A systemic risk is a risk that A)can be eliminated through diversification. B)can be the cause of the collapse of an entire system. C)can be insured privately. D)can be easily contained so that it does not spread.
All of the following statements about insurance regulation are true EXCEPT A)Insurance commissioners are appointed in some states and elected in some states. B)Insurers are subject to regulation by certain federal agencies and laws. C)The National Association of Insurance Commissioners (NAIC)can force states to adopt the model laws that it drafts. D)An insurance commissioner can revoke or suspend an insurer's license to do business in his or her state.
In 2008,the U.S.federal government stepped-in to prevent the financial failure of the world's largest insurer,the American International Group (AIG).AIG's near insolvency was caused by A)catastrophic hurricane and earthquake losses that were not reinsured. B)fraudulent accounting practices that had inflated earnings for many years. C)losses on derivative loan guarantees issued by the company. D)over-investment in U.S.equity markets and the sharp drop in U.S.equity values.
The near demise of American International Group (AIG)in 2008 was caused by AIG's issuance of a complex derivative.This derivative guaranteed mortgage-backed securities held by investors.As the real estate market collapsed,AIG was required to post billions of dollars of collateral that it did not have.What were the derivative loan guarantees issued by AIG called? A)real estate investment trusts B)collateralized mortgage obligations C)catastrophe put options D)credit default swaps