+ VPN 1 84% 1:59 PM Assignment 2.pdf Assignment 2 1/2 Due
Show transcribed image text11 + VPN 1 84% 1:59 PM Assignment 2.pdf Assignment 2 1/2 Due Nov 26 Question 1 a) What is the meaning of reinsurance? b) Briefly explain the reasons for reinsurance c) Explain the meaning of securitization of risk Question 2 Liability Insurance Company writes a substantial amount of commercial liability insurance A large construction company requests $100 million of liability insurance to cover its business operations. Liability Insurance has a reinsurance contract with Bermuda Re that enables the coverage to be written immediately. Under the terms of the contract. Liability Insurance pays 25 percent of the losses and retains 25 percent of the premium. Bermuda Re pays 75 percent of the losses and receives 75 percent of the premium, less a ceding commission that is paid to Liability Insurance. Based on the preceding, answer the following questions: a) What type of reinsurance contract best describes the reinsurance arrangement that Liability Insurance has with Bermuda Re? b) If a $50 million covered loss occurs, how much will Bermuda Re have to pay? Explain your answer c) Why does Bermuda Re pay a ceding commission to Liability Insurance? Question 3 a) How is the combined ratio of a property and casualty insurance company calculated and what does the combined ratio measure? b) How is it possible for a property and casualty insurance company to be profitable if its combined ratio exceeds one (or 100 percent)? Question 4 For the past calendar year, a property insurer reported the following financial information for a specific line of insurance Premiums written $25.000.000 Expenses incurred 5,000,000 Incurred losses and loss-adjustment expenses 14,000,000 Earned premiums 20,000,000 a) What was the insurer's loss ratio for this line of coverage? b) Calculate the expense ratio for this line of coverage c) What was the combined ratio for this line of coverage? Question 5 a) Explain the major arguments for federal regulation of the insurance industry. b) Explain the major arguments in support of state regulation of the insurance industry
11 + VPN 1:59 PM 84% Assignment 2.pdf c) Describe the shortcomings of state regulation Question 6 Explain the following actions by agents that are prohibited by state law. a) Twisting b) Rebating Question 7 Although domiciled in Nebraska, Auto Insurance is licensed to sell auto insurance in 10 states. A different set of rates applies in each state. In five states, prior approval of rates is required. Two states have a file-and-use law, and the remaining three states have a flex- rating law. Auto Insurance has experienced poor underwriting results and needs to increase its rates. a) Explain how each of the above rating laws would apply to Auto Insurance b) Describe some possible problems that Auto Insurance may experience in trying to get its rates increased in a prior-approval state. Question 8 a) What is a valued policy? Why is it used? b) What is a valued policy law? c) What is a replacement cost policy? Question 9 A drunk driver ran a red light and smashed into Kristen's car. The cost to repair the car is $8000. She has collision insurance on her car with a $500 deductible a) Can Kristen collect from both the negligent driver's insurer and her own insurer? Explain your answer. b) Explain how subrogation supports the principle of indemnity Question 10 Nicole is applying for a health insurance policy. She has a chronic liver ailment and other health problems. She honestly disclosed the true facts concerning her medical history to the insurance agent. However, the agent did not include all the facts in the application Instead, the agent stated that he was going to cover the material facts in a separate letter to the insurance company's underwriting department. However, the agent did not furnish the material facts to the insurer, and the contract was issued as standard. A claim occurred shortly thereafter. After investigating the claim, the insurer denied payment. Nicole contends that the company should pay the claim because she answered honestly all questions that the agent asked. a) On what basis can the insurance company deny payment of the claim? b) What legal doctrines can Nicole use to support her argument that the claim should be paid?
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