sheet from a Net to Gross basis

Front 178

According to Schedule F, Fronting companies are identified in collumn 5 of Schd F part 3. List the 4 types of fronting contracts that are exempt from identification in this collumn

Back 178

1) Affiliated Transactions
2) Pools
3) Small amounts (under 5% of PHs)
4) Captives

Front 179

According to Schedule F, Provisions fro Reinsurance arise from the following 4 reinsurance recoverables

Back 179

1) Unsecured Recoverables from Unauthorized reinsurers
2) Unsecured Recoverables form Slow Paying Reinsurers
3) Overdue Recoverables from authorized and unauthorized reinsurers
4) Recoverables in Dispute from unauthorized and slow paying reinsurers

Front 180

According to Schedule F, List the 3 objectives for The Provision for Reinsurance

Back 180

1) encourages insurers tio use authorized reinsurers
2) encourages ceding companies to seek collateral from unauthorized or slow paying reinsurers
3) encourages ceding companies to demand timely payment

Front 181

According to Schedule F, list the 2 unintended consequences of the Provision for Reinsurance

Back 181

1) since unauthorized reinsurers often provide cheaper coverage the higher expense gets passed on to the customer
2) Securing recoverables is expensive, leads to increased prices

Front 182

According to Schedule F, what is the formula for a reinsurer who is not authorized

Back 182

-Provision = Unsecured total recoverables + 20% (recoverables over 90 days
overdue) + 20%(amounts in dispute).
-Disputed balances are counted in the above equation, in order to prevent the
reinsurer from avoiding the penalty for overdue recoverables by classifying them as
‘in dispute’.

Front 183

According to Schedule F, What is the formula for the Reinsurance Provision for an Authorized Slow-paying Reinsurer

Back 183

-Provision= max[ 20% (unsecured total recoverables), 20% (recoverables over 90
days overdue) ]

Front 184

According to Schedule F, What is the formula for the Reinsurance Provision for an Authorized NON-Slow-paying Reinsurer

Back 184

-Provision = 20% (recoverables over 90 days overdue) + 20% (amounts in dispute).

Front 185

According to Schedule F, What is the formula for calculating whether an reinsurer is slow-paying or not?

Back 185

A reinsurer is classified as “slow paying” if the ratio of recoverables over 90 dues
overdue, to (all recoverables on paid losses & LAE + amounts received in the last 90
days) >= 20%.

Front 186

According to Feldblum Satutory Surplus, List 7 entries on the balance sheet that do not go through the income statement, rather they are a direct charge to Surplus

Back 186

1) Change in Non-Admitted Assetts
2) Net Unrealized Capital Gains
3) Change in Net unrealized Foreign Exchange Gains/Losses
4) Change in Net Deferred Income Tax
5) Change in Provision for Reinsurance
6) Change in Surplus Notes
7) Cumulative effect of change in accounting procedures

Front 187

According to Feldblum Satutory Surplus, What is the formula for Invested capital for a P&C Insurer? or in other words what composes the amount of capital that is subject to the cost of capital

Back 187

Invested Capital = PHS + capital embedded in gross UPR and full value of loss reserves - Deferred Tasx Asset

Front 188

According to Feldblum Satutory Surplus, List 4 factors that determine the amount of capital invested in an insurance company

Back 188

1) Undiscounted Loss Reserves
2) Equity in UEPR
3) RBC Requirements
4) any other need determined by "ruin criterion"

Front 189

According to Feldblum Statutory Surplus, When an insurer looks at wether or not to stay in business based off of the amount of invested capital and value of its income, what two items are compared and how is the value of the income evaluated?

Back 189

If the PV of the income perpetuity is greater than the amount of invested capital, then stay in business. The perpetuity formula = annual income after tax/interest rate from the equities market

Front 190

According to SSAP 65, List the 3 things that shall be disclosed about tabular discounting:

Back 190

1) Tables and Rates used
2) Amount of any discounted liability in the financial statement
3) Amount of tabular discounting by line and reserve (Case vs. IBNR)

Front 191

According to SSAP 65, If there have been changes in rates or other key discount assumptions in discounting loss reserves from prior years, then the current annual statement shall disclose the following 4 things:

Back 191

1) Amount of discount on ALL Prior years liabilities under current rates and assumptions
2) Amount of discount on ALL Prior years liabilities under previous rates and assumptions
3) Change in discounted liability due to the change in rates and assumptions
4) Amount of non-tabular discount by line and reserve category,

Front 192

According to SSAP 65, How are changes in reserve discounting accounted for in the annual statement that are due to changes in rate sand assumptions?

Back 192

Those changes hit the income statement and affect current calendar year earnings

Front 193

According to SSAP 65, list 3 facts about High Deductible policies

Back 193

1) Reserves are net of deductibles to the extent deductibles are collectible
2) Reimbursements are accrued when losses are paid
3) Recoverables represent credit risk and not underwriting risk. In absence of contractual due date, billing date is used for aging. Deductibles > 90 days overdue are non-admitted. However if the insurer holds security, a minimum of 10% of the recoverable in excess of the collateral amount is reported in lieu of applying the aging requirement

Front 194

According to SSAP 65, an insurer must disclose the following 4 things about its A&E exposures:

Back 194

1) Reserving methodology for both case and ibnr
2) Amount paid and reserves for loss and ALE, direct, assumed and net (after intercompany pooling)
3) Description of the lines where there might be exposure (including there nature)
4) The following data field for the most recent 5 calendar years: (beginning reserves, incurred loss and ale, CY paid loss and LAE, ending reserves)

Front 195

According to SSAP 65, for long duration contracts (over 13 months), the amount of the UEPR shall be no less than the max of three tests.

Back 195

1) mgmt’s best estimate of amounts refundable as of the date
2) GPW * (% of loss not yet incurred out of total expected loss)
3)

Front 196

According to Notes on the Financial Sattements, if tabular discounting is used, the notes must diclose the following information

Back 196

1) Identify table used
2) Rates used to discount
3) amoutn of discounted liabilites reported
4) Amount of tabular discount by LOB and split between case and IBNR

Front 197

According to Notes on the Financial Sattements, list the 3 situations where the use of tabular discounting is permitted

Back 197

1) Indemnity portions of WC pension claims and LTD claims on A&H policies
2) certain monoline med-mal writers to help privately organized doctor's mutuals write busines without havign to raise more capital
3) as permitted by a regulator to enable a domestic insurer to continue operations

Front 198

According to Notes on the Financial Sattements, List the 4 things needed to be disclosed in the Notes if non-tabular discounting applies

Back 198

1) Rate used and the basis used to discount liabilities
2) amoutn of discoutn by LOB split by Case vs IBNR and DCC vs AO
3) Total amoutn of non-tabular discoutnign in annual statement
4) If rates used have change from previous statement, then amount of discount at current and prior rates, change in discount, and by LOB

Front 199

According to Notes on the Financial Sattements, list the 6 things an insurer should dislose abotu intercompany pooling:

Back 199

1) Identify the lead company
2) Descriptions of LOB's subject to pooling
3) Unnafilliated cessions and wether they occur prior to pooling
4) Identification of pool members that contractual right of direct recovery from non-affiliates on reinsurance coverign business subject tot he pool
5) Explainations of any descrepancies between entities regarding pooled business
6) Description of the sharing of the Provision for Reinsurance

Front 200

According to Notes on the Financial Sattements, List 3 similarities of HIGH DEDUCTIBLE policies to retrospective rating policies

Back 200

1) Insurer is liable for all claims and is reimbursed by insureds
2) Insurer's liability to the claimant is not dependent on wether the insured reimbureses (there is credit risk)
3) In states that levy premium taxes and assessments, reimbursements are treated like premium

Front 201

According to Notes on the Financial Sattements, List 5 similarities of HIGH DEDUCTIBLE policies to excess polies with a service contract to handle claims from a first dollar

Back 201

1) statutory loss reserves are net of expected reimbursements
2) The RBC WP risk charge is levies on actual premium, not premium equivalents, the RBC reserving risk charge is levied on net reserves
3) In states which levy premium taxes only on premium and not on premium equivalents, taxes are just on premium and reimbursements are like TPA fees
4) The RBC non-admitted assett charge is levied only on unreimburesd paid losses (not on unpaid losses)
5) High deductible p[oliceis require heavy underwriitng for credit risk and periodic monitoring of insured's financials

Front 202

According to Notes on the Financial Sattements, What is the survival ratio when talking about A&E exposure?

Back 202

= current carried reserves/payments in recent 3 years - this measuree is used to gage the adequacy of A&E reserves

Front 203

According to SSAP 65, List the 3 things that shall be disclosed about tabular discounting:

Back 203

1) Tables and Rates used
2) Amount of any discounted liability in the financial statement
3) Amount of tabular discounting by line and reserve (Case vs. IBNR)

Front 204

According to SSAP 65, If there have been changes in rates or other key discount assumptions in discounting loss reserves from prior years, then the current annual statement shall disclose the following 4 things:

Back 204

1)Amount of discount on ALL Prior years liabilities under current rates and assumptions
2)Amount of discount on ALL Prior years liabilities under previous rates and assumptions
3)Change in discounted liability due to the change in rates and assumptions
4)Amount of non-tabular discount by line and reserve category,

Front 205

According to SSAP 65, How are changes in reserve discounting accounted for in the annual statement that are due to changes in rate sand assumptions?

Back 205

changes hit the income statement and affect current calendar year earnings

Front 206

According to SSAP 65, list 3 facts about High Deductible policies

Back 206

1) Reserves are net of deductibles to the extent deductibles are collectible
2) Reimbursements are accrued when losses are paid
3) Recoverables represent credit risk and not underwriting risk. In absence of contractual due date, billing date is used for aging. Deductibles > 90 days overdue are non-admitted. However if the insurer holds security, a minimum of 10% of the recoverable in excess of the collateral amount is reported in lieu of applying the aging requirement

Front 207

According to SSAP 65, An insurer must disclose the following 4 things about it’s a&E exposures:

Back 207

1) Reserving methodology for both case and ibnr
2) Amount paid and reserves for loss and ALE, direct, assumed and net (after intercompany pooling)
3) Description of the lines where there might be exposure (including there nature)
4) The following data field for the most recent 5 calendar years: (beginning reserves, incurred loss and ale, CY paid loss and LAE, ending reserves)

Front 208

According to SSAP 65, for long duration contracts (over 13 months), the amount of the UEPR shall be no less than the max of three tests.

