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8.3 Review and Practice

  1. What are the reasons for the high combined ratios of the commercial lines of property/casualty business in 2001?
  2. Describe the emerging reinsurance markets. Why are they developing in Bermuda?

  3. What is the difference between each of the following?

    1. Admitted and nonadmitted insurers
    2. Regulated and nonregulated insurers
    3. Surplus lines writers and regulated insurers
    4. “File and use” and “prior approval” rate regulation
    5. “Twisting” and “rebating”

  4. The Happy Life Insurance Company is a stock insurer licensed in a large western state. Its loss reserves are estimated at $9.5 million and its unearned premium reserves at $1.7 million. Other liabilities are valued at $1.3 million. It is a mono-line insurer that has been operating in the state for over twenty years.

    1. What concern might the commissioner have if most of Happy Life Insurance Company’s assets are stocks? How might regulation address this concern?
    2. If Happy Life Insurance Company fails to meet minimum capital and surplus requirements, what options are available to the commissioner of insurance? How would Happy Life Insurance Company’s policyholders be affected? How would the policyholders of other life insurers in the state be affected?
  5. Harry is a risk manager of a global chain of clothing stores. The chain is very successful, with annual revenue of $1 billion in 2001. After the record hurricane seasons of 2004 and 2005, his renewal of insurance coverages became a nightmare. Why was renewal so difficult for him?

  6. Read the box Note 8.35 "Insurance and Your Privacy—Who Knows?" in this chapter and respond to the following questions in addition to the questions that are in the box.

    1. What are privacy regulations?
    2. Why do you think state regulators have been working on adopting such regulation?
    3. What is your opinion about privacy regulation? What are the pros and cons of such regulation?
  7. What are risk-based capital requirements, and what is their purpose?
  8. How do stock insurers differ from mutuals with respect to their financial requirements?