Question 1

The Dodd-Frank Act created a federal body with some limited regulatory authority.For example,the organization can represent the federal government in international negotiations regarding insurance and it can preempt state law where it conflicts with negotiated international agreements.This body is called the

Accepted Answer

The passage specifically states that the federal body created by the Dodd-Frank Act is called the "Federal Insurance Office." The other options listed are not mentioned in the passage.

Question 2

The Federal Insurance Office recommended direct federal involvement in all of the following areas EXCEPT

Accepted Answer

The Federal Insurance Office has not specifically recommended direct federal involvement in the area of uniformity in rate regulation and insurance forms. This area is typically managed at the state level in the U.S. insurance system.

Question 3

Which of the following is authority given to the Federal Insurance Office created by the Dodd-Frank Act?

Accepted Answer

The Federal Insurance Office's authority, as per the Dodd-Frank Act, is primarily to represent the federal government in international discussions of insurance regulation. While it does have some responsibilities related to monitoring insurance affordability and access, it is not the primary regulator or monitor of insurance company solvency, and it does not license or charter new insurance companies.

Question 4

The risk-based capital requirements for life insurers are based on a formula that considers four types of risk.One risk reflects whether the insurer will have enough surplus if claims are higher than expected.This risk is called

Accepted Answer

The risk that reflects whether the insurer will have enough surplus if claims are higher than expected is called insurance risk. Asset risk refers to the risk of losses due to changes in the value of investments. Interest rate risk refers to the risk of losses due to changes in interest rates. Business risk refers to the risk of losses due to factors such as competition or changes in industry trends.

Question 5

Liability items on an insurer's balance sheet that reflect obligations that must be met in the future are called

Accepted Answer

Reserves are allocated by the insurer to pay for potential claims or losses in the future. This represents a liability as the insurer has a financial obligation to meet these potential claims. Pre-paid expenses are assets, surplus is the difference between assets and liabilities, and nonadmitted assets are assets that are not allowed to be included on the insurer's balance sheet.

Question 6

The purpose of the Financial Analysis Solvency Tracking (FAST)system employed by the NAIC is to

Accepted Answer

The purpose of the Financial Analysis Solvency Tracking (FAST) system is to prioritize insurance companies for additional regulatory action based on their financial solvency. This system helps to identify companies that may be at risk of insolvency and in need of closer supervision or intervention by regulators.

Question 7

One provision of the Dodd-Frank Act was creation of the Financial Stability Oversight Council.This council is charged with identifying nonbank financial companies that could increase the risk of collapse of the entire financial system.This risk is called

Accepted Answer

The risk being referred to in the provision is systemic risk, which is the risk of the collapse of the entire financial system due to the failure of one large company or multiple interconnected companies. The Financial Stability Oversight Council was created to identify and address this risk by designating nonbank financial companies as systemically important and subjecting them to enhanced regulation and supervision.

Question 8

Which of the following statements is (are)true regarding taxation of insurance companies?
i.Insurance companies are exempt from having to pay state and federal income taxes.
ll.The primary purpose of the premium tax is to raise revenues for the state,not to provide funds for insurance regulation.

Accepted Answer

Insurance companies are not completely exempt from state and federal income taxes. They are subject to certain taxes such as federal excise taxes and state premium taxes. The primary purpose of premium taxes is to generate revenue for the state, while funding for insurance regulation comes from other sources such as licensing fees and assessments on insurance companies.

Question 9

Blue Sky Insurance Company sells life annuities to sick elderly people,routinely denies legitimate claims,and cancels insureds after they submit a claim.What type of insurance regulation would sanction Blue Sky for such wrongful behavior?

Accepted Answer

Market conduct regulation focuses on the conduct of insurance companies in their interactions with policyholders, such as handling claims and underwriting practices. Blue Sky's wrongful behavior of denying legitimate claims and canceling insureds after they submit a claim would fall under the scope of market conduct regulation. Solvency regulation is concerned with the financial stability of insurance companies, risk classification regulation deals with the classification of risks for insurance purposes, and rate regulation relates to the pricing of insurance premiums.

Question 10

The risk-based capital requirements for life insurers are based on a formula that considers four types of risk.One risk reflects a range of uncertainties that life insurers face including such things as bad management decisions and guaranty fund assessments.This risk is called

Accepted Answer

Business risk reflects the range of uncertainties that life insurers face, including bad management decisions and guaranty fund assessments. Asset risk reflects the possibility of losses from investments, insurance risk reflects losses from underwriting, and interest rate risk reflects fluctuations in market interest rates.

Question 11

An emerging concern for insurance companies is the threat of hackers stealing data,taking over their computer system and demanding ransom,and malicious tampering with a computer system.This emerging risk for insurance companies is

Accepted Answer

The answer of An emerging concern for insurance companies is...

Question 12

A systemic risk is a risk that

Accepted Answer

A systemic risk is a risk that has the potential to cause a collapse of an entire system or market, not just one individual or firm. Therefore, it cannot be eliminated through diversification or easily contained. It also cannot be insured privately as it affects the entire system or market.

Question 13

To correct abuses in the financial services industry,Congress passed an Act in 2010 that included numerous provisions to reform the financial services industry.This Act was the

Accepted Answer

The correct Act that Congress passed in 2010 to reform the financial services industry is the Dodd-Frank Act. The Financial Modernization Act (also known as Gramm-Leach-Bliley Act) was passed in 1999 and aimed to allow banks, insurance companies, and securities firms to merge. The McCarran-Ferguson Act, passed in 1945, granted states the authority to regulate insurance. The Biggert-Waters Act, passed in 2012, aimed to reform the National Flood Insurance Program.

Question 14

The Federal Insurance Office studied insurance regulation and released their Modernization Report.One recommendation was that states should move forward with a newer method of calculating policy reserves in life insurance.The new approach is based on risk analysis and risk management techniques that reflect risks more accurately than the current method.The new approach is called

Accepted Answer

The new approach recommended by the Federal Insurance Office is called principles-based reserving, as it is based on risk analysis and risk management techniques that accurately reflect risks. The other options (B, C, and D) do not accurately describe the recommended approach. Rule-based reserving and tabular reserving are currently used methods but do not reflect risks as accurately as principles-based reserving. Loss ratio reserving is a method used for property and casualty insurance, whereas the study and recommendation were focused on life insurance.

Question 15

One method of ensuring the solvency of insurers is a periodic review,every three to five years,of insurers that operate on a multistate basis.This review is coordinated by the NAIC.This review is called a(n)

Accepted Answer

Field examinations are periodic reviews coordinated by the National Association of Insurance Commissioners (NAIC) to ensure the solvency of insurers operating on a multistate basis. These examinations help in assessing the financial health and regulatory compliance of insurance companies.

Question 16

The major argument in favor of an optional federal charter for insurers is that

Accepted Answer

The major argument in favor of an optional federal charter for insurers is that national insurers are at a competitive disadvantage under the present system. A federal charter would provide national insurers the ability to operate with greater consistency and efficiency across state lines, without having to adhere to different state regulations. This would give them a competitive advantage over state-based insurers.

Quiz 8: Government Regulation of Insurance