Back 208

1) mgmt’s best estimate of amounts refundable as of the date
2) GPW * (% of loss not yet incurred out of total expected loss)

Front 209

According to Feldblum Schedule P part 1, describe what is shown in the prior years column:

Back 209

The prior years row shows payments in the current CY
only

Front 210

According to Feldblum Schedule P part 1, Shedule P is a tool used by regulator to monitor the solvency of an insurer, list 8 funtions of Sched P:

Back 210

1) Measures Loss and ALE adequacy
2) shows payments & reserves by line & AY. In this way, a company can identify segments of business with good or bad experience.
3) the effects of changes in loss reserve margins on Calendar Year results can beseen via the Accident Year figures.
4) it provides loss payment patterns needed to discount the reserves
5) provides data for reserving risk & written premium risk in the RBC formula.
6) shows the percentage of premium & losses associated with loss sensitive contracts, and the sensitivity of those.
7) separates the occurrence & claims made experience needed for the RBC offset.
8) supports the SAO (Statement Of Actuarial Opinion).

Front 211

According to RBC, What is the RBC charge for cash or money market funds?

Back 211

0.3%

Front 212

According to RBC, What is the RBC charge for Equities?

Back 212

15%

Front 213

According to RBC, What is the RBC charge for Reinsuarnce Recoverables?

Back 213

10%

Front 214

According to RBC, What is the RBC charge for miscellaneous recoverables?

Back 214

5%

Front 215

According to RBC, What is are the ranges for the action levels: Company Action Level, Regulatory Action Level, Authorized Control Level, Mandatory Control Level

Back 215

150%-200% - Company Action Level
100% to 150% Regulatory Action Level
70% to 100% Authorized Control Level
less than 70% Mandatory Control Level

Front 216

According to RBC, what are the actions associated with Company Action Level, Regulatory Action Level, Authorized Control Level, Mandatory Control Level

Back 216

Company Action Level - Cmpanyt submit a plan how additional capital will be obtained or reduce risk exposure
Regulatory Action Level - Company submit a plan and regulator has right to take action (restrict new business) at his discretion
Authorized Control Level- The commisioner isd authorized to take control
Mandatory Control Level - The commissioner is authorized to place the company under regulatory control (rehab or liquidization)

Front 217

According to RBC, List 3 incebtives related to RBC forulas for companies to report inadequate reserves -"Triple Whammy"

Back 217

1) Stat Surplus is increased when reserves are lowered
2) Reserving Risk Charge is lowered therefore lowereing required capital
3) Adverse development is lowered therefore reducing reserving risk charge

Front 218

According to RBC, list 2 rebuttles to the argument of the tripple whammy on incentives to reduce reported reserves

Back 218

1) NOT PURPOSE of RBC - it is not the purpose of RBC to ensure reserve adequacy - that is taks of actuaries and regulators
2) MANIFEST - any inadequate reserves will manifest themselves through adverse development and hence higher reserving risk

Front 219

According to RBC, List one incentive for insurers not to undertate reserves

Back 219

TAX - increased taxable income

Front 220

According to RBC, What is the purpose of the Premium concentration factor in the written premium risk?

Back 220

Diversification - If an insurer writes many LOB's, risk is reduced because the UW results of th evarious lines are not completely correlated with eachother. -More diversification leads to greater reduction in RBC charge

Front 221

According to RBC, Which risk charge is outside the square root formula and why is that?

Back 221

R0, investments in insurance affiliates, it is outside to avoid a reduction of overall capital requirements by simple layering of company's legal structure

Front 222

According to RBC, what is the purpose of "adjustment for investment income" in the reserving risk calc?

Back 222

Reserves are undiscounted, this is an implicit margin that should be remnoved to avoid double-counting of required capital

Front 223

According to RBC, RBC charge for for investments in alien insurance subsidiaries is estim ated as 50% of reported value of enterprise. What is rationale?

Back 223

Data indicates an average of RBC charge of 50% carrying value

Front 224

According to RBC, Whay is the RBC charge different for US and alien subsidiaries?

Back 224

Outside US have different annual filing requirements. It would be difficult to calculate their RBC charge

Front 225

According to RBC, provide 2 arguments against the statement RBC is understated because the RBC doesn't use covariance adjustments in its square root calculation (it actually assumes independence)

Back 225

1) The correlation is weak and the main correlation between reserving and reisnurance collectibles is taken care of by moving half of credit risk from R3 to R4
2) Teh squre root rule will overstte required capital for aq given expected policyholder deficit if the risk elements have a bormal or lognormal distirbution

Front 226

According to RBC, list 3 actions taken by NAIC to ensure nationwide adoption of uniform RBC requiorements:

Back 226

1) Annual statement - they made it part of the annual statment
2) The did not includse the formula in model law, so the states couldn't modify it
3) They made passing the model law a requirement for accredation

Front 227

According to RBC, List 3 criticism of the reinsurance credit risk RBC charge

Back 227

1) Disincentive - The high charge is a disincentive to reinsure and reduce risk
2) Does not differentiate between types of reinsurers (well capitalized vs. not)
3) Collaterlization - RBC does not consider the collateralization of reinsurance recoverables

Front 228

According to RBC, List 3 arguments for the reinsurance credit risk RBC charge

Back 228

1) Contibuted to insolvency - reinsurance collectibility has contributed to major insolvencies
2) "Sham reinsurance" - financially troubled insurers have used sham reinsurance to hide their financial problems
3) RBC does not contemplate additional reinsurance premiums paid on loss sensitive contracts

Front 229

According to RBC, the NAIC retained its 10% chare for reinsurance recoverables for the following 3 reasons

Back 229

1) Pooor Historical Data
2) continually changing marketplace
3) other factors affecting collectibility (quality of reinsurer)

Front 230

According to RBC, what is the risk charge for credit risk on recoverables from Involuntary market pools?

Back 230

No charge - this is designed to increase availability for hard to service risks

Front 231

According to RBC, what is the risk charge for credit risk on recoverables from intercompany pooling (affiliated companies)?

Back 231

No Charge

Front 232

According to RBC, howe is the statutory provision for reinsurance treated with regards to to RBC charge for reinsurance credit risk?

Back 232

Stat Provision is deducted from reinsurance recoverables subject to RBC charge to avoid double counting

Front 233

According to RBC, the RBC formulabalances 3 major considerations: list them

Back 233

1) Accuracy
2) Simplicity
3) Incentives

Front 234

According to RBC, List 2 criticisms for the RBC "worst Case Year" approach to reservign and premium risk:

Back 234

1- historical results may be a result of happenstance and not risk characteristics
2) Calibrating the required capital may not use observed adverse development in determining a good proxy for risk characteristics

Front 235

According to RBC, list two arguments for why the RBC reserving risk charge should reflect the net effect of adverse development and the implicit interest discount

Back 235

1) long duration implies high interest discount
2) volitility of adverse development of statutory WC reserve payments is low. any changes are likely slow and incremental

Front 236

According to RBC, list 3 arguments for why the RBC reserving risk charge should NOT reflect the net effect of adverse development and the implicit interest discount

Back 236

1) 1980's OBSERVED loss development does not reflect the riskiness of WC in 80's
2) Industry wide WC reserves are DEFICIENT and nto reflected in financial statements
3) Use of tabular discounts is already used

Front 237

List 5 purposes of RBC standards and which two have been prohibited to use

Back 237

1) Minimum Capital Requirements
2) Solvency monitoring
3) Legal authority of regulators tro take action
4) Ratemaking - prohibited
5) MArketing - prohibited

Front 238

According to IASA Chpt 14, Describe 5 instances where SAP is more conservative than GAAP

Back 238

1) Provision for Reinsuriance
2) Excess of statutory over Statement Reserves
3) Non-adnitted Assetts like agents balances over 90 days
4)DAC asset not recognized
5)Equipment, Furniture and supplies are non-admitted

Front 239

According to IASA Chpt 14, Describe 4 instances where GAAP is more conservative than SAP

Back 239

1) Tax Provision on Unrealized Capital Gains
2) Premium Deficiency
3) Undeclared PH Dividends
4) SAP allows all NAIC category 1 and 2 bonds to be carried at amoritized cost regardless of company’s ability to hold until maturity

Front 240

According to IASA Chpt 14, Give an ezample of where SAP is contradictory to the liquidation basis of accounting:

Back 240

-The use of amoritized values for bonds and other fixed income securities

Front 241

According to IASA Chpt 14, Under GAAP, is it necessary for actuarial cerification of Loss and ALE reserves? How about UEPR?

Back 241

NO, NO

Front 242

According to IASA Chpt 14, What is the purpose of premium deficiency? And how is it reflected in GAAP?

Back 242

Prem Deficiency is established in GAAP to account for shortfall between UEPR and expected Loss, ALE and Expense
This deficiency first reduces the DAC asset and then any excess is set up as liability Excess premium deficiency reserve

Front 243

According to IASA Chpt 14, Under SAP how are bonds valued?

Back 243

Category 1-2 – amortized value
Category 3-6 Lower of market value and amortized value
Market values are promulgated by NAIC SVO (securities valuation Office)

Front 244

According to IASA Chpt 14, Under GAAP how are bonds valued?

Back 244

“Held to maturity bonds” – amortized value
“trading securities” –market value (and unrealized gains included in income)
“other than maturity and trading” - market values with changes in market values recognized as unrealized gains net of deferred taxes that affect surplus

Front 245

According to IASA Chpt 14, How does SAP and GAAP treat undeclared PH Dividends?

Back 245

SAP – not recorded as liabilities until declared
GAAP – amount ot be accrued as liability on balance sheet with estimate of amount to be declared

Front 246

According to IASA Chpt 14, Identify the principal user of GAAP and SAP

Back 246

SAP – Regulators and Policyholders
GAAP - Investors

Front 247

According to IASA Chpt 14, , Identify the main objectives of GAAP and SAP

Back 247

SAP – Adequacy of surplus – ability to meet it sobligations to policyholders and a focus on liquidity
GAAP – Going Concern – matching of income earned with costs incurred

Front 248

According to IASA Chpt 14, how do GAAP and SAP treat Federal Income Taxes?

Back 248

GAAP- includes provision for taxes currently payable AND a provision for Defererred Taxes to future periods
SAP – Only includes provision for taxes currently payable

Front 249

According to IASA Chpt 14, How is salvage and subrogation treated in SAP and GAAP?

