17.2 Rates, Forms, Solvency, and Guaranty Associations

Arkansas Property & Casualty Insurance State

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1 Standalone Coverage Map

Standalone Coverage Map

2 Introduction: Arkansas Property & Casualty Insurance Exam Overview

Arkansas Property & Casualty Exam Overview

3 National Portion: Insurance Fundamentals

1.1 Risk, Hazards, Perils, and the Law of Large Numbers 1.2 Insurable Interest, Indemnity, and Other Insurance Principles 1.3 Insurance Contract Law and Elements 1.4 Policy Structure: Declarations, Insuring Agreement, Conditions, Exclusions 1.5 Parties, Agents vs. Brokers, and Authority

4 National Portion: Property Insurance Concepts

2.1 Causes of Loss / Named-Peril vs. Open-Peril 2.2 Valuation: ACV, Replacement Cost, and Functional Value 2.3 Coinsurance and the Coinsurance Formula 2.4 Deductibles, Limits, and Loss Settlement 2.5 Common Property Policy Conditions and Clauses

5 National Portion: Dwelling Policies (DP)

3.1 Dwelling Policy Forms DP-1, DP-2, DP-3 3.2 Dwelling Coverages A-E and Other Coverages 3.3 Dwelling Perils, Conditions, and Endorsements 3.4 Mobile Home and Specialized Dwelling Coverage

6 National Portion: Homeowners Policies - Forms & Section I

4.1 Homeowners Forms HO-2 through HO-8 and Eligibility 4.2 Section I Coverages A-D and Additional Coverages 4.3 Section I Perils Insured Against and Exclusions 4.4 Replacement Cost vs. ACV and Loss Settlement in Homeowners

7 National Portion: Homeowners Policies - Section II & Endorsements

5.1 Section II Coverages E (Liability) and F (Medical Payments) 5.2 Homeowners Conditions and Duties After Loss 5.3 Common Homeowners Endorsements (scheduled property, water backup, ordinance or law)

8 National Portion: Personal Auto Policy - Liability & Injury

6.1 Personal Auto Policy Structure and Eligibility 6.2 Part A Liability and Supplementary Payments 6.3 Part B Medical Payments 6.4 Part C Uninsured/Underinsured Motorists

9 National Portion: Personal Auto Policy - Physical Damage & Duties

7.1 Part D: Coverage for Damage to Your Auto 7.2 Exclusions and Part E: Duties After an Accident 7.3 Part F: General Provisions, Endorsements, and No-Fault Concepts

10 National Portion: Liability Insurance Concepts

8.1 Negligence, Torts, and Legal Liability 8.2 Defenses, Damages, and Vicarious Liability 8.3 Occurrence vs. Claims-Made Triggers 8.4 Bodily Injury, Property Damage, and Personal/Advertising Injury

11 National Portion: Commercial Property Insurance

9.1 Commercial Package Policy Structure and Common Policy Conditions 9.2 Building and Personal Property Coverage Form (BPP) 9.3 Causes of Loss Forms (Basic, Broad, Special) 9.4 Business Income and Extra Expense 9.5 Commercial Property Endorsements and the BOP

12 National Portion: Commercial General Liability - Coverages

10.1 CGL Coverage A: Bodily Injury and Property Damage Liability 10.2 CGL Coverage B: Personal and Advertising Injury, Coverage C: Medical Payments 10.3 Who Is an Insured and Supplementary Payments

13 National Portion: Commercial General Liability - Limits, Triggers & Exclusions

11.1 CGL Limits of Insurance and Aggregates 11.2 Occurrence vs. Claims-Made CGL and Retroactive Dates 11.3 Key CGL Exclusions and Endorsements

14 National Portion: Commercial Auto Insurance

12.1 Business Auto Coverage Form and Covered Auto Symbols 12.2 Commercial Auto Liability and Physical Damage 12.3 Motor Carrier / Trucking and MCS-90 12.4 Garage Coverage Form and Garagekeepers 12.5 Commercial Auto Endorsements

