Free CAS Exam 6-U.S. (Regulation and Financial Reporting) Regulation Foundations & the NAIC Practice Questions
Practice 38 free Regulation Foundations & the NAIC questions for CAS Exam 6-U.S. (Regulation and Financial Reporting).
Sample Questions
Question 1
Easy
The McCarran-Ferguson Act of 1945 was passed by Congress primarily in response to which event?
Solution
D is correct. In United States v. South-Eastern Underwriters Association (1944), the Supreme Court held that insurance transacted across state lines is interstate commerce and therefore subject to federal law, including the Sherman Act. This unsettled the long-standing assumption that insurance was regulated exclusively by the states. Congress responded the next year with the McCarran-Ferguson Act, which preserved state primacy over the business of insurance and limited federal antitrust reach to the extent that conduct is regulated by state law.
Question 2
Medium
Applying the criteria courts use to define the 'business of insurance,' which activity is most likely entitled to the McCarran-Ferguson antitrust exemption?
Solution
D is correct. Courts ask whether a practice transfers or spreads policyholder risk, is an integral part of the policy relationship between insurer and insured, and is confined to entities within the insurance industry. Setting premium rates goes to the core risk-transfer function and satisfies these criteria, so it falls within the business of insurance eligible for the exemption. Ancillary provider arrangements and ordinary commercial purchases do not spread policyholder risk, and boycotts are expressly outside the exemption.
Question 3
Hard
Several insurers use a state-licensed advisory organization to share data. Under McCarran-Ferguson, which of their collaborative acts would LOSE the antitrust exemption even though the activity is regulated by state law?
Solution
E is correct. The exemption shields the business of insurance from federal antitrust law only to the extent regulated by state law, but the Act expressly withdraws that protection for any agreement to boycott, coerce, or intimidate. Sharing aggregated data, filing common loss costs, and drafting standard forms are cooperative ratemaking and product functions that stay within the exemption when state-regulated. Concerted refusal to deal with deviating insurers is a boycott and remains subject to the Sherman Act.