Back 249

SAP – anticipated Sal/Sub reduces liability for related upaid loss is allowed
GAAP – Reduces liability for unpaid loss is required

Front 250

According to IASA Chpt 14, How do you record estimate for loss reserves based on management’s range in GAAP and SAP?

Back 250

GAAP – the low end of range
SAP – the midpoint of range

Front 251

According to IEE, list 2 differences between the investment gain ratio in IEE and the IRIS investment yield test?

Back 251

1) The numerator in the IRIS test excludes all capital gains, not just realized gains
2) The denominator of the IRIS test is actual invested assets not just approximated

Front 252

According to IEE, list 3 interested parties in the profitability by business segment

Back 252

1) Rate regulators
2) Investors
3) Management

Front 253

According to IEE, There is 1 major difference between IEE Part 1 and the UWE and Investment exhibit Part 4 in the annual statement:

Back 253

The Other expense category is broken out into Acquisition expenses, general expenses and TLF

Front 254

According to IEE, the allocation of investment income to LOBs in the IEE rests upon 3 basic principles: List and describe:

Back 254

1) Investment income allocated in proportion to investible funds
2) Funds attributable to Insurance Transactions
3) funds attributable to capital and surplus

Front 255

According to Schedule P, List 4 things to keep in mind that might not be reflected in Sched P triangles:

Back 255

1) Changes in environment (economic/insurance)
2) State Compensation Systems
3) Deductibles
4) Policy Exclusions (environemnetal)
5) Growth of Company

Front 256

According to Schedule P, List 3 reasons why Exposure Year Prem can be different from CY premium

Back 256

1) Premium Audits
2) Retrospective Prem Adjustments
3) Lags - Accounting/booking lags

Front 257

According to Schedule P, In part 7 (information on loss sensitive contracts) – describe how the info is presented

Back 257

Presented on all lines basis and not for individual lobs

Front 258

According to Schedule P, are claim counts on a per accident basis or a per claimant basis?

Back 258

They can be either

Front 259

Identify and describe where Schedule P accounts for:
• assumed proportional reinsurance.
• assumed non-proportional reinsurance
* ceded non-proportional reinsurance

Back 259

a. Assumed Proportional Reinsurance – accounted for in the line of business (LOB) it
covers
Assumed Non-proportional Reinsurance – mapped to either Reinsurance A = Property, B
= Liability, C = Financial
e.g. workers comp – Reinsurance B
fire – Reinsurance A
b. Ceded Non-proportional Reinsurance would be accounted for in its original line of business

Front 260

According to schedule F, List the 7 parts of Schedule F and its purpose

Back 260

Part 1 – shows assumed premiums and losses by ceding company
Part 2 – shows premiums on portfolio reinsurance effected or cancelled during the year
Part 3 – shows ceded premiums and losses by reinsurer
Part 4 – aging schedule for recoverables by reinsurer
Part 5 – Unauthorized reinsurer penalty calculation
Part 6 – non-slow-paying reinsurance penalty
Part 7 – slow-paying reinsurance penalty

Front 261

According to schedule F, List Feldblums 4 criticisms of the provision for reinsurers:

Back 261

1) purely retrospective (does not consider reinsurer capital adequacy)
2) Arbitrary provision
3) Complex formulas may trick user to think that they are adequate formulas
4) No consideration of appropriateness of reinsurance covers for company exposures

Front 262

According to schedule F, describe a Fronting company that is identified in Part3 3 collumn 5:

Back 262

A Fronting company is not liscensed to do business in state and hence they reinsure a large percentage (over 75%) of the business written by a liscensed company

Front 263

According to schedule F, list 4 types of fronting contracts that are exempt form identification in column 5 of sched F part 3.

Back 263

1) affiliated comnpanies
2) pools
3) small amounts (less than 5% of PHS)
4) captives

Front 264

According to schedule F, list 2 reasons why it is difficult to determine when reinsurance payments are due:

Back 264

1) many contracts do not contain dates
2) ceding companies may wait until losses exceed a certain level before notifying reinsurer

Front 265

According to Conger Fair Value, Define Fair Value

Back 265

The amount between 2 unrelated parties that are under no obligation can sell an asset or settle a liability

Front 266

According to Conger Fair Value, Describe the event that caused FASB to embark on a project to consider the move to fair value accounting:

Back 266

Savings and loans crisis of the 80’s – companies had assets on books with market values < book values (overvalued due to book value accounting) – Led to huge taxpayer bailout

Front 267

According to Conger Fair Value, describe how under SAP, gAAP and Fairvalue accounting bonds would be valued that are not held to maturity

Back 267

SAP – amortized cost
GAAP – market value (for trading securities)
Fair Value – market value

Front 268

According to Conger Fair Value, Describe how a switch from GAAP to fair value would impact the valuation of policy benefit liabilities.

Back 268

Would have to explicitly value discount and risk margins (may increase or decrease liabilities). Gaap separates loss reserves and UEPR and recognizes revenue when it is earned. Fair value would only present a single policy benefit liability – premiums are recognized as revenues when written

Front 269

According to Conger Fair Value, list the 3 level hierchy for valueing things in Fair Value:

Back 269

1-Directly determined using market price of identical asset/liability
2-Determined via PROXIES –
3- Determined VIA Valuation methods – using analytical approach based on theoretical market pricing models

Front 270

According to Conger Fair Value, does fair value approach include the time value of money and cash flow risk?

Back 270

YES

Front 271

According to Conger Fair Value,List 3 factors that prevent the formation of a secondary market for P&C liabilities

Back 271

1) LEGAL impediments – liabilities are not transferable without consent of insureds
2) UNIQUENESS of insurance portfolios
3) INFORMATION ASSYMETRY and ANTI-SELECTION

Front 272

According to Actuarial Statement of Opinion, List 3 sources the actuary should solicit information regarding REINSURANCE COllECTIBILITY

Back 272

1) COMPANY MANAGEMENT (gather information about collectability problems)
2) RATINGS of reinsurers from rating agency
3) SCHEDULE F (focus on late paying reinsurers)

Front 273

According to Actuarial Statement of Opinion, List 3 points that must be covered in the OPINION Paragraph

Back 273

1) Reserves are computed in accordance with accepted loss reserving standards and principles
2) Reserves MEET the REQUIREMENTS of the INSURANCE LAWS of the domicile state
3) RESERVES MAKE A REASONABLE PROVISION for the unpaid loss and LAE obligations of the company

Front 274

According to Ghezzi Redlining, List 6 parties interested in the redlining issue?

Back 274

1) Insurers
2) Insurance Consumers
3) Regulators
4) Congress
5) Federal and State courts
6) Federal and state adgencies (HUD)

Front 275

According to Ghezzi Redlining, Define Redlining

Back 275

Redlining is generally used to refer to any insurance company activity that limits the availability or affordability of insurance in urban areas or minority groups

Front 276

According to Ghezzi Redlining, What 2 groups have recently been activie in fighting redlining?

Back 276

1) HUD – argued against using unfair underwriting criteria (race, religion, sex, family status or nationality (Courts have agreed)
2) NAIC – have concluded there is availability problems in urban areas

Front 277

According to Ghezzi Redlining, The NAIC lists 3 things that cause availability shortaes in urban areas

Back 277

1) risk conditions in urban areas
2) insurers lack of knowelege about urban risk factors
3) rate adequacy

Front 278

According to Ghezzi Redlining, Ghezzi suggests that actuaries do 3 things to assess the redlining issues

Back 278

1) Refine Pricing Analysis
2) Review UW guidelines
3) Review mix of business by geographic area

Front 279

According to Ghezzi Redlining, Describer the insurer view on redlining:

Back 279

Rating criteria and UW guidelines are NOT Unfairly discriminatory
Since insurance industry does not engage in disparate treatment, they should not be responsible if the effects of its procedure results in low availability or affordability for certain insureds

Front 280

According to Ghezzi Redlining, Describer the federal view on redlining

Back 280

Does not focus on fair treatment in UW process
Focuses on observable outcome of insurers’ UW practice
Examples of disparate outcome would be lack of urban insureds or minority insureds
The absence of these isnureds is a problem, regardless of appropriateness of insurers UW, rating and risk assessment practices

Front 281

According to NAIC Model Rating Law, What are the 9 purposes of the Property Casualty model rating law?

Back 281

1 -Prohibit Price fixing and anticompetitive behavior
2)Protect Policyholders against excessive, inadequate, unfairly discriminatory rates
3) Promote competition by being responsive
4) Provide regulatory procedures for maintaining appropriate data systems
5) Provide regulatory controls in the absence of competition
6) Improve availability and fairness of insurance
7) authorize essential cooperative action among insurers in ratemaking process
8) Encourage efficient and effective marketing practices

Front 282

According to Harrington Politics and Economics of Auto insurance, at what level of costly classification will the market go to?

Back 282

The market will classify as long as this results in a lower premium for low risk groups

Front 283

According to Harrington Politics and Economics of Auto insurance, Will costly classification always result in positive net social benefit?

Back 283

No, not always

Front 284

According to Harrington Politics and Economics of Auto insurance, Will the benefits of COSTLESS classification to the low-risk group will always be equal to or greater than the benefits to the high risk group?

Back 284

True

Front 285

According to Harrington Politics and Economics of Auto insurance, List 2 examples of a state mandated the increased reliance on Driver Records:

Back 285

1) Prop 103 in California – designed to increase reliance on driver’s record
2) South Carolina 1989 – designed to surcharge people who have had poor driving records to fund losses in reinsurance facility

Front 286

According to Harrington Politics and Economics of Auto insurance, Describe the authors perspective on using individual driving records in the rating process:

Back 286

It improves correlation, but is limited improvement due to low credibility of individual experience

Front 287

According to Harrington Politics and Economics of Auto insurance, List 3 potential consequences of surcharging for accidents and traffic violations (in excess of market classification)

Back 287

1) Reduced accident reporting
2) Risk of Excess premium charges
3) Inefficiently high level of deterrence

Front 288

According to Harrington Politics and Economics of Auto insurance, The use of Reinsurance facility or JUA could increase costs over time for 2 reasons. List them:

Back 288

1) In a reinsurance facility, costs to investigate claims is born by 1 insured while the cost savings are shared by the all of the participants- reduces incentives to engage in cost-saving claims investigation
2) JUA – Cost reduction incentives are reduced, because costs are reimbursed as a set amount per claim or percentage of premium

Front 289

According to Harrington Politics and Economics of Auto insurance, List 3 main functions of Private Sector Provision for competitive markets

Back 289

1) Consumers incented to minimize cost of risks due to competitive pricing and risk selection
2) Insurers handle their own claims and hence are incented to reduce costs
3) Competition keeps rates in line with costs and produces desirable diversity in service and coverage

Front 290

According to Harrington Politics and Economics of Auto insurance, Identifies 4 elements whose existence increases the likelihood of that classification restrictions will be implemented under an economic theory of regulation:

Back 290

1) Supported by Organized Group
2) Resulted increase in Premium is spread widely and delayed
3) People who are getting adversely affected are unaware
4) Small Impact on efficiency
5) Strong Government and public commitment to fairness

Front 291

According to Harrington Politics and Economics of Auto insurance, Define Pareto Efficiency:

Back 291

Pareto Efficency exists when no person can be made better of without making someone else worse off.

