All of the Following Statements About Regulatory Objectives of Insurance

question 36

Multiple Choice

All of the following statements about regulatory objectives of insurance rate making are true EXCEPT

• A)One purpose of rate adequacy is to maintain the solvency of insurers.
• B)Rates unfairly discriminate if loss exposures that are similar with respect to losses and expenses are charged substantially different rates.
• C)Insurers know in advance if the coverages marketed will be profitable,so rate regulation is not needed.
• D)Rates are excessive if policyholders are paying substantially more than the actual value of their protection.

---

Definitions:

Incremental Annual

Incremental annual refers to the year-over-year changes or additional amounts in revenue, cost, or other financial metrics.

Internal Rate

Typically refers to the internal rate of return (IRR), which is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Discount Rate

A discount rate employed to ascertain the present worth of future cash flows within discounted cash flow analysis.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to analyze the profitability of an investment or project.