1. a. Briefly explain the basic principles of underwriting.
b. Identify the major sources of information available to underwriters
2. The regulation of the insurance industry is structured differently from the regulation of many industries.
a. Explain three key reasons why the insurance industry is regulated.
b. Discuss the most significant need for insurance regulation.
3. Discuss and summarize the main outcome of each of the following cases or laws with respect to insurance regulation:
a. Paul v. Virginia
b. South-Eastern Underwriters Association Case
c. McCarran-Ferguson Act
d. Financial Modernization Act of 1999
4. Delta Insurance is a property insurer that entered into a surplus-share reinsurance treaty with Eversafe Re. Delta has a retention limit of $200,000 on any single building, and up to nine lines of insurance may be ceded to Eversafe Re. a building valued at $1,600,00 is insured with Delta. Shortly after the policy was issued, a severe windstorm caused $800,000 loss to the building.
a. How much of the loss will Delta pay?
b. How much of the loss will Eversafe Re pay?
a. What is the maximum amount of insurance that Delta can write on a single building under the reinsurance agreement? Explain your answer.
5. For each of the following situations, indicate the type of reinsurance plan or arrangement that the ceding insurer should use, and explain the reasons for your answer.
a. Company A is an established insurer and is primarily interested in having protection against a catastrophic loss arising out of a single occurrence.
b. Company B is a rapidly growing new company and desires a plan of reinsurance that will reduce the drain on its surplus because of the expense of writing a large volume of new business.
c. Company C has received an application to write a $50 million life insurance policy on the life of the chief executive officer of a major corporation. Before the policy is issued, the underwriter wants to make certain that adequate reinsurance is available.
d. Company D would like to increase its underwriting capacity to underwrite new business.
6. Explain the difference between rebating and twisting as they relate to the insurance industry.