Front 292

According to Harrington Politics and Economics of Auto insurance, Define “Kaldor-Hicks” POTENTIAL Pareto Efficiency:

Back 292

POTENTIAL Pareto Efficiency, no person could be made better off by an amount sufficient to fully compensate those made worse off by a given action

Front 293

According to Harrington Politics and Economics of Auto insurance, List 4 basic types of Rate Filing Laws:

Back 293

1) Prior Approval – must get regulatory approval before rates can be used
2) File and Use – must file rates before use
3) Use and File – Can use rates first but must file ina short time frame (10 days)
4) No Filing- the regulator could still ask for rates

Front 294

According To Weining Personal Insurance (life health retirement), What 2 elements of OASDHI ensure the social adequacy of the sytem?

Back 294

1) Low income workers receive a higher portion of their pre-retirement income than high wage workers
2) Workers with dependents receive higher benefits than those without

Front 295

According To Weining Personal Insurance (life health retirement), give 2 reasons why participation in OASDHI is cumpolsory.

Back 295

1) To avoid Antiselection (low income unhealthy etc..)
2) Economies of scale, law of large numbers

Front 296

According To Weining Personal Insurance (life health retirement), How do Medicare benefits vary by income?

Back 296

They do not vary, all Medicare benefits are the same regardless of income

Front 297

According To Weining Personal Insurance (life health retirement), Is medicare part B voluntary or compulsory?

Back 297

Voluntary

Front 298

According To Weining Personal Insurance (life health retirement), Compare Work Comp vs. Social Security Disability benefits with respect to COVERED INJURIES, Required Length of Employment, Benefits for Spouse and Children, Waiting period for benefits:

Back 298

1) For SS benefits are only payable to covered workers who suffer injury that will keep them from working for 12 consecutive months
2) Worker must have worked a specified number of quarters out of thew last # of quarters
3) If you are eligible, so are spouse and children
4) Benefits are not paid unless you have been disabled for 5 full consecutive months

Front 299

According To Weining Personal Insurance (life health retirement), list 2 actuarial advantages of the compulsory nature of SS.

Back 299

1) Stable population, with no adverse selection
2) Actuary can use available statistics regarding fertility, production and mortality without making adjustments for characteristics of insured population

Front 300

According To Weining Personal Insurance (life health retirement), List the eligibility requirement for a worker to be Fully insured status

Back 300

40 credits or have worked full time for 10 years
A worker must be fully insured to receive retirement benefits.

Front 301

According To Weining Personal Insurance (life health retirement), List the eligibility requirement for a worker to be Currently insured status

Back 301

A worker with at least 6 credcits during the last 13 quarters ending with the quarter in which death disability or entitlement to retirement benefits occur.

Front 302

According To Weining Personal Insurance (life health retirement), List the eligibility requirement for a worker to be disability insured status

Back 302

Depends on Age:
31 and older must be fully insured and have at least 20 out of the last 40 credits
Special rules apply to younger people and blind people

Front 303

According To Weining Personal Insurance (life health retirement), Define Intergenerational transfer:

Back 303

The process of transferring income from one generation to another
OASDHI operates on a pay as you go basis, which means that current benefits are funded by by payroll taxes levied against employers and employees. When a workers earnings are reduced, they are paid by the current workers.

Front 304

According To Weining Personal Insurance (life health retirement), What is the purpose of MediGap insurance?

Back 304

Medigap insurance fills in the gaps that exist in Medicare, covering portions of Medicare deductibles or procedures and items not covered by medicare. Medigap coverage is sold by private insurers and regulated by the federal government.

Front 305

According To Weining Personal Insurance (life health retirement), Describe How Medicare part A and Part B are funded.

Back 305

Part A – funded through Payroll taxes
Part B – funded by premiums paid by participants and subsidized by the government

Front 306

According To Weining Personal Insurance (life health retirement), The calculation of the unemployment insurance tax rate is based upon a wage base lower than actual wages and includes an experience rating adjustment based on actual unemployment experience. Explain how the use of a wage base lower than actual wages can accentuate the impact of the economic cycle on employers:

Back 306

In tough times when the company is paying lower wages, the tax rate is actually higher as a percentage of total wages than when they are paying higher wages

Front 307

According To Weining Personal Insurance (life health retirement), The calculation of the unemployment insurance tax rate is based upon a wage base lower than actual wages and includes an experience rating adjustment based on actual unemployment experience. Discuss 2 criticisms of the use of experience rating in determining an individual employers tax rate:

Back 307

1) It assumes company has control over the decision to hire or layoff workers, when this is interdependent on the economy
2) Once a company is paying the maximum tax rate, they have no incentive for loss control

Front 308

According To Weining Personal Insurance (life health retirement), Describe what is covered in Mecicare Part A

Back 308

Hospital Expenses (inpatient expenses)
Skilled Nursing Home Care
Hospice Care
Blood Transfusions
Home Healthcare Services

Front 309

According To Weining Personal Insurance (life health retirement), Describe what is covered in Mecicare Part B

Back 309

Physician Fees
Medical Supplies and equipment
Clinical Laboratory Services
Outpatient services

Front 310

According To Weining Personal Insurance (life health retirement), Describe what is Medicaid

Back 310

Government program for low income groups (inpatient and outpatient services) must prove that income is low enough to qualify

Front 311

According to Jenkins National Flood insurance Program, what is FEMA’s role in the NFIP?

Back 311

Assisting state and local governments, private entities and individuals:
1-prepare for
2 -Mitigate
3 -Respond to
4 –Recover from natural disasters including flooding

Front 312

According to Jenkins National Flood insurance Program, what are two things FEMA has done to mitigate flood losses?

Back 312

1- Identifies and maps flood-prone communities and makes insurance available to property owners who agree to adopt and enforce building standards
2- Provides funding for mitigation planning and projects before and after floods occur through grant programs

Front 313

According to Jenkins National Flood insurance Program, What 3 things did the federal government ask FEMA to investigate

Back 313

1- Effect of Repetitive loss properties on NFIP
2- Recent actions taken to address repetitive loss properties
3- FEMA’s approach to mitigation

Front 314

According to Jenkins National Flood insurance Program, List 3 recent federal actions to reduce claims from repetitive loss properties:

Back 314

1 – FEMA’s targeting of the most frequent and costly repetitive loss properties for mitigation
2 – FEMA charging full actuarially baswed rates for repetitive loss property owners who refuse to accept FEMA’s offer to purchase or mitigate the affected buildings
3- congressional proposals to phase out coverage

Front 315

According to Jenkins National Flood insurance Program, Flood maps provide the basis for 2 things, list them:

Back 315

1 – establishing floodplain building standards for participating communities
2 – setting insurance rates and identifying those properties whose owners are required to purchase flood insurance

Front 316

According to CAS study note on Government Insurers, List 5 major reasons for government participation in insurance:

Back 316

1) Convenience
2) Social Purposes
3) Greater Efficiency
4) Compulsory purchase of insurance
5) Filing insurance needs unmet by private insurance

Front 317

According to CAS study note on Government Insurers, List 2 types of insurance that are available and affordable because of federal government subsidies:

Back 317

1) Crop insurance
2) Flood Insurance

Front 318

According to CAS study note on Government Insurers, List 3 reasons for government to provide compulsory insurance

Back 318

1 – without insurance, people may not have the means to pay damages from their negligent actions
2- Sometimes there is not a private market for insureds
3 – by operating as a not for profit entity, the cost of government insurance would be lower than if offered by a for profit insurer

Front 319

According to CAS study note on Government Insurers, List 2 examples of government to provide compulsory insurance

Back 319

1- Maryland State Auto plan
2- Work Comp State Funds

Front 320

According to CAS study note on Government Insurers, List 1 argument for State Work Comp Funds as specialists in WC:

Back 320

State Funds can be expected to offer more intensive levels of rehabilitation and other services

Front 321

According to CAS study note on Government Insurers, List 1 argument AGAINST State Work Comp Funds as specialists in WC:

Back 321

Some private insurers who specialize in WC, can offer the same level of service and expertise as state funds

Front 322

According to CAS study note on Government Insurers, after 911 many insurers and reinsurers excluded the terrorism peril, list 3 potential consequences of this exclusion:

Back 322

1-numerous construction projects would be cancelled or delayed
2-owners of airports and other large stuctures could have difficulty meeting legal or contractual requirements of being fully insured
3-investing activities would be affecting since many securities are backed by assets that would no longer be insured

Front 323

According to CAS study note on Government Insurers, List 3 reasons why TRIA was passed:

Back 323

1– Fulfills need unmet by private insurers
2 – serves a social purpose
3 - to avoid economic disruptions if terrorism coverage was not available or affordable

Front 324

According to CAS study note on Government Insurers, List 4 concerns of insurers with regards to TRIA

Back 324

1- timing of payment of claims and reimbursement could cause cash flow problems
2 – domestic terrorism events are not covered by TRIA (OK city)
3- Personal lines are not covered, nor nuclear, chemical or radiation
4 – the low % of commercial policyholders who opt for purchasing terrorism coverage may also imply a lack of public acceptance

Front 325

According to Nyce Government Insurers, Government insurance programs can be lumped into 3 large categories, list them:

Back 325

1- Property-casualty insurance plans
2 – social insurance plans
3 – financial security plans

Front 326

According to Nyce Government Insurers, What are the primary objectives of private insurance:

Back 326

Private insurance seeks to provide actuarial equity

Front 327

According to Nyce Government Insurers, What are the primary objectives of PUBLIC insurance:

Back 327

Public Insurance Programs typically seek to provide social equity

Front 328

According to Nyce Government Insurers, List 3 levels of involvement at which the government can participate:

Back 328

1 – Exclusive insurer
2 – Partner with private insurer
3 – competitor to private insurer

Front 329

According to Nyce Government Insurers, Describe the purpose of a FAIR plan (fair access to insurance requirements)

Back 329

Make property insurance available to property owners who are otherwise unable to obtain insurance because of their property’s location or other reason

Front 330

According to Nyce Government Insurers, how do private insurers participate in FAIR plans?

