Porter.Reg-2

Reading: Insurance Regulation, Insurance Institute of America, 2008. - Chapter 12 - Insolvency Regulation (including 12.12 - 12.17 only)

Author: Porter, K.

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BA Quick-Summary: Porter 12 (Guaranty Funds) Guaranty funds are state-established entities designed to cover claims of insolvent insurers, funded by assessments from licensed insurers within the state. These funds operate under the supervision of the state insurance commissioner to ensure policyholders receive their benefits, subject to certain limits. Each state’s guaranty fund is governed by a board of insurer representatives and adheres to regulations like the NAIC's Post-Assessment Property and Liability Insurance Guaranty Association Model Act to manage and fund claims after insolvency.

Study Tips

This reading covers just 6 pages on the topic of guaranty funds. Recall that guaranty funds were introduced in Porter.12-Insolvency. The wiki article is short and the old exam problems are pretty easy. You could probably get most of them right with just 30 minutes of study on this reading.

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Based on past exams, the main things you need to know (in rough order of importance) are:

• assessments - process, alternate procedure, calculation
• miscellaneous facts about guaranty funds - purpose, operation, effectiveness, effect on stakeholders,...

reference	part (a)	part (b)	part (c)	part (d)
E (2017.Spring #5)	purpose: - of guaranty funds	assessments: - most common process	assessments: - alternate procedure
E (2015.Fall #9)	policyholder services: - method for providing	insolvency challenges: - for multi-line insurer 2	marketing ban: - on guaranty funds	Porter.12-Insolvency
E (2014.Spring #10)	LOBs covered: - by guaranty funds	assessments: - calculate $-value	reimbursement limits: - from guaranty funds	success / failure: - of guaranty funds
E (2013.Fall #14)	effect on stakeholders: - of guaranty funds	funding: - compare approaches

² The answer to this question about national multi-LINE insurers is essentially the same as a similar question about multi-state insurers from Porter.12-Insolvency.

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In Plain English!

Guaranty funds were introduced in Porter.12-Insolvency. The old exam problems above cover most of the other details you need to know. There are just a couple of other items you should be familiar with:

Question: describe the limitations that guaranty funds may have on reimbursements to policyholders

LOB exclusions: [Hint: C-STORM]

• Credit, Surplus lines, Title, Ocean marine, Reinsurance, Mortgage

claims payouts and UEP refund: have stated limits (except claims payouts for WC - WC has no limit)

deductibles:

• claim deductible
• policy deductible
• large net worth deductible (a percentage of an insured's net worth)

trigger is required:

• court must verify insolvency and have placed insurer in receivership

The other item concerns insurer assessments. If

L = insurer liabilities eligible for recovery after insolvency

NWP_A = NWP of insurer A (one of the remaining solvent insurers in state)

NWP_total = total NWP of remaining solvent insurers in state

then:

Formula:    assessmentA    =    L    x    NWPA    /    NWPtotal

Both the above items are covered in:

E (2014.Spring #10ab)

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