CAS Regulatory Framework and Compliance 2 — Questions and Answers
Question 1: Under the NAIC model law, which entity has primary authority to regulate insurance companies in the United States?
- The federal government through the SEC
- Individual state insurance departments (Correct answer)
- The NAIC directly as a federal regulator
- The Federal Insurance Office (FIO) alone
Correct answer: Individual state insurance departments
Insurance regulation in the US is primarily state-based, with each state's insurance department having regulatory authority over insurers operating within its borders.
Question 2: What is the primary purpose of the NAIC's Financial Regulation Standards and Accreditation Program?
- To license actuaries for state filings
- To ensure state insurance departments meet minimum regulatory standards (Correct answer)
- To set premium rates for personal lines insurance
- To establish uniform policy forms across all states
Correct answer: To ensure state insurance departments meet minimum regulatory standards
The NAIC accreditation program certifies that state insurance departments maintain adequate financial regulatory standards, enabling efficient cross-state regulation.
Question 3: Which of the following best describes a 'prior approval' rate regulation system?
- Insurers must file rates but can use them immediately
- Regulators must approve rates before insurers can use them (Correct answer)
- Insurers set rates freely with no filing requirement
- Rates are approved retroactively after market review
Correct answer: Regulators must approve rates before insurers can use them
Under prior approval, an insurer must receive explicit regulatory approval before implementing new rates, providing the strictest form of rate oversight.
Question 4: The Annual Statement filed by insurers with state regulators follows which accounting standard?
- Generally Accepted Accounting Principles (GAAP)
- International Financial Reporting Standards (IFRS)
- Statutory Accounting Principles (SAP) (Correct answer)
- Tax Basis Accounting (TBA)
Correct answer: Statutory Accounting Principles (SAP)
Statutory Accounting Principles (SAP) are used for insurance regulatory filings because they are more conservative than GAAP and focus on solvency protection.
Question 5: Under state insurance regulation, what is the 'admitted assets' concept critical for?
- Determining premium rates for new policies
- Calculating an insurer's Risk-Based Capital ratio
- Measuring the assets that count toward solvency requirements (Correct answer)
- Evaluating underwriting profitability by line
Correct answer: Measuring the assets that count toward solvency requirements
Admitted assets are those recognized by state regulators for solvency purposes; non-admitted assets cannot be counted toward satisfying statutory liabilities.
Question 6: Which federal law provided the first significant federal oversight role in insurance by establishing the Federal Insurance Office?
- The Gramm-Leach-Bliley Act of 1999
- The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Correct answer)
- The McCarran-Ferguson Act of 1945
- The Sarbanes-Oxley Act of 2002
Correct answer: The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Dodd-Frank (2010) created the Federal Insurance Office (FIO) within the Treasury Department to monitor the insurance industry, though it did not transfer primary regulatory authority from states.
Question 7: In the context of insurance regulation, what does 'market conduct examination' primarily assess?
- An insurer's financial solvency and reserve adequacy
- An insurer's compliance with laws governing policy sales and claims handling (Correct answer)
- The accuracy of an insurer's rate filings and actuarial assumptions
- An insurer's investment portfolio risk and diversification
Correct answer: An insurer's compliance with laws governing policy sales and claims handling
Market conduct examinations review insurer business practices including underwriting, rating, claims handling, and policyholder treatment to ensure regulatory compliance.
CAS Regulatory Framework and Compliance 2
Under the NAIC model law, which entity has primary authority to regulate insurance companies in the United States?