Back 330

Varies by state, but it is an insurance pool through which private insurers collectively address an unmet need for property insurance on urban properties. It is a market of last resort.

Front 331

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, List 3 constraints of Michigans Essential Insurance Act:

Back 331

1- Limited number of rating territories to 20
2- Limited the range of base rates between territories (lowest territory couldn’t be less than 45% of highest)
3- For adjacent territories rates couldn’t vary more than 10%

Front 332

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, did Michigans Essential Insurance Act constraints subsidize Detroit rates and coverage availability?

Back 332

Rates were subsidized
Did not enhance availability as residual market grew because insurers withdrew agents in Detroit or otherwise curtailed writing in Detroit.

Front 333

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, what were the 2 major purposes of Michigans Essential Insurance Act from the legislators point of view?

Back 333

1 - Increase availability ion urban areas
2- improve affordability in urban areas

Front 334

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, What is community rating done by Blue Cross?

Back 334

Eliminates rating factors of age, sex, occupation, income or past claims experience and instead charges the same premium to all customers in a community.

Front 335

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, List 6 characteristics of most Blue Cross prepaid hospital expense plans

Back 335

1 – sponsored by a hospital or group in the community
2 – Not for Profit with special tax exemptions
3 – offers community rating
4 – Limited choice of benefit options
5 – direct writer distribution
6 – Low administrative expenses due to size, distribution method and limited plan choice

Front 336

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, List 2 justifications for socialization of insurance costs

Back 336

1 – Fairness Sharing insurance costs is fairer than basing costs on individuals risk characteristics
2 – Affordability – Premiums should be affordable for everyone when the government compels everyone to by insurance

Front 337

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, Describe how residual markets creat cross-subsidization:

Back 337

If the rates charged in residual markets are less than the costs to cover losses and expenses, the loss is passed on to the insurer of the standard market who then build it into their costs and eventually pass it on to the standard market premiums and essentially pass on the subsidy.

Front 338

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, Describe 2 adverse consequences of the cross subsidies created by the residual market:

Back 338

1- insurers may write less direct business to avoid funding larger portion of residual market
2- It creates a moral hazard since those in the residual market aren’t really paying a premium that reflects their risk level.

Front 339

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, Describe how governments can alleviate the adverse consequences of cross subsidization caused by residual market?

Back 339

1 – they could allow for an actuarially sound pricing and better fund their costs so that the losses aren’t passed on to standard market.

Front 340

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, Why has community rating plans like Blue Cross not held up in the voluntary market?

Back 340

Low risk insureds migrate out of these plans to find cheaper insurance

Front 341

According to Bartlett, Attempts to socialize Insurance costs in voluntary markets, List 4 exit barriers to an insurer trying to exit a competitive market when the government imposes cross subsidization.

Back 341

1 – Regulators will require prior notice to policyholders if they plan to withdraw
2 – Companies will loose cross-sell opportunites
3 – companies will loose the sunk costs they have doing business in that state
4 – Regulators may make the company withdraw completely from state and not just that 1 product.

Front 342

According to Ettlinger Solvency State Regulation, what are 4 factors that most frequently contribute to insolvencies?

Back 342

1 Rapid Growth
2 Uncollectible Reinsurance
3 Inadequate Pricing and Reserving
4 Out of Line Expenses

Front 343

According to Ettlinger Solvency State Regulation, Define Solvency, Insolvency and Technical Incsolvency according to an insurer:

Back 343

Solvency – ability to meet financial obligations
Insolvency – Liabilities exceed assets
Technical Insolvency – insurer doesn’t hold minimum capital even if assets are greater than liabilities

Front 344

According to Ettlinger Solvency State Regulation, List 3 types of risk unique to insurance industry:

Back 344

1 – Price inadequacy (true costs are not know when policy is sold)
2 – Reserve error
3 – Underwriting risk

Front 345

According to Ettlinger Solvency State Regulation, List 3 types of risk that are common in most industries

Back 345

1 – Business Risk (maintain competitiveness and growth)
2 – Market Risk – related to macroeconomic factors
3 – Financial risk – firms ability to cover debt obligations

Front 346

According to Ettlinger Solvency State Regulation, List 4 categories of regulatory activity directed toward maintaining insurer solvency

Back 346

1 Maintaining UNIFORM systeme of FINANCIAL reporting
2 MONITORING insurer SOLVENCY
3 Monitoring CAPITAL ADEQUACY through RBC
4 Accreditation of State Insurance Departments

Front 347

According to Ettlinger Solvency State Regulation, Describe FAST Ratios

Back 347

These consist of several IRIS ratios designed to measure relationships not captured directly by IRIS ratios
Provide a total Score based on number of points assigned for each ratio
High score indicates high risk of insolvency

Front 348

According to Ettlinger Solvency State Regulation, Describe the 2 types of NAIC financial exams that are currently performed

Back 348

Full scope Exam usually required every 3-5 yrs
Limited Scope Exam – unusual scheduled in between full scope exams

Front 349

According to Ettlinger Solvency State Regulation, List 4 causes that prompt a limited scope exam:

Back 349

1 - Unusual values identified in IRIS ratios
2 – Internal Department analysis of Annual statements
3 – Request from another Insurance Department
4 – Unusual complaint volume

Front 350

According to Ettlinger Solvency State Regulation, Describe how determining the solvency of an insurance company is different from determining bankruptcy for a non-insurance firm.

Back 350

Non-Insurance company is bankrupt when liabilities exceed assets.
An insurance company is considered technically insolvent when its surplus falls below a minimum capital level, although its assets still exceed its liabilities

Front 351

According to Ettlinger Solvency State Regulation, Describe the disposition of an insolvent insurer.

Back 351

Regulator obtains court order to take over company
- Companies finances are stabilized through marshalling of assetts and run-off liabilities
- Assets are disposed of and company is liquidated
-Losses are paid by guaranty Association

Front 352

According to Ettlinger Solvency State Regulation, what is the basic issue behind calls to reform the current way of dealing with insurer insolvencies?

Back 352

COMPLEXITY OF MULTI-STATE liquidations (how to coordinate over 50 states)

Front 353

According to Ettlinger Solvency State Regulation, List 2 ways to deal with COMPLEXITY OF MULTI-STATE liquidations.

Back 353

1 – Interstate Compacts – binding agreements between states that subordinate states laws
2 – Federalization – establish a federally run receivership/guaranty fund for large multistate companies

Front 354

According to Ettlinger Solvency State Regulation, Describe how a “large net worth deductible” applies in guaranty fund coverage

Back 354

For large companies some states require that they meet a claim deductible of up to 10% of their net worth before they can collect from guaranty fund

Front 355

According to Ettlinger Solvency State Regulation, What is the purpose of the “large net worth deductible”

Back 355

To reduce coverage in paying sophisticated corporate insureds

Front 356

According to Ettlinger Solvency State Regulation, What takes priority in a liquidation proceeding paying losses or covering expenses of administering the liquidation?

Back 356

-Expenses associated with administering the liquidation

Front 357

According to Ettlinger Solvency State Regulation, Do guarantee funds provide coverage for reinsurance or unlicensed insurers?

Back 357

Neither!

Front 358

According to Ettlinger Solvency State Regulation, List 2 reasons why regulators are often unsuccessful in rehabilitating troubled insurers:

Back 358

1 – Regulatory control WEAKENS insurer ABILITY to MAINTAIN a MARKET for its products
2 – Continued deterioration of company’s finances rapidly leads to liquidation

Front 359

According to Ettlinger Solvency State Regulation, List once assetts are liquidated, list who gets paid first and in what order:

Back 359

1- costs of administering liquidation
2- partial payments of debts to employers for services rendered within 1 year of liquidation
3- claims for policy losses
4- claims for unearned premiums
5-claims for general creditors

Front 360

According to Ettlinger Solvency State Regulation, What effect do the existence of guaranty funds have on consumer behavior?

Back 360

Removes incentive to shop the market for a financially sound insurer

Front 361

According to Ettlinger Solvency State Regulation, List 2 adverse impacts to insurers that guaranty funds have

Back 361

1- assessments
2 – competition is distorted because insurers can underwrite irresponsibly to obtain greater market share

Front 362

According to Ettlinger Solvency State Regulation, do Guaranty funds have a role in preventing insolvency or are they just getting involved after the insolvency occurs?

Back 362

They have a role in preventing…The Fund board can make recommendations on solvency protection and participate in the correction of a hazardous member company.

Front 363

According to Ettlinger Solvency State Regulation, List 4 actions a regulator might require of an insurer to prevent insolvency of a troubled insurer:

Back 363

1 – Raise more capital
2 – Cease writing certain LOBs
3 – Reduce Dividends
4 – Improve reinsurance coverage

Front 364

According to Ettlinger Solvency State Regulation, Identify 3 consequences to Insurance CONSUMERS that result from insurer solvency:

Back 364

1 – claims may not be fully paid
2 – Delayed settlement
3 – Insurance costs will go up due to pass on of guarantee fund assessments

Front 365

According to IASA Other Expenses, List 4 purposes that management keeps a more detailed classification for management expenses.

Back 365

1) business plan and budget preparation
2) evaluating plans and results in terms of how resources are used and expenses generated
3) determining prices for various products
4) justifying prices to consumers and regulators

Front 366

According to IASA Other Expenses, list the 3 categories of expenses that SSAP 70 established

Back 366

1) Loss adjustment Expenses
2) Other Underwriting Expenses
3) Investment Expenses

Front 367

According to IASA Taxes, Can tax basis discounted reserves exceed annual statement discounted reserves?

Back 367

NO!

Front 368

According to IASA Taxes, Can Annual Statement discounted reserves be grossed up before discounting for tax purposes?

Back 368

Yes as long as the discounting basis is disclosed in the Annual statement.

Front 369

According to IASA Taxes, List 4 adjustments to statutory income that must be made to determine taxable income.

Back 369

1) Subtract tax exempt income (bond interest on municipal bonds)
2) Add proration on tax exempt income
3) Adjust for change in discounting of loss reserves
4) Dividend Received Deduction (DRD)

Front 370

According to IASA Taxes, Define retaliatory premium taxes.

