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Difficulty: EasyGuaranty Associations and Solvency

Which of the following entities is legally mandated to participate as a member of the state Life and Health Insurance Guaranty Association as a condition of doing business in the state?

  1. All authorized insurers holding a certificate of authority in the stateAnswer
  2. B
    Only insurance companies organized under a mutual corporate structure
  3. C
    Reinsurance companies that assume risk from primary insurance carriers
  4. D
    Only insurance companies that are currently facing severe financial impairment

Answer

All authorized insurers holding a certificate of authority in the state
State laws require that any insurance company holding a certificate of authority to transact business as an admitted insurer must automatically become a member of the state's Guaranty Association. This ensures the association has the financial backing of the entire authorized industry to protect policyholders if one member becomes insolvent.

Step-by-Step Solution

1
Identify the purpose of the state Guaranty Association
It protects policyholders in the event their direct insurance company becomes insolvent.
Understanding the protective nature of the association clarifies who must fund it.
2
Determine the membership requirements for funding the association
The association is funded through assessments levied on member insurers.
To ensure an adequate and reliable safety net, the state requires broad participation from the industry.
3
Identify which entities are legally required to be members
All authorized (admitted) insurers must be members as a condition of their certificate of authority.
The law mandates that any insurer directly selling policies to the public in that state must contribute to the protection fund.

Key Concept

Guaranty Association Mandatory Membership
Estimated Time:45s
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Topics

Guaranty Associations and Solvency

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