Exam (elaborations)
INTRO TO FINANCIAL REGULATION (APIR)
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INTRO TO FINANCIAL REGULATION (APIR)
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INTRO TO FINANCIAL REGULATION (APIR)The first American Insurer was organized: - Answers- In 1752 in Philadelphia
Contributionship for the Insurance of Houses from loss by fire became the first mutual
insurance company in America.
1st Insurance Commissioner in New Hampshire - Answers- In 1851, New Hampshire
was the first state to create a formal office for the regulation of insurance and elected an
insurance commissioner.
Paul v. Virginia - Answers- (1869) This decision declared that the privileges and
immunities clause of the US Constitution guarantees citizens visiting, working, or
conducting business in another state the same freedoms and legal protections that
would be afforded to citizens of that state. The Court held that issuing a policy of
insurance was not subject to federal regulation.
1st NAIC Meeting - Answers- In 1871 the National Insurance Convention of US. In
1935 it was renamed the National Association of Insurance Commissioners (NAIC).
Price Regulation - Answers- Began in the early 1900s.
US v South-Eastern Underwriters Association - Answers- (1944) the Court ruled that
insurance was interstate commerce when conducted across state lines and was subject
to federal antitrust laws. Court overturned Paul v VA and held that insurance was
interstate commerce and subject to federal regulation under interstate commerce laws
such as the Sherman Anti-trust Act of 1890.
McCarran-Ferguson Act (1945) - Answers- states that continued regulation and taxation
of the insurance industry by the states are in the public interest. Gave states the
authority to regulate the "business of insurance" without interference from federal
regulation.
Why do we regulate insurance? - Answers- 1. Size and complexity of US Insurance
Market.
2. Implications of Insolvencies
3. Protect policyholders and stakeholders.
Size of US Insurance Market - Answers- The US = 26.2% of the total world premiums.
World insurance premiums = $4.6 trillion in 2011.
The US = $1.2 trillion of that amount.
Japan is the 2nd largest
UK is the 3rd largest
,US Insurance Market Breakdown - Answers- Most Insurers are property and casualty
however, Life and A&H make up most of the premiums of the market.
Implications of Insolvencies - Answers- GDP of the US impacts this. Free market
economy, some insolvencies are expected. The goal of regulation is not to stop these
insolvencies, its to limit or to catch these early. And help provide a helpful exit.
Protect Policyholders and Stakeholders - Answers- Protect against false advertising
and financial insolvency.
National Association of Insurance Commissioners (NAIC) - Answers- -US standard
setting and regulatory support organization
-NAIC Members, together with the resources of the NAIC, form the national system of
state-based insurance regualtion in the US.
Membership of the NAIC - Answers- NAIC members (56) are the elected or appointed
state government officials who along with their departments and staff regulate the
conduct of the insurance companies and agents in their respective state of territory.
Mission of the NAIC - Answers- -Protect the public interest
-Promote competitive markets
-Facilitate the fair and equitable treatment of insurance consumers
-Promote the reliability, solvency and financial solidity of insurance institutions
-Support and improve the state regulating of insurance.
2016 Officers - Answers- John Huff - President
Ted Nickel - President elect
Julie Mix McPeak - Vice President
Eric Cioppa - Secretary-Treasurer
2019 Officers - Answers- Eric Cioppa - President
Raymond G. Fiersen - President Elect
David Altmaier - Vice President
Dean L. Cameron - Secretary-treasurer
NAIC Meetings - Answers- Met since 1871. Meets 3 times per year in various locations.
Mostly comprised of Committee sessions for public exposure. Public Forum.
US Insurance Financial Solvency Framework - Answers- -Solvency modernization
initiative (2008) -Regulators must be able to articulate the US framework for insurance
regulation.
-Draw on and expand on ideas from the International Association of Insurance
Supervisors (IAIS)
Financial Solvency Framework includes: - Answers- -Mission
-Precondition
, -Foundations
-Solvency Framework Core Principles and Accreditation
-Financial Solvency and Regulatory Monitoring Requirements
Regulatory Mission - Answers- Protect policyholders/claimants/beneficiaries first and
foremost while also facilitating an effective and efficient marketplace for insurance
products.
Preconditions: Supervisory Authority - Answers- -Regulators have appropriate authority
over insurers.
-Operate independently of insurer or political interference.
-Maintain a staff of qualified personnel.
-Maintain confidentiality of company information.
Foundations (Framework relies on all of the following items) - Answers- -Ongoing
Consensus and Collaboration
Gramm-Leach-Bliley Act of 1999 - Answers- repealed the separation of commercial
banking and investment banking provided for in the Glass-Steagall Act of 1933.
Removed barriers in the market among banking companies, securities companies, and
insurance companies.
NAIC accreditation program - Answers- A formal program to provide consistency of
solvency regulation among the states and improve the standards of solvency regulation
and financial examinations conducted in all states. Was established in 1989.
Dodd-Frank Act of 2010 - Answers- a law enacted in the aftermath of the financial crisis
of 2008-2009 that strengthened government oversight of financial markets and placed
limitations on risky financial strategies such as heavy reliance on leverage.
The U.S. Insurance Market - Answers- Represents 8.1% of the Country's GDP. It's a
huge part of the US economy. Regulated by individual states. State insurance
regulators establish standards through NAIC.
-Regulatory Peer Review/Pressure
-Risk-Focused Approach
Core Principles - Answers- -An approach, process, or action that is fundamentally and
directly associated with achieving a mission.
-The underlying process of the US financial solvency framework.
Core Principle List - Answers- CP 1: Regulatory Reporting, Disclosure and
Transparency
CP2: Off-site Monitoring and Analysis
CP3: On-site Risk-Focused Exams
CP4: Reserves, Capital Adequacy and Solvency
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