P&c Topic 2 Part 1

• Commissioner or superintendent
  

• Often Appointed but sometimes elected

• National Association of Insurance Commissioner
  

• (All states participate)

• Make regulation same across states (model laws, model regulation)

• Reduce redundancy (Solvency monitoring, licensing audits, etc.

Utilize expensive personnel on nation level-spread charge basis.

Gave rise to the legal landscape of insurance today.

• Paul was an agent violating VA laws by selling insurance for a NY company (Interstate transaction)
  

• He argued that VA was incorrect only congress has right to regulate interstate commerce

• 1890 congressional Act prohibiting collusion to gain monopoly

• Application to insurance industry- prevents insurers from banning together to control rates or coverage.

• SUDA- members 200+ stock insurers in south

• Preformed functions such as data collection, policy forms, actuarial support

• Case found evidence of price collusion

• Supreme court ruled against SEUA
  

• This gave control of the insurance industry to FED

• State regulations deemed not good

• Congressional Act restoring state insurance regulation

• Fed regulate in cases states fail in duty

• state regulation is coordinated by NAIC

• 1917: Six separate rating bureaus merged together creating ISO
  

• Produces standardized policy forms (provides forcast for P* expected losses)

• 1988- ISO sued by attorney generals
  

• 7 states alleged anti-trust got changes made to the commercial general ledger policy form.

• Focus on excluding environmental on damages from pollution liability
  

• ISO agreed to be only "STATISTICAL" agent for its members.

Financial Services Modernization Act

• Prior to Act- firewalls prevented companies from engaging in the business of more than of following areas (Banking, Insuance, Securities)

Allowed financial serve companies to compete in all three areas.

• Citibank/ travelers Merger

• State farm entered banking

Annuities with investment in stock

Life insurance where mortality is partially financed by investment stock.

They default.

bundle investment and sell as a security

by purchasing credit default swaps.

Cat Bonds

Insurers issue debt to help finance Catastrophic losses

secularization of cat bonds

Provides large upfront investments

• Periodic payments of interest over the life of the bond.

• Repayment of the principal at end of the bonds term.

reduce or eliminate if cat. loss occurs

• All about bonds
  
• to buy football stadiums

• No losses occur

• "alternative capital"
• "reinsurance"

Higher interest than available form other bonds of similar default risk

Diversify their investment portfolio because cat bond are not correlated with financial markets.

Non-stock insurers like mutuals

exposure portfolio Tied to that insurers specific loss

exposure portfolio is moderate- result of model must exceed a certain threshold.

• When industry looses from a peril exceeds certin threshold.
  

• State records best insurance
• decided to use whats going to pay off.

• Indexed to the actual cat disaster

• Such as wind speed, hurricane category, and amount of rain.