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?

Question

Quizplus · Accepted Answer

The guaranty fund is a safety net for policyholders in case an insurance company becomes insolvent. It is designed to help pay the unpaid claims of an insolvent insurer. In this case, since Fly-By-Night did not charge adequate premiums and did not purchase reinsurance, it is likely that they will become insolvent. The guaranty fund will step in to help pay the claims of its policyholders. Premium rebates do not help pay unpaid claims, risk-based capital is a measure of an insurer's financial strength and does not pay for unpaid claims, and admitted assets are assets that an insurer is allowed to recognize on their financial statement and do not necessarily help pay unpaid claims.

Fly-By-Night Insurance Company Had Much Larger Losses Than Forecast