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How are these assessments computed?

With the exception of New York (which uses a pre-insolvency system), the states’ guaranty funds assess after an insolvency occurs. Assessments are computed and billed based on the immediate needs of the guaranty association that has claims it needs to pay. Claim files come in from the insolvent insurance company; the adjusters review them, and set appropriate reserves on those files. (Reserves are the projected ultimate liability under terms of a given policy.)

In most states the assessment cap is two percent of net direct-written premium or less. Guaranty funds cannot assess an insurance company over the statutorily set cap on assessments. In exceptional circumstances, for instance when a natural catastrophe causes several large insolvencies and creates a need for additional assessments, state legislatures may enact emergency legislation that grants additional assessments or permits guaranty funds to borrow money, such as through a bond issue, or grant assessments to repay borrowed funds.



faq | by Dr. Radut