15 National Portion: Workers Compensation

13.1 Workers Compensation Statutory Background and Benefits 13.2 Part One (Workers Comp) and Part Two (Employers Liability) 13.3 Premium Basis, Experience Modification, and Classification 13.4 Other States, USL&H, and Federal Acts 13.5 Workers Comp Exclusions and Endorsements

16 National Portion: Other Commercial Lines - BOP, Crime & Marine

14.1 Businessowners Policy (BOP) in Depth 14.2 Crime and Fidelity Coverage 14.3 Inland Marine and Nationwide Marine Definition 14.4 Ocean Marine Coverages (Hull, Cargo, Freight, P&I)

17 National Portion: Other Commercial Lines - Specialty & Professional

15.1 Farm and Agricultural Coverage 15.2 Commercial Umbrella and Excess Liability 15.3 Professional Liability and Errors & Omissions 15.4 Directors & Officers and Employment Practices Liability

18 National Portion: Other Commercial Lines - Surety, Flood & Specialty

16.1 Surety and Fidelity Bonds 16.2 National Flood Insurance Program (NFIP) 16.3 Cyber, Aviation, and Other Specialty Lines

19 National Portion: Insurance Regulation & Market Conduct

17.1 State Regulation, Licensing, and the McCarran-Ferguson Act 17.2 Rates, Forms, Solvency, and Guaranty Associations 17.3 Producer Authority, Fiduciary Duty, and Company Operations

20 National Portion: Ethics & Unfair Trade Practices

18.1 Unfair Trade Practices and Unfair Claims Settlement 18.2 Producer Ethics, Errors & Omissions Exposure, and Fiduciary Conduct 18.3 Privacy, Fraud, and Consumer Protection

21 Chapter 1: Arkansas P&C Insurance Regulation & Licensing

1.1 Arkansas Insurance Department 1.2 Arkansas P&C Producer Licensing Requirements 1.3 Arkansas Producer Responsibilities

22 Chapter 2: Arkansas Property Insurance

2.1 Arkansas Homeowners Insurance 2.2 Arkansas Commercial Property Insurance

23 Chapter 3: Arkansas Casualty & Auto Insurance

3.1 Arkansas Auto Insurance Requirements 3.2 Arkansas Liability Insurance 3.3 Arkansas Workers' Compensation Insurance

24 Chapter 4: Arkansas Ethics & Professional Conduct

4.1 Ethical Practices and Consumer Protection

17.2 Rates, Forms, Solvency, and Guaranty Associations

Key Takeaways Explain This Topic AI

All P&C rates must be adequate, not excessive, and not unfairly discriminatory.

Rate filing methods range from prior approval to file-and-use, use-and-file, flex rating, and open competition; ISO/NCCI file loss costs and insurers apply a loss cost multiplier.

Experience mod below 1.0 = credit (lower premium); above 1.0 = debit (higher premium); multiply manual/standard premium by the mod.

RBC, financial exams, and IRIS ratios monitor solvency; admitted insurers hold a certificate of authority while surplus lines insurers are nonadmitted.

Guaranty associations cover insolvent ADMITTED insurers only, funded by assessments on solvent members, never surplus lines or taxpayers.

Last updated: June 2026

Rate Regulation Standards

Every state requires that property and casualty rates be adequate, not excessive, and not unfairly discriminatory . Memorize all three prongs together; the exam often asks which is NOT a standard.

Adequate — high enough to keep the insurer solvent and pay claims.

Not excessive — not unreasonably high for the risk transferred.

Not unfairly discriminatory — same rate for the same loss exposure; classification must rest on actuarially supportable differences (not race, religion, or national origin).

Rate Filing Systems

States use different methods for getting rates approved. Know the differences cold:

System How it works
Prior approval Insurer must file and wait for Commissioner approval before using the rate
File-and-use File, then use immediately (subject to later disapproval)
Use-and-file Use the rate, then file within a set window (often 15–30 days)
Open competition / no-file Market sets rates; little or no filing required
Flex rating File only if a change exceeds a stated band (e.g., ±10%)

Insurers commonly belong to advisory/rating organizations such as ISO (Insurance Services Office) and NCCI (workers' compensation), which file loss costs ; each insurer then applies its own loss cost multiplier to set final rates.

