Question

Which of the following factors is most likely the reason why regulators closely monitor the insolvency risk of insurance companies?

The Gramm‐Leach‐Bliley Act prohibits financial institutions to combine insurance and banking services.

Insurance firms tend to be unprofitable as they shift policy risk to reinsurers.

Insurers have incentives to increase premiums once they acquire a dominant position in insurance markets.

Insurance premiums are collected before insurers pay for underwriting expenses and policy losses.

Answer 1

Ceded insurance will be having a risk upon the solvency of the primary insurer and it will mean that the insurance organisations tend to be unprofitable as they are shifting the policy risk to the insurer and there need to be a reason why regulator are closely monitoring the insolvency risk of insurance companies.

All the other statements are false

Correct answer will be option (B)Insurance Company tend to be unprofitable as they shift policy risk to reinsurers