The 'financial hardship' exemption is triggered when the projected cost of the actuarial opinion would exceed the lesser of which two values?

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Multiple Choice

The 'financial hardship' exemption is triggered when the projected cost of the actuarial opinion would exceed the lesser of which two values?

The key idea is how regulators determine if obtaining an actuarial opinion is financially feasible for an insurer. The financial hardship exemption uses a cost cap that depends on the insurer’s size and business volume. Specifically, the projected cost to obtain the actuarial opinion is compared to the lesser of two baselines: 1% of capital and surplus, and 3% of direct and assumed premiums written during the year. If the estimated cost would exceed that smaller amount, the company can qualify for the exemption. For example, if capital and surplus is $80 million, 1% is $0.8 million. If direct and assumed premiums written are $120 million, 3% is $3.6 million. The lesser baseline is $0.8 million, so a projected cost above $0.8 million would trigger the exemption. The other baselines (with different percentages) would change the threshold, but the standard rule uses 1% of capital and surplus and 3% of premiums written.

The key idea is how regulators determine if obtaining an actuarial opinion is financially feasible for an insurer. The financial hardship exemption uses a cost cap that depends on the insurer’s size and business volume. Specifically, the projected cost to obtain the actuarial opinion is compared to the lesser of two baselines: 1% of capital and surplus, and 3% of direct and assumed premiums written during the year. If the estimated cost would exceed that smaller amount, the company can qualify for the exemption.

For example, if capital and surplus is $80 million, 1% is $0.8 million. If direct and assumed premiums written are $120 million, 3% is $3.6 million. The lesser baseline is $0.8 million, so a projected cost above $0.8 million would trigger the exemption. The other baselines (with different percentages) would change the threshold, but the standard rule uses 1% of capital and surplus and 3% of premiums written.

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