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CPCU 520 Chapter 2
CPCU 520 Charter 2 Insurance Regulations
| Term | Definition |
|---|---|
| National Association of Insurance Commissioners (NAIC) | an association of insurance commissioners whose purpose is to coordinate insurance regulation activities among the various state insurance departments |
| Model Law | a document drafted by the NAIC, similar to a statute, that reflects the NAIC's proposed solution to a given problem/issue and provides a common basis to the states for drafting laws that affect the ins industry. |
| Model Regulation | a draft regulation that may be implemented by a state insurance department if the model law is passed. |
| Domestic insurer | an insurer doing business in the jurisdiction in which its incorporated |
| Foreign insurer | an insurer licensed to operate in a state but incorporated in another state |
| Alien insurer | an insurer domiciled in a country other than the United States |
| Paid-in surplus | the amount stockholders paid in excess of the par value of the stock. |
| Reciprocal insurer | owned by it's policyholders, formed as an unincorporated association to provide coverage to its members and managed by an attorney-in-fact. Members agree to insure each other; share in profit/losses @ same proportion |
| Insolvency | when current liabilities (as opposed to its total liabilities) exceeds its current assets |
| Guaranty Fund | state-established fund that provides a system for the payment of some of the unpaid claims of insolvent insurers; generally funded by assessment collected from all state licensed insurers |
| Good-faith claims handling | the manner of handling claims that requires an insurer to give consideration to the insured's interest that is at least equal to the consideration it gives its own interests |
| Bad faith | a breach of duty of good faith and fair dealing |
| Reasons for insurance regulation | to protect consumers, to maintain insurer solvency and to prevent destructive competition |
| Maintain insurer solvency | insurance provides future protection, protect the public interest, insurers have a responsibility to insureds, insurers have become insolvent despite regulatory reviews |
| NAIC's Financial Regulation Standards and Accreditation Program | state's ins laws/regulations must meet basic standards of NAIC model; state regulatory methods must be acceptable to NAIC; state's ins dept practices must be adequate as defined by NAIC |
| International Insurers Department (IID) standards | Capital and surplus requirements; trust fund requirements; biographical affidavits from the directors/officers of the insurer; annual filing of insurer's audited financial statement |
| Regulatory reporting, disclosure and transparency | insurers are regulated to file standardized reports quarterly/annually to assess insurer's risk & financial condition. Contain qualitative & quantitative info; updated to incorporate significant risks |
| Off-site monitoring and analysis | assess financial condition as of the valuation date & to identify and assess current & prospective risk through risk-focus surveillance. results in insurer profile. Off-site tools maintained by NAIC |
| On-site risk-focused examinations | on-site examinations evaluating corporate governance, mgmt oversight, financial strength. system of risk identification and mitigation on a current and prospective basis |
| Reserves, capital adequacy, and solvency | insurers required to maintain reserves & capital at all times and to provide an adequate margin of safety. Risk-based capital (RBC) calculation uses a standardized formula to benchmark specific level of regulatory actions for weakly capitalized insurers |
| Regulatory control of significant, broad-based, risk-related transactions/activities | licensing requirement, change of control, the amount of dividends paid, transactions with affiliates, reinsurance |
| Preventive and corrective measures, including enforcement | regulatory takes preventive and corrective measures (timely, suitable and necessary) to reduce the impact of risks identified in on and off-site regulatory monitoring |
| Exiting the market and receivership | legal/regulatory framework defines a range of options for the orderly exit of insurers from the marketplace. Solvency is defined and receivership scheme established to ensure payment of insureds obligations |
| Reasons for insolvency | rapid premium growth, inadequate insurance rates, inadequate reserves, excessive expenses, lax controls over MGAs, uncollectible reinsurance, fraud |
| Regulation insurance policies | ensure rates are adequate, not excessive, not unfairly discriminatory |
| Type of Rating Laws | Prior-approval laws, File and Use laws, Use-and-File Laws, no filings laws, flex rating laws |
| Market Conduct Surveys focus | producer practices, underwriting practices, claims practices |
| Market analysis | enables regulators to identify general market disruptions, promotes uniform analysis by applying consistent measurements between insurers and facilitates communication and collaboration among regulators from different states |
| Fundamental components | the collection of regulatory information from insurers using the Market Conduct Annual Statement. Allows regulators to monitor, benchmark, and analyze the ins market in almost every venue |
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