Omega Life Insurance Company, a domestic carrier, is declared legally insolvent and ordered into liquidation by a state court. The State Life and Health Insurance Guaranty Association is subsequently activated to fulfill Omega's covered policy obligations. To generate the capital required to pay these outstanding policyholder claims, which action will the Guaranty Association take?
- Levy a proportionate financial assessment against all other authorized member insurers writing the same class of business in the stateAnswer
- BRequest emergency stabilization funds from the Federal Deposit Insurance Corporation (FDIC) to guarantee the insolvent insurer's accounts
- CDemand immediate direct reimbursement from the insolvent company's reinsurers to cover all outstanding primary policy liabilities
- DRequire all policyholders of domestic mutual insurance companies to pay a special one-time surcharge to replenish the state reserve
Answer
The Guaranty Association will levy a proportionate financial assessment against all other authorized member insurers writing the same class of business in the state.
State Guaranty Associations are funded by the insurance industry itself. When an insolvency occurs, the Association calculates the funds needed to cover protected claims and levies an assessment on all other authorized member insurers in the state. This assessment is proportionate to the amount of premium each member writes in that specific line of business.
Step-by-Step Solution
Key Concept
Guaranty Association Funding Mechanism