Worked Example: Loss Cost Multiplier

ISO files a loss cost of $0.85 per $100 of payroll for a class. An insurer's loss cost multiplier (LCM) is 1.45 (covering expenses and profit). The insured's payroll is $500,000 .

Rate per $100 = $0.85 x 1.45 = $1.2325
Premium = ($500,000 / 100) x $1.2325 = 5,000 x $1.2325 = $6,162.50

Now apply a workers' comp experience modifier (mod) of 0.90 (better-than-average losses):

Modified premium = $6,162.50 x 0.90 = $5,546.25

A mod below 1.0 is a credit (rewards low losses); a mod above 1.0 is a debit (penalizes high losses). Expect at least one experience-mod calculation.

Policy Forms and Approval

Policy forms (the contract wording) are also filed and, in most lines, must be approved before use. Standardized forms keep coverage comparable across insurers. The most-referenced P&C forms on the national exam come from ISO , including:

HO-3 (Homeowners Special Form) — open perils on the dwelling, named perils on contents.

CP 00 10 (Building and Personal Property Coverage Form) and CP 00 90 (Commercial Property Conditions) .

CG 00 01 (Commercial General Liability Coverage Form, occurrence) .

CA 00 01 (Business Auto Coverage Form) and PP 00 01 (Personal Auto Policy) .

Know that an HO-3 insures the dwelling on an open-perils basis but personal property on a named-perils basis — a classic distractor flip.

Solvency Regulation

To stay solvent an insurer must hold adequate reserves (loss reserves and unearned premium reserves) and capital and surplus . Regulators monitor solvency through:

Risk-Based Capital (RBC) — an NAIC formula setting the minimum capital relative to the insurer's risk; falling below trigger levels invites regulatory action up to mandatory control.

Financial examinations every 3–5 years.

The IRIS ratios used as early-warning screens.

An insurer admitted/authorized to do business holds a certificate of authority . A nonadmitted (surplus lines) insurer is not licensed in the state but may write hard-to-place risks through a surplus lines broker when admitted markets decline the risk.

Guaranty Associations

When an admitted insurer becomes insolvent , the state guaranty association pays covered claims up to statutory limits (commonly $300,000 per occurrence for P&C lines, varying by state). Key trap points:

Guaranty associations cover policies of admitted/licensed insurers only — not surplus lines insurers.

Funding comes from assessments on solvent member insurers , not from a standing state fund or taxpayers.

Advertising guaranty-association protection to sell a policy is an unfair trade practice in most states.

Worked Example: Coinsurance Penalty

Property forms use a coinsurance clause (often 80%) to encourage insuring to value. The recovery formula is: (Carried Limit / Required Limit) x Loss − Deductible , capped at the carried limit.

A building is worth $500,000 at replacement cost. The 80% coinsurance requirement = $400,000 . The insured carries only $300,000 , with a $1,000 deductible. A covered fire causes $120,000 in damage.

Coinsurance ratio = $300,000 / $400,000 = 0.75
Indemnity before deductible = $120,000 x 0.75 = $90,000
Payable = $90,000 − $1,000 = $89,000

The insured absorbs $31,000 as a coinsurance penalty for underinsuring. Had they carried $400,000, the ratio would be 1.0 and the loss paid in full less the deductible.

Worked Example: ACV vs. Replacement Cost

Actual cash value (ACV) = Replacement Cost − Depreciation . A roof costs $20,000 new, has a 20-year life, and is 10 years old.

Depreciation = 10/20 = 50%, or $10,000
ACV settlement = $20,000 − $10,000 = $10,000

Under a replacement cost valuation the insurer pays the full $20,000 (less any deductible), often holding back depreciation until repairs are actually completed. Auto liability uses split limits such as 100/300/50 : $100,000 per person bodily injury, $300,000 per accident bodily injury, and $50,000 property damage. If three people are injured for $80,000 each, the per-person cap pays $80,000 each but the $300,000 per-accident limit caps total BI at $300,000 — not $240,000-plus uncapped.