Insurance Handbook - Alaska Department of Community and ...

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Updates at www.iii.org/issues_updates Insurance Topics Auto Regulation Insurance or decreases that fall outside the established “flex band” with the state regulator for approval. Typically, “prior approval” provisions apply. The “flex band” is set either by statute or by the state regulator. A state regulator may disapprove a filing at any time if it is not in compliance with the law. The state regulator normally must hold a hearing to establish noncompliance. File and Use: The insurer must file rates, rules, etc. with the state regulator. The filing becomes effective immediately or on a future date specified by the filer. A state regulator may disapprove a filing at any time if it is not in compliance with the law. The state regulator normally must hold a hearing to establish noncompliance. Use and File: The filing becomes effective when used. The insurer must file rates, rules, etc. with the state regulator within a specified time period after first use. A state regulator may disapprove a filing at any time if it is not in compliance with the law. The state regulator normally must hold a hearing to establish noncompliance. State-Prescribed: The state regulator determines and promulgates the rates, classifications, forms, etc. to which all insurers must adhere. Insurers are usually permitted to deviate from state prescribed rates, classifications, forms, etc., with the approval of the state regulator. No File/Record Maintenance: The insurer need not file rates, rules, etc. with the state regulator. Rates, rules, etc. become effective when used. The state regulator may periodically examine insurer(s) to ensure compliance with the law. Generally, there are record maintenance requirements, under which insurers must make their rating systems available to the state regulator for examination. A state regulator may order discontinuance of the use of the material at any time if it is not in compliance with the law. The state regulator normally must hold a hearing to establish noncompliance. I.I.I. Insurance Handbook www.iii.org/insurancehandbook 59
Insurance Topics Updates at www.iii.org/issues_updates Reinsurance Auto Insurance Reinsurance Reinsurance is insurance for insurance companies. It is a way of transferring or “ceding” some of the financial risk insurance companies assume in insuring cars, homes and businesses to another insurance company, the reinsurer. Reinsurance, a highly complex global business, accounted for about 9 percent of the U.S. property/casualty insurance industry premiums in 2008, according to the Reinsurance Association of America. The reinsurance business is evolving. Traditionally, reinsurance transactions were between two insurance entities: the primary insurer that sold the original insurance policies and the reinsurer. Most still are. Primary insurers and reinsurers can share both the premiums and losses or reinsurers may assume the primary company’s losses above a certain dollar limit in return for a fee. However, risks of various kinds, particularly of natural disasters, are now being sold by insurers and reinsurers to institutional investors in the form of catastrophe bonds and other alternative risk-spreading mechanisms. Increasingly, new products reflect a gradual blending of reinsurance and investment banking. After Hurricane Andrew hit Southern Florida in 1992, causing $15.5 billion in insured losses at the time, it became clear that U.S. insurers had seriously underestimated the extent of their liability for property losses in a megadisaster. Until Hurricane Andrew, the industry had thought $8 billion was the largest possible catastrophe loss. Reinsurers subsequently reassessed their position, which in turn caused primary companies to reconsider their catastrophe reinsurance needs. The shortage and high cost of traditional catastrophe reinsurance precipitated by Hurricane Andrew and declining interest rates, which sent investors looking for higher yields, prompted interest in securitization of insurance risk. Among the precursors to catastrophe bonds and other forms of securitization were contingency financing bonds such as those issued for the Florida Windstorm Association in 1996, which provided cash in the event of a catastrophe but had to be repaid after a loss, and contingent surplus notes—an agreement with a bank or other lender that in the event of a megadisaster that would significantly reduce policyholders’ surplus, funds would be made available at a predetermined price. Funds to pay for the transaction should money be needed, are held in U.S. Treasuries. Surplus notes are not considered debt, therefore do not hamper an insurer’s ability to write additional insurance. In addition, there were equity puts, through which an insurer would receive a sum of money in the event of a catastrophic loss in exchange for stock or other options. A catastrophe bond is a specialized security, introduced in 1997, that 60 I.I.I. Insurance Handbook www.iii.org/insurancehandbook
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Insurance Handbook A guide to insur
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Insurance Information Institute 110
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To The Reader For over 50 years, th
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Regulatory/Legislative Organization
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Insurance Basics Overview Accountin
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Insurance Basics Auto Insurance 4.
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Insurance Basics Homeowners Insuran
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Page 85 and 86: Glossary 401(K) PLAN An employer-sp
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Page 91 and 92: Glossary BALANCE SHEET Provides a s
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Page 97 and 98: Glossary *CONVERTIBLE TERM INSURANC
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Page 111 and 112: Glossary INTERNET INSURER An insure
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N Glossary NAMED PERIL Peril specif
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Glossary ORIGINAL EQUIPMENT MANUFAC
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Glossary and beyond reserves, prote
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Glossary be monthly, quarterly, sem
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Glossary price. Repurchase agreemen
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Glossary part of the responsibility
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Glossary cover the amount of the lo
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Glossary a preexisting condition. (
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Glossary VANDALISM The malicious an
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Glossary Property/Casualty Insuranc
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Directories ISO 545 Washington Blvd
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Directories PCI - WASHINGTON, DC 44
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Directories Financial Services Indu
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Directories COMMODITY FUTURES TRADI
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Directories GLOBAL ASSOCIATION OF R
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Directories NATIONAL ASSOCIATION OF
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Directories THE COUNCIL OF INSURANC
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Directories GRIFFITH INSURANCE EDUC
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Directories Adjusters NATIONAL ASSO
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Directories INSURANCE COMMITTEE FOR
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Directories INSURANCE SERVICES NETW
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Directories Legal Issues and Servic
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Directories INSURANCE REGULATORY EX
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Directories INSURANCE INSTITUTE FOR
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Directories Title Insurance AMERICA
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Directories INSURANCE ADVISORY BOAR
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Alphabetical Index State specific a
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Alphabetical Index Intermediaries a
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State Organizations State Organizat
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State Organizations Pacific Associa
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State Organizations Florida State A
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State Organizations Illinois State
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State Organizations Kentucky Insura
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State Organizations Association Hea
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State Organizations Montana State A
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State Organizations Monmouth Juncti
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State Organizations Agent Associati
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State Organizations Other Organizat
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State Organizations Texas Coalition
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State Organizations Agent Associati
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Alphabetical Index YEAR EVENT 1601
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Brief Alphabetical History Index YE
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I.I.l. Resources COMMERCIAL INSURAN
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I.I.I. Member Companies Lockton Com
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The I.I.I. Insurance Handbook • C
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