Back 370

If the aggregate of taxes (and other obligations) imposed by state of domicile is greater than the aggregate of taxes (and other obligations) of taxing state, Then the greater amount is imposed by the taxing state.

Front 371

According to IASA Taxes, Define reciprocal premium taxes.

Back 371

If the aggregate of taxes (and other obligations) imposed by state of domicile is less than the aggregate of taxes (and other obligations) of taxing state, Then the lesser amount is imposed by the taxing state.

Front 372

According to IASA Taxes, List 4 state taxes that are specific to the insurance industry:

Back 372

1) Gross Premium Tax
2) Fire Prevention Tax
3) Licensing and Filing fees
4) Underwriting profits tax on Marine coverage (some states tax ocean marine)

Front 373

According to IASA SEC reporting, Annual reports must contain 3 following 3 types of Information:

Back 373

selected financial data from the past 5 years on factors including revenues,
income, and assets

Front 374

According to IASA SEC reporting, does the SEC allow reserve discounting?

Back 374

the SEC will allow discounting of the liabilities at the same rate the company uses
to report to the state regulatory authorities with respect to the same liabilities
a change from discounting at a statutory discount rate to an investment related

Front 375

According to IASA SEC reporting, List the 5 disclosures required by the SEC when it comes to estimating environmental, products and asbestos liabilities:

Back 375

the existence of exposure

Front 376

According to Gorvett Data Sources, What are AM Bests’ 3 categories of QUANTITATIVE Tests that factor into Best’s Rating?

Back 376

1) Profitability tests
2) Leverage Tests
3) Liquidity Tests

Front 377

According to Gorvett Data Sources, What are AM Bests’ 5 categories of QUALITATIVE Tests that factor into Best’s Rating?

Back 377

1) Spread of Risk
2) Reserve adequacy
3) INVESTMENTS - Quality and estimated Market Value of assetts
4) Reinsurance adequacy and soundness
5) Management

Front 378

According to Gorvett Data Sources, What is a data source for detailed information on an insurer’s long term investments?

Back 378

Annual Statement – Schedule D

Front 379

According to Gorvett Data Sources, What is a data source for detailed information on the value of an insurer’s subsidiaries?

Back 379

Annual Statement – Schedule D

Front 380

According to Gorvett Data Sources, What is a data source for historical aggregate financials for P&C industry?

Back 380

AM Bests Aggregates and Averages

Front 381

According to Gorvett Data Sources, What is a data source for summary reports on individual insurers and groups, including a review and description of the company’s business and operations and a summary of recent financial performance?

Back 381

AM Bests “INSURANCE REPORTS”

Front 382

According to Gorvett Data Sources, What is AM Bests FPR rating and how is it different from the “AM Best Rating”

Back 382

FPR Rating, or Financial Performance Rating is only based quantitative analysis, whereas AM Bests rating is based on both Quantitative and Qualitative evaluations.

Front 383

According to Gorvett Data Sources, list 3 organizations that give insurer ratings

Back 383

1) Moody’s
2) Standard and Poor’s
3) AM Best

Front 384

According to AM Bests annual review of Excess and surplus lines, Define Alien insurer:

Back 384

An insurer domiciled outside of the US

Front 385

According to AM Bests annual review of Excess and surplus lines, Define Foreign insurer:

Back 385

A Foreign insurer is an insurer domiciled in a US state, but not the state in question

Front 386

According to AM Bests annual review of Excess and surplus lines, compare and contrast the different regulatory standards for foreign surplus lines carriers and alien surplus lines carriers:

Back 386

Foreign surplus lines insurers need to have certain capitalization requirements as well as certain standards in agent/broker training. Alien insurers have similar requirements but have additional requirements (must hold $2.5 million in US trust fund by FDIC insured bank, and more if they cannot differentiate their surplus business from standard market business)

Front 387

According to AM Bests annual review of Excess and surplus lines, in 1994 the NAIC passed a bill that made greater capital requirements for Alien surplus lines carriers. Explain the primary reason behind this increase:

Back 387

Alien insurers are not subject to guaranty funds protection in the event they become insolvent. Thus they need a higher capital requirement.

Front 388

According to AM Bests annual review of Excess and surplus lines, list 4 leading causes of insolvencies amongst E&S carriers.

Back 388

1) Inadequate Loss Reserves (most common)
2) Alleged Fraud
3) Overstated Assett Valuations
4) Failure of affiliates (most strong E&S carriers are members of well diversified insurance organizations) When the affiliates fail, the E&S insurer has no recourse to guaranty fund mechanisms.

Front 389

According to AM Bests annual review of Excess and surplus lines, T/F: To write business an ALIEN Excess and Surplus lines carrier must be approved by NAIC

Back 389

False, it is the role of the International Insurers Department IID of the NAIC.

Front 390

According to AM Bests annual review of Excess and surplus lines, what is the Role of the International Insurers Department IID of the NAIC with regards to Alien surplus lines insurers.

Back 390

1) Review the applications of the alien insurers wishing to conduct E&E business in the US
2) Establish Capitalization and other requirements to be imposed upon the alien insurers

Front 391

According to AM Bests annual review of Excess and surplus lines, AM best attributes the favorable financial strength ratings for surplus lines carriers to 4 factors. List them

Back 391

1) Due to lack of Guaranty Fund access, the Market demands higher level of capital
2) Use of More Conservative Operating Leverage
3) Disciplined UW standards and Strong Risk Management techniques
4) Being strategic members of Large well diversified organizations

Front 392

According to AM Bests annual review of Excess and surplus lines, The Gramm-Leach-Bliley Act proposed uniform licensing requirements of agents across states. The NAIC does not have that.

Back 392

FUCK YOUR MOMMA

Front 393

According to Wilcox Guaranty Associations, what are the three Principles of Guaranty Funds?

Back 393

1) Risk Protection
2) Sufficiency of Payments (liquidations result in insufficient funds)
3) Speed of Resolution – liquidating companies can take many years

Front 394

According to Wilcox Guaranty Associations, List 4 limits on claim payouts by Guaranty Funds.

Back 394

1) $ 300K maximum payout per claimant (99.9% of claims are below $300K) this way a few large claims won’t exhaust all the $$$
2) Net Worth Restriction – after payout, guaranty fund has option to recover those losses paid to companies with a net worth over $50 million
3) Lines of business not covered (title insurance, warranties/service contracts, ocean marine, government insurance, fidelity, surety, financial guaranty)
4) Claims of other insurance companies and reinsurers (because they know or can reasonably expect the financial condition of various companies)

Front 395

According to Wilcox Guaranty Associations, Provide 2 arguments that say that the 25 year period that was studied by Wilcox was a “sound test” when compared with other generations.

Back 395

1) Everyone of the 13 costliest catastrophes occurred int his period
2) The P&C industry experienced 6 monster liquidations during this period, involving the highest losses in association history

Front 396

According to Wilcox Guaranty Associations, Describe 2 actions a guaranty fund board is authorized to perform that could help prevent insolvencies:

Back 396

1) Can Make recommendations to a state regulator about actions needed to be taken to prevent insolvencies
2) Can actively participate in the correction activities for companies experiencing financial difficulties

Front 397

According to Wilcox Guaranty Associations, Describe 2 disadvantages of Guaranty Funds from the perspective of a strong insurer

Back 397

1) Added costs (solvent insurers are directly assessed for paying for guaranty fund)
2) Consumers Lack incentive to shop around for a financially sound insurance companies. Weak companies may aggressively market their products, attract insureds, since the existence of a guaranty fund.

Front 398

According to IEE, List the 3 parts of the IEE.

Back 398

-Part 1: Allocation to Expense Groups
-Part 2: Allocation to Lines of Business net of reinsurance
-Part 3: Allocation to Lines of Direct Business Written

Front 399

According to AAA Social Security Reform, List 3 sources of Revenue for Social Security.

Back 399

1) Payroll tax of 12.4% is split between employer and employees
2) Investment income from trust funds
3) taxation of social security benefits

Front 400

According to AAA Social Security Reform, The current SS tries to balance 2 forms of equity, list them:

Back 400

1) Individual Equity (for example formula provides higher benefits for workers with higher earnings and longer careers)
2) Social Equity

Front 401

According to AAA Social Security Reform, list 3 examples of social equity in the SS formula:

Back 401

1) lower wage workers’ benefits are a higher percentage of their pre-retirement income
2) formula for Primary insurance amount favors lower paid employees
3) System favors less healthy workers and workers with spouses and dependents

Front 402

According to AAA Social Security Reform, List the two types of changes that the AAA suggests could fix the problem of impending insolvency of SS.

Back 402

1) Increase taxes to generate more revenues
2) Reducing Benefits

Front 403

According to AAA Social Security Reform, List 4 examples of tax increases that could be used to better fund SS:

Back 403

1) Increase payroll tax
2) Increase limit on taxable earnings
3) Increase taxation of benefits
4) Expand coverage to groups like gov employees and religious organizations

Front 404

According to AAA Social Security Reform, List 4 benefit changes that could help prevent SS insolvency.

Back 404

1) Increase retirement age
2) Reduce benefits across the board
3) Change the benefit formula
4) Reduce Cost of Living adjustment

Front 405

According to AAA Social Security Reform, Some people want to have individual manage their own SS individual account. List 3 arguments FOR this:

Back 405

1) Workers have DIRECT CONTROL and ownership of accounts
2) Workers would be able to obtain better return on their SS contributions
3) Additional Investment would give economy a boost

Front 406

According to AAA Social Security Reform, Some people want to have individual manage their own SS individual account. List 3 arguments AGAINST this:

Back 406

1) Inability of most workers to take total control of their individual retirement planning
2) Greater uncertainty of benefits tied to performance of securities market
3) Shift in emphasis from social adequacy to individual equity

Front 407

According to AAA Social Security Reform, The AAA made recommendations and gave options to reform SS in order to prevent insolvency, when do they suggest that these actions take place?

Back 407

Right Fucking NOW!!!!!!!!!!!

Front 408

According to AAA Social Security Reform, The AAA says it is necessary to ACT NOW, give two consequences of not acting RIGHT FUCKING NOW.

Back 408

1) Can lead to inequities (intended or not) in the DISTRIBUTION of Benefit REDUCTIONS
2) Doesn’t give current beneficiaries a chance to plan for decreased benefits, and could lead to dissatisfaction in system.

