Regulation, Ethics, and Financial Management
Regulation
U.S. insurance is regulated primarily by states under the McCarran-Ferguson Act, which leaves insurance to the states while preserving federal antitrust reach where state law does not regulate. The NAIC drafts model laws and coordinates accreditation but has no legislative authority. Regulators license insurers and producers, review products through prior approval or file-and-use, examine solvency and market conduct, and enforce advertising, replacement, privacy, and anti-money-laundering rules. State guaranty associations protect policyholders when an insurer fails, subject to caps-not against market losses.
Ethics
Producers owe suitability, disclosure, and fiduciary-like care. They must avoid twisting, churning, rebating, and misrepresentation. Ethical analysis weighs duties to client, insurer, and regulator.
Financial management
Statutory accounting is conservative and solvency-focused; GAAP smooths and matches revenue and expense. Key items are reserves, surplus, capital, liquidity, and risk-based capital. RBC ratio = total adjusted capital ÷ risk-based capital × 100. Asset-liability management controls interest-rate risk.
Traps and worked example
Traps: saying the NAIC enforces laws; confusing guaranty association protection with investment guarantees; treating surplus as a reserve. Worked example: total adjusted capital of $300 million and RBC of $150 million give an RBC ratio of 200%. That sits at the company action level threshold, so the insurer must file a plan; below 200% triggers increasing regulatory intervention.
Rule of thumb
Statutory accounting emphasizes solvency and conservatism; GAAP emphasizes earnings and matching.