23) Which of the following is an argument for repealing the McCarran-Ferguson Act? A) It would make it easier for small insurers to compete. B) It would encourage sharing of information.
C) It would make it easier to develop common coverage forms. D) It would correct for defects in state regulation. Answer: D
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24) The number of title insurance companies operating in State Z is relatively low. Recently, the largest of these companies (50 percent market share) acquired the second largest company (30 percent market share). Immediately after the acquisition, the insurer raised premiums by 75 percent. This scenario demonstrates which of the following rationales for the regulation of insurance?
A) maintain insurer solvency
B) compensate for inadequate consumer knowledge C) ensure reasonable rates D) make insurance available Answer: C
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25) In which of the following did the Court decide that insurance was interstate commerce when conducted across state lines, and therefore was subject to federal regulation? A) Paul v. Virginia
B) South-Eastern Underwriters Association case C) McCarran-Ferguson Act D) Financial Modernization Act Answer: B
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26) A life insurance company based in Canada was licensed to operate in Massachusetts. When operating in Massachusetts, the Canadian insurer would be considered a(n) A) domestic insurer. B) captive insurer. C) foreign insurer. D) alien insurer. Answer: D
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27) XYZ Mutual Insurance Company has total assets of $10 million. The policyholders' surplus is $2 million. What are XYZ Mutual's total liabilities? A) $4.0 million B) $8.0 million C) $10.0 million D) $12.0 million Answer: B
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28) Mutual Property Insurance Company has a surplus of $2 million. According to a conservative rule of thumb, how much new net premiums can Mutual Property Insurance Company safely write? A) $2 million B) $8 million C) $10 million D) $20 million Answer: A
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29) Fly-By-Night Insurance Company had much larger losses than forecast. The company did not charge adequate premiums nor did the company purchase reinsurance. If Fly-By-Night becomes insolvent, which of the following will help pay the unpaid claims of the insurer? A) guaranty fund B) premium rebates C) risk-based capital D) admitted assets Answer: A
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30) Grace is a life insurance agent. She is attempting to sell a large life insurance policy, but the prospective purchaser is having second thoughts. To persuade the prospective purchaser, Grace said, \
commission if you buy the policy.\of if she splits her commission with the purchaser? A) rebating B) churning C) twisting D) backdating Answer: A
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31) State X's premium tax rate is 2 percent. State Y's premium tax rate is 3 percent. State X insurers are required to pay the 3 percent rate on business written in State Y. State X requires insurers from State Y to pay a 3 percent premium tax on business written in State X, even though the premium tax rate is only 2 percent in State X. This practice is known as a A) tax tariff.
B) guaranty fund assessment. C) risk-based capital requirement. D) retaliatory tax law. Answer: D
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32) ABC Insurance Company would like to purchase a bank. For many years, ABC was not permitted under federal law to enter into banking operations. Which of the following legislative acts eliminated the prohibition that prevented banks, insurers, and investment firms from entering into one another's markets? A) The McCarran-Ferguson Act B) The Tax Reform Act
C) The Consolidated Omnibus Budget Reconciliation Act
D) The Financial Modernization Act (Gramm-Leach-Bliley Act) Answer: D
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33) Under one type of rating law, insurers are free to change rates and to use modified rates
immediately. However, the new rate must be filed with regulators within a specified period, such as 60 days after the modified rate is employed. This type of rating law is called A) prior approval. B) file-and-use. C) use-and-file. D) flex rating. Answer: C
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34) The regulation of insurers in areas that affect consumers, which include claims handling, underwriting, complaints, advertising, sales practices, and other trade practices is called A) solvency surveillance. B) market conduct regulation. C) combined ratio analysis. D) market share regulation. Answer: B
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35) The National Association of Insurance Commissioners (NAIC) administers an \
warning system\the annual statement to identify companies that may pose a solvency risk. This early warning system is called
A) the risk-based capital requirements. B) an insurance guaranty fund.
C) the Insurance Regulatory Information System (IRIS) D) the assessment method. Answer: C
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36) Which of the following statements is (are) true regarding the quality of insurance regulation? I. The quality of insurance regulation is uniform from state to state.
II. All evidence suggests federal regulation of insurance would improve the quality of regulation. A) I only B) II only
C) both I and II D) neither I nor II Answer: D
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37) Which of the following statements concerning the proposed optional federal charter for life insurers is (are) true?
I. Large insurers operating in many states would more likely prefer a state charter while smaller, regional, insurers would more likely choose a federal charter.
II. Proponents of the federal charter argue that it would speed the development and approval of new products. A) I only B) II only
C) both I and II D) neither I nor II Answer: B
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38) All of the following are methods helping to insure the solvency of insurers EXCEPT A) commercial lines deregulation B) risk-based capital standards.
C) the NAIC's early warning system. D) the NAIC's FAST screening system. Answer: A
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39) A score derived from an individual's credit history and other factors that is used by many auto and homeowners insurers for underwriting and rating purposes is called a(n) A) CLUE score. B) insurance score. C) expense ratio score. D) combined ratio score. Answer: B
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40) All of the following are arguments in favor of using an applicant's credit record in personal lines underwriting EXCEPT
A) Most consumers have good credit records and benefit when credit history is used as a rating factor.
B) Use of credit data in underwriting or rating discriminates against certain groups.
C) Underwriting and rating may be more consistent if applicants' credit histories are considered. D) There is high correlation between an applicant's credit record and future claims experience. Answer: B
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41) All of the following statements about insurance regulation are true EXCEPT A) Insurance commissioners are appointed in some states and elected in some states. B) Insurers are subject to regulation by certain federal agencies and laws.
C) The National Association of Insurance Commissioners (NAIC) can force states to adopt the model laws that it drafts.
D) An insurance commissioner can revoke or suspend an insurer's license to do business in his or her state. Answer: C
Question Status: Revised
42) A systemic risk is a risk that
A) can be eliminated through diversification.
B) can be the cause of the collapse of an entire system. C) can be insured privately.
D) can be easily contained so that it does not spread. Answer: B
Question Status: New
43) In 2008, the U.S. federal government stepped-in to prevent the financial failure of the world's largest insurer, the American International Group (AIG). AIG's near insolvency was caused by A) catastrophic hurricane and earthquake losses that were not reinsured.
B) fraudulent accounting practices that had inflated earnings for many years. C) losses on derivative loan guarantees issued by the company.
D) over-investment in U.S. equity markets and the sharp drop in U.S. equity values. Answer: C
Question Status: New
44) The near demise of American International Group (AIG) in 2008 was caused by AIG's
issuance of a complex derivative. This derivative guaranteed mortgage-backed securities held by investors. As the real estate market collapsed, AIG was required to post billions of dollars of
collateral that it did not have. What were the derivative loan guarantees issued by AIG called? A) real estate investment trusts
B) collateralized mortgage obligations C) catastrophe put options D) credit default swaps Answer: D
Question Status: New
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