Front 409

According to CPCU Flood Insurance and Katrina, the NFIP had been considered successful by many until 1 event exposed major flaws, what event was that?

Back 409

Hurricane Katrina exposed financial and operation flaws of the NFIP

Front 410

According to CPCU Flood Insurance and Katrina, the national Flood Insurance act of 1968 established NFIP with 2 goals in mind, list them.

Back 410

1) Reduce Flood damage through community Flood plain management
2) Reduce need for Federal Disaster Relief

Front 411

According to CPCU Flood Insurance and Katrina, List the 3 goals of NFIP,

Back 411

1) Provide Flood insurance to property owners
2) Reduce the cost of disaster relief funded by the taxpayer
3) Reduce flood damage through flood plain management and enforcement of building codes

Front 412

According to CPCU Flood Insurance and Katrina, List 3 problems Katrina caused the P&C Industry.

Back 412

1) Serious financial problems for NFIP
2) Huge backlog of claims
3) Thousands of lawsuits against insurers threatening their financial health

Front 413

According to CPCU Flood Insurance and Katrina, List 4 likely effects that the problems from Katrina will lead to:

Back 413

1) Significant tax increase to general public
2) Increase in P&C premiums
3) Lack of affordability and availability
4) Major changes to NFIP and FEMA

Front 414

According to CPCU Flood Insurance and Katrina, List 3 problems with the NFIP that Katrina exposed:

Back 414

1) Financial Problems (premium shortfall and repetitive loss properties)
2) Lack of participation (not enough people purchase or didn’t carry enough coverage)
3) Operational Problems

Front 415

According to CPCU Flood Insurance and Katrina, List 3 OPERATIONAL problems with the NFIP that Katrina exposed:

Back 415

1) Claims processing
2) Encouragement of development in High Risk areas (subsidization, failure to require coverage behind levees,
3) Flood Plain management NOT ROBUST ENOUGH

Front 416

According to CPCU Flood Insurance and Katrina, one solution proposed is the national catastrophe plan describe it:

Back 416

Multi-layered coverage that mixes private insurer, state Cat Funds and National Cat fund layers. Designed to encourage risk mitigation, be affordable and spread risk.

Front 417

According to Jenkins, there are both direct and indirect costs related to flood damage, list 3 Direct Flood Damage costs.

Back 417

1) Flood Fighting
2) Temporary housing
3) Administrative assistance

Front 418

According to Jenkins, there are both direct and indirect costs related to flood damage, list 6 Indirect Flood Damage costs.

Back 418

1) Loss of business and personal income
2) reduction in property values
3) increased insurance costs
4) loss of tax revenue
5) psychological trauma
6) Ecosystem disturbance

Front 419

According to Jenkins, List 3 things about the map modernization program

Back 419

1) Intended to improve accuracy
2) Digital format (easily accessible)
3) Provide basis for assessing impacts of other hazards (ie I fthere was a toxic spill, maps could be used to estimate contaminated areas)

Front 420

According to AAA materiality, Define what it means to be Material.

Back 420

An item is defined as being material if it has an impact on the user’s decision/conclusion. When determining if something is material, it is necessary to study its purpose and its users.

Front 421

According to AAA materiality, should an actuary select a different materiality standard when he feels like it?

Back 421

Fuck no! An actuary should select a constant standard for all aspects of a given task, once it is selected it should remain constant over the years.

Front 422

According to AAA materiality, should an actuary select a different materiality standard from accountants and auditors?

Back 422

Fuck no! Ideally they are the same standard. If there are differences, the reasons behind these need to be clearly communicated to the audience.

Front 423

According to SSAP 53 Contract Premiums, Is EBUB (earned but unbilled) or audit premium considered admitted or non-admitted according to Statutory accounting.

Back 423

EBUB is admitted except for 10% of EBUB in excess of collateral is non-admitted.

Front 424

According to SSAP 62 Reinsurance, in order for a company to meet the required TERMS of a reinsurance contract 4 conditions must be met:

Back 424

Must contain insolvency clause
2) Recoveries available without delay
3) No guaranty of profit for either party
4) Must require a minimum of QUARTERLY reporting of premium and losses.

Front 425

According to SSAP 62 Reinsurance, Insurance risk involves uncertainty about 2 things, list them:

Back 425

1) Underwriting Risk – ultimate amounts unknown
2) Timing Risk

Front 426

According to SSAP 62 Reinsurance, How is Retroactive Reinsurance accounted for in STAT accounting:

Back 426

1) Loss reserves are Gross and recoverables are a contra-liability
2) Any surplus gain is put into a special surplus category and cannot be put into unassigned funds until actual recoveries exceed payments.

Front 427

According to SSAP 62 Reinsurance, From the Assuming company’s perspective in a retroactive reinsurance agreement, how does the accounting work

Back 427

1) excluded from existing reserves, Instead it is recorded ina separate write in liability
2) The intial loss is recorded as a write-in item, “Retroactive Reinsurance Loss” under other income section

Front 428

According to SSAP 62 Reinsurance, The ceding commission is designed to cover acquisition costs, how is the accounting done if the expected acquisition costs are greater than the ceding commission?

Back 428

Establish a liability equal to the difference and the liability is amortizedover the effective period.

Front 429

According to SSAP 62 Reinsurance, list 4 examples of situations with reinsurance recoverables that would require a disclosure.

Back 429

) any reinsurer that has unsecured aggregate recoverable over 3% of ceding companies PHS
2) any reinsurer that has IN DISPUTE recoverables of 5% of PHS, or 10% in aggregate for all reinsurers
3) If recoverables were written off during the year, then disclose name of reinsurer and loss, LAE and EP
4) IF there was a commutation, then name of reinsurer, loss, LAE, EP

Front 430

According to Feldblum Notes on the Financial Statement, when you have a deductible (receivable) on a high deductible policy is that an admitted asset or non-admitted?

Back 430

-If part of the receivable is 90 days overdue, the entire receivable is NON-Admitted
-For receivables not yet due, 10% of the unsecured receivable is non-admitted

Front 431

According to Feldblum Notes on the Financial Statement, in the :Reinsurance Assumed and Ceded” Note, what do you disclose about the ceding commission?

Back 431

1) max commission due to reinsurer if contract is cancelled
2) additional commission due based on actual loss experience
3) An exhibit showing commission equity and UEPR on a ceded, assumed and net basis

Front 432

According to Feldblum Notes on the Financial Statement, in the “Reinsurance Assumed and Ceded” Note, Define Commission Equity:

Back 432

= UEPR*(Commission Rate)

Front 433

According to Feldblum Notes on the Financial Statement, in the “Structured Settlements” Note, List 4 reasons for Structured Settlements.

Back 433

1) Matching payments to Damages
2) Management of Assetts (some people would blow a lump sum up their nose)
3) Minors
4) Taxes (exempt from federal income tax)

Front 434

According to Feldblum Notes on the Financial Statement, in the “Structured Settlements” If the claimant is the payee, but the insurer has not received a release of liability, it must disclose 3 things:

Back 434

1) annuity writer
2) state of domicile
3) aggregate value of annuities

Front 435

According to Feldblum Notes on the Financial Statement, When does a reinsurance recoverable amount in dispute need to be disclosed?

Back 435

a) when 1 reinsurer amt. in dispute exceeds 5% of PHS
b) When agg. Amts. In dispute exceeds 10% of PHS

Front 436

According to ASOP 36 Actuarial Statement of Opinion, List 6 things the actuary needs to consider when calculating the reserves:

Back 436

1) Coverage Provisions
2) Changing conditions
3) External Conditions
4) Data
5) Assumptions and estimate sensitivity to those assumptions
6) Changes in assumptions, procedures and methods

Front 437

According to ASOP 36 Actuarial Statement of Opinion, sometimes an actuary will have to review another actuary’s opinion. List 2 things the actuary have to review:

Back 437

1) assess reasonableness of the data
2) evaluate the appropriateness of the reserving methods and assumptions

Front 438

According to ASOP 36 Actuarial Statement of Opinion, sometimes an actuary will have to review another actuary’s opinion. If his conclusions materially from the original actuaries, what does he need to do?

Back 438

1) Contact the actuary and discuss
2) Material differences must be disclosed in review opinion

Front 439

According to Copflr Actuarial Statement of Opinion, List the 4 mandatory paragraphs or sections of the actuarial statement of opinion.

Back 439

1) Identification Paragraph
2) Scope Paragraph
3) Opinion Paragraph
4) Relevant Comments

Front 440

According to Copflr Actuarial Statement of Opinion, List the 4 things that should be identified in the identification paragraph

Back 440

1) the appointed actuary
2) the actuary’s relationship to the company
3) the actuaries qualifications to act as appointed actuary
4) date of appointment

Front 441

According to Copflr Actuarial Statement of Opinion, List the 5 types of Opinion an actuary can have on the adequacy of reserves:

Back 441

1) Reasonable Provision (within range)
2) Deficient Provision
3) Redundant provision
4) Qualified opinion (certain items cannot be estimated, unable ot provide opinion)
5) No Opinion (cannot reach conclusion due to data etc… and state why no opinion could be given)

Front 442

According to Copflr Actuarial Statement of Opinion, List 4 things that the “Relevant Comments” Paragraph should address

Back 442

1) Risk of Material Adverse deviation (including materiality standards,major factors of risk)
2) Reinsurance comments (collectability, financial reinsurance, retroactive reinsurance)
3) IRIS ratios (if any of the reserving IRIS ratios have exceptional values, need to explain main reasons)

Front 443

According to Copflr Actuarial Statement of Opinion, when considering material adverse deviation, what are 5 factors that could be used as a materiality standard)

Back 443

1) % of Surplus
2) % of reserves
3) amount of adverse deviations that would cause a decreased Rating
4) amount of deviation that would cause surplus to fall below minimum capital requirements
5) amount that would cause next RBC action level

Front 444

According to Copflr Actuarial Statement of Opinion, List 6 major causes of adverse deviations in reserves:

Back 444

1) A&E losses, 2) construction Defect,
3) mass torts, 4) high excess layers
5) large deductible WC policies, 6) MedMal Legislation
7) rapid growth, 8) lack of data

Front 445

According to Copflr Actuarial Statement of Opinion, What is the AOS or Actuarial Opinion summary?

Back 445

It is a supplement to the SOA, and needs to be signed by actuary. It is confidential and contains proprietary info.

Front 446

According to Copflr Actuarial Statement of Opinion, List 5 things that are included in the AOS or Actuarial Opinion Summary.

