Spring 2018 #3b
This question asks for 2 causes if regulatory forbearance. One of the common errors is stating the insurer's reputation may be damaged. I thought the fear of taking regulatory action could make the situation worse (investors pull out investments, policyholders take their business else where, etc.) would count as a reason for regulators not taking action quickly enough. I'm assuming that's what they mean by "insurer's reputation may be damaged". Why does this not count as regulatory forbearance? Thanks!
Comments
Also, part c doesn't list as "no effect if the company recovers". This is listed as an option on the wiki for Vaugh Crises though. Should I not put this as an answer if I get this question on the actual exam?
Vaughan does not give concern for insurer's reputation as a reason for forbearance. I am not familiar with the intricacies of an actual regulatory intervention, but I imagine they would be discrete in the actions they take and mindful of the insurer's reputation.
For part c, "no effect" probably does not count as an effect that they look for. Had they asked for consequences of forbearance, I can see "no effect due to insurer recovery" as a possible answer.