Which statement correctly describes what happens if regulators determine an insurer is insolvent?

Which statement correctly describes what happens if regulators determine an insurer is insolvent?

• A. The state insurance department places the insurer into receivership.
• B. The insurer is allowed to continue operating under partial supervision without receivership.
• C. The federal government takes over the insurer.
• D. The policyholders are immediately protected by federal deposit insurance.

Answer: (A)

When regulators determine an insurer is insolvent, the usual remedy is for the state insurance department to place the insurer into receivership. A receiver is appointed to take control of the company’s assets and liabilities, conserve value, and determine the best path forward. The goal is to protect policyholders and creditors, which may involve rehabilitating the company, transferring policies to a solvent insurer, or arranging orderly liquidation using the insurer’s assets to pay claims. Federal intervention isn’t the normal route for insolvent insurers, and federal deposit insurance does not cover insurance policies. A partially supervised continuation isn’t appropriate when insolvency is found, because the insurer can’t meet its obligations.

When regulators determine an insurer is insolvent, the usual remedy is for the state insurance department to place the insurer into receivership. A receiver is appointed to take control of the company’s assets and liabilities, conserve value, and determine the best path forward. The goal is to protect policyholders and creditors, which may involve rehabilitating the company, transferring policies to a solvent insurer, or arranging orderly liquidation using the insurer’s assets to pay claims. Federal intervention isn’t the normal route for insolvent insurers, and federal deposit insurance does not cover insurance policies. A partially supervised continuation isn’t appropriate when insolvency is found, because the insurer can’t meet its obligations.