Back 446

1) The actuary’s range of Loss and ALE reserves net and gross of reinsurance
2) the point estimate Loss and ALE reserves (net and gross)
3) Companies’ book Loss and ALE reserves (net and gross)
4) The difference between carried reserves and ABE
5) If there is adverse development in excess of 5% of PHS in at least 3 out of 5 last years, a description of drivers (reserve elements and mgmt. decisions)

Front 447

According to IRIS Ratios, What are the 4 categories of IRIS tests?

Back 447

1) Leverage Ratios (1-4)
2) Profitability Ratios (5-8)
3) Liquidity Ratios (9,10)
4) Loss Reserving Ratios (11-13)

Front 448

According to IRIS Ratios, In the statistical phase IRIS ratios are calculated, how many unusual values will raise a red flag to make the insurer get further analyzed?

Back 448

4 or more

Front 449

According to IRIS Ratios, what are the 2 advantages of using IRIS ratios to regulate insurers?

Back 449

1) objectivity
2) ease of calculation

Front 450

According to IRIS Ratios, all IRIS ratios come out as percentages, to which decimal place are they rounded?

Back 450

All ratios rounded to the nearest percent (except for Investment yield rounded to the tenth of a percent)

Front 451

According to Marshall Neale Mississippi Flood, What are the two purposes of the Marshall Neale article?

Back 451

1) Examine the state of Mississippi Homeowners Insurance Market
2) Propose a solution to increase the availability and affordability of coverage

Front 452

According to Marshall Neale Mississippi Flood, Describe the lawsuit Mississippi vs. Mississippi Farm Bureau

Back 452

1) attorney general wants to force insurance payment including flood and water damages that were specifically excluded on the policy
2) Seeks declaratory judgement that flood exclusions should be void.

Front 453

According to Marshall Neale Mississippi Flood, What residual Market mechanism is a good index of the availability and affordability of Miss. Homeowners coverage?

Back 453

Mississippi Windstorm U/W association (after Katrina, they filed for a 400% rate increase and only got 90%) – Windpool experienced a large growth in policies, indicating it is hard to get coverage in primary markets

Front 454

According to Marshall Neale Mississippi Flood, how does the Mississippi Wind pool fund its deficits?

Back 454

It charges primary insurance company based on their market share. This combined with the increasing size of windpool might cause carriers to withdraw from MS market.

Front 455

According to Marshall Neale Mississippi Flood, what did Mississippi Farm buruea due to decrease its market share?

Back 455

1) discontinued writing new business,
2) Southern Casualty will pick up business but no longer write wind coverage

Front 456

According to Marshall Neale Mississippi Flood, List 3 drivers of rate increases in coastal homeowners markets.

Back 456

1) Reinsurance costs are going up
2) Computer modeling and loss experience
3) increasing residual markets

Front 457

According to Marshall Neale Mississippi Flood, List 5 consequences if the attorney general wins his case.

Back 457

1) Premiums will increase dramatically to cover ne wperils
2) NFIP participation will decrease
3) Insolvency risk will increase
4) Changes in contract language on the policy
5) State Regulators look like fools and loose their authority

Front 458

According to Marshall Neale Mississippi Flood, they recommend to include flood coverage in HO policy, list there 3 principal assumptions regarding this recommendation.

Back 458

1) Actuarially sound rates
2) Flood continued to be reinsured by NFIP
3) Clear guidelines regarding what is flood damage and what is wind damage (feds will reinsure flood damage)

Front 459

According to Marshall Neale Mississippi Flood, they recommend including flood coverage in HO policy, list the 3 main benefits:

Back 459

1) Dramatically improve spread of risk for flood peril
2) Provide comprehensive coverage for hurricane events
3) Reduce expensive litigation

Front 460

According to Hamilton Ferguson No Fault plans, List 5 weaknesses of current No-Fault plans

Back 460

1) Thresholds for lawsuits are too low
2) No-Fault plans do not go far enough to eliminate right to sue
3) inflation of medical costs eroded effect of monetary thresholds
4) Determining exactly what types of injury are considered severe enough ot allow suit using a verbal threshold
5) More fraudulent claims are filed due to ease of receiving benefits

Front 461

According to Hamilton Ferguson No Fault plans, list 2 tpyes of thresholds:

Back 461

1) Monetary (if medical bills exceed threshold)
2) Verbal (right to sue based on seriousness of injury expressed in words

Front 462

According to Hamilton Ferguson No Fault plans, list 3 weakness of the auto tort system that were used to promote no-fault auto.

Back 462

1) Delay in payment
2) high litigation costs
3) lack of equity amongst injured parties

Front 463

According to Felblum IRS tax reserve discounting, what is the formula for incurred loss in tax accounting

Back 463

=Paid loss + change in DICOUNTED Reserves

Front 464

According to Felblum IRS tax reserve discounting, Stat and TAX accounting differ on the treatment of investment income and loss reserves after the year of loss occurrence, describe.

Back 464

Tax- investment income on assetts backing reserves offset amortization of the interest discount of reserves
Stat –company earns positive investment income (no change in reserves to offset this)

Front 465

According to Felblum IRS tax reserve discounting, Does the interest rate vary by Accident Year?

Back 465

Yes, once it is determined it is vintaged

Front 466

According to Felblum IRS tax reserve discounting, How do you determine the interest rate for an accident year

Back 466

60 month average of the federal mod-term rates for (3-9 years remaining) ending Dec 1st of the prior accident year.

Front 467

According to Felblum IRS tax reserve discounting, in order to determine the payment pattern, which exhibit of triangles are used?

Back 467

Schedule P part 1 because it is audited and includes both DCC and AOO.

Front 468

According to Felblum IRS tax reserve discounting, how are reserves discounting for 2-year LOB’s?

Back 468

3 year payment pattern

Front 469

According to Felblum taxable income, List 5 adjustments to Statutory income to arrive at Taxable income:

Back 469

1) Tax Exempt Income
2) Dividends Received Deduction
3) Proration
4) Revenue offset
5) Reserve Discounting

Front 470

According to Felblum taxable income, Is tax exempt income completely tax free?

Back 470

No –PRORATION (15% of tax exempt income is added to regular taxable income)

Front 471

According to Felblum taxable income, Describe the Dividend Received Deduction (DRD)

Back 471

Partially exempts the dividends from taxes in order to reduce double taxation (the size depends on if you own the company)
If you own less than 20% - then 70% is tax exempt
If you own 20-80% then 80% is tax exempt
If you own more than 80% then 100% tax exempt

Front 472

According to Felblum taxable income, Describe the revenue offset in tax accounting
(assumes 20% acquisition costs) removes acquisition costs from UEPR

Back 472

Earned Premium = WP – 80%*Change in UEPR

Front 473

According to Felblum taxable income, List 2 sources of tax that are more heavily taxed by the alternative minimum tax than by regular income tax:

Back 473

1) tax free bonds
2) stockholder dividends

Front 474

According to Felblum tax strategy, according to tax strategy, who is incented to hold bonds and who is incented to hold stocks?

Back 474

Insurers incented to hold bonds
Personal investors incented to hold stocks

Front 475

According to Felblum tax strategy, What are 5 factors an insurer needs to consider when determining what percentage of bonds to hold?

Back 475

1) yield
2) diversification
3) Asset liability management (reserves and stocks are both inflation sensitive)
4) SAO
5) management dislike of erratic income

Front 476

According to Felblum tax strategy, Municipal bonds are less taxed then corporate bonds (advantage!) what are 3 disadvantages of municipal bonds?

Back 476

1) Callability
2) Less liquid
3) Proration provision on tax-free income

Front 477

According to Felblum tax strategy, When will an insurer have an optimal tax strategy

Back 477

When RIT = AMIT

Front 478

According to Felblum taxable income, when should an insurer buy more taxable securities and when should it buy more tax free?

Back 478

Expecting less UW profit, then buy taxable
Expecting more UW proits, buy tax exempt

Front 479

According to IRIS ratios, List the 4 Leverage Ratios and their exceptional values

Back 479

1) GPW/PHS (greater than 900%)
2) NPW/PHS (greater than 300%)
3) Change in Net Writings (greater than 33% or less than -33%)
4) Surplus Aid to PHS (greater than 15%)

Front 480

According to IRIS ratios, List the 4 Profitability Ratios and their exceptional values

Back 480

1) 2 YR overall Operating ratio (greater than 100%)
2) Investment yield (greater than 6.5 or less than 3.0%)
3) Gross Change in PHS (greater than 50% or less than -10.0%)
4) Net Change in adjusted PHS (greater than 25% or less than -10.0%)

Front 481

According to IRIS ratios, List the 2 Liquidity Ratios and their exceptional values

Back 481

1) Liabilities to liquid assets (greater than 105%)
2) Agent’s balances to PHS (greater than 40%)

Front 482

According to IRIS ratios, List the 3 Loss Reserving Ratios and their exceptional values

Back 482

1) 1 Year reserve development to PHS (greater than 20%)
2) 2 Year reserve development to PHS (greater than 20%)
3) Estimated current reserve deficiency to surplus

Front 483

According to IRIS ratios, What does the analyst need to compare to when analyzing IRIS ratios for a given insurer?

Back 483

Compare to peer group (AM Best provides summary peer group statistics)

Front 484

According to Canadian Accounting, What do federal regulators cvoncentrate on and what do provincial regulators concentrate on?

Back 484

Federal – stability and solvency of insurers
Provinvial – market conduct

Front 485

According to Canadian Accounting, is accounting for insurers in Canada on a SAP or GAAP basis?

Back 485

GAAP – but hey have a special portion of the surplus called “Reserves Required” to account for not easily liquid stuff

Front 486

According to Canadian Accounting, are investments at book value or market value?

Back 486

BOOK VALE

Front 487

According to Canadian Accounting, what is the Investment Valuation Reserve?

Back 487

Investment Valuation Reserve recognizes the difference in book and market value, this reserve is included in the “reserves required”

Front 488

According to Canadian Accounting, What is Canada’s version of RBC?

Back 488

Minimum Capital Test

Front 489

According to Canadian Accounting, List 3 things included in Capital Available for the Minimum Capital Test?

Back 489

1) Equity (shares, contributed surplus, retained earnings, reserves)
2) Preferred shares
3) amount ot recognize changes in market value

Front 490

According to Canadian Accounting, List 4 things that must be subtracted from capital available

Back 490

1) investments in subsidiaries
2) investments in affiliates
3) DPAC
4) Goodwill