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Under the McCarran-Ferguson Act of 1945, which level of government has primary authority to regulate the business of insurance?

A
B
C
D
to track
2026 Statistics

Key Facts: ARC Exam

3 courses

Required for ARC Designation

The Institutes ARC pathway

70%

Passing Score

All ARC course exams

$415

Per Course Exam Fee

The Institutes 2026 pricing

~$1,500

Total ARC Pathway Cost

ARC 301 + AIAF 320 + Ethics

72 hours

Cybersecurity Event Notice (Model #668)

NAIC Insurance Data Security Model Law

1945

McCarran-Ferguson Reverse Preemption

15 U.S.C. §§1011-1015

The ARC designation requires three Institutes courses: ARC 301, AIAF 320, and an approved ethics course. Each course has a virtual exam, a 70% passing standard, and a $415 fee, putting the full path near $1,500. ARC is built for compliance officers, market conduct examiners, and regulatory affairs staff working with state DOIs and the NAIC framework.

Sample ARC Practice Questions

Try these sample questions to test your ARC exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Under the McCarran-Ferguson Act of 1945, which level of government has primary authority to regulate the business of insurance?
A.The federal government through the SEC
B.The states through their departments of insurance
C.The NAIC, which has direct enforcement authority
D.The Federal Insurance Office under Treasury
Explanation: McCarran-Ferguson (15 U.S.C. §§1011-1015) declared that state regulation of insurance is in the public interest and granted the states primary authority to regulate the business of insurance. The NAIC develops model laws but has no direct regulatory authority, and the FIO under Dodd-Frank has only monitoring and limited preemption powers — not primary regulation.
2What does the 'reverse preemption' provision of McCarran-Ferguson mean in practice?
A.Federal law always overrides state insurance law
B.Federal laws of general applicability do not preempt state insurance regulation unless they specifically regulate insurance
C.States can opt out of any federal regulation by passing a resolution
D.The NAIC can preempt federal law through model legislation
Explanation: McCarran-Ferguson's reverse preemption provision states that no act of Congress shall be construed to invalidate, impair, or supersede any state law enacted to regulate the business of insurance unless the federal act specifically relates to the business of insurance. This is the opposite of the usual Supremacy Clause result, hence 'reverse' preemption.
3The National Association of Insurance Commissioners (NAIC) is best described as which of the following?
A.A federal regulatory agency with rulemaking authority over all insurers
B.A voluntary association of the chief insurance regulators of each state, the District of Columbia, and U.S. territories
C.A trade association funded by insurance carriers to advocate for industry interests
D.A division of the U.S. Treasury responsible for solvency oversight
Explanation: The NAIC is a voluntary association of state insurance commissioners (plus DC and the territories). It drafts model laws and regulations, runs the accreditation program, and supports state regulation through services like SERFF and the IRIS database, but it has no direct regulatory authority of its own.
4What is the primary purpose of the NAIC Financial Regulation Standards and Accreditation Program?
A.To rate consumer satisfaction with each state department of insurance
B.To certify that a state's solvency regulation meets baseline standards so that domiciliary regulators are recognized by other states
C.To accredit private rating agencies that opine on insurer financial strength
D.To approve which insurers may be admitted in each state
Explanation: NAIC accreditation evaluates whether a state insurance department meets minimum standards for laws and regulations, financial analysis, financial examination, and organizational structure. Accreditation lets a domiciliary state's solvency oversight be relied on by other states under the principle of deference to the home-state regulator.
5Dodd-Frank Section 502 created which insurance-related federal entity?
A.The Federal Insurance Commission (FIC) with primary insurance regulatory authority
B.The Federal Insurance Office (FIO) within the U.S. Treasury Department
C.The Bureau of Insurance Consumer Protection within the CFPB
D.The Financial Stability Oversight Insurance Subcommittee
Explanation: Section 502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the Federal Insurance Office (FIO) within the U.S. Treasury. The FIO monitors all aspects of the insurance industry, identifies regulatory gaps that could contribute to systemic risk, and represents the U.S. on international insurance matters, but it does not directly regulate insurers.
6Under the NAIC Insurance Holding Company System Regulatory Act, what filing is required when a person seeks to acquire control of a domestic insurer?
A.Form A — Statement Regarding the Acquisition of Control of or Merger with a Domestic Insurer
B.Form B — Annual Holding Company Registration Statement
C.Form C — Summary of Changes to Registration Statement
D.Form F — Enterprise Risk Report
Explanation: Form A is the change-of-control filing required when an acquirer seeks to gain control (presumed at 10% or more of voting securities) of a domestic insurer. The form requires extensive disclosure of the acquirer, financing, and post-acquisition plans, and the domiciliary state must hold a public hearing and issue an order before the transaction can close.
7Under the NAIC Holding Company Act, control of an insurer is presumed at what ownership threshold?
A.Ownership of 5% or more of voting securities
B.Ownership of 10% or more of voting securities
C.Ownership of 25% or more of voting securities
D.Ownership of more than 50% of voting securities
Explanation: The NAIC Insurance Holding Company System Regulatory Act presumes control upon the direct or indirect ownership of 10% or more of the voting securities of an insurer. The presumption is rebuttable, but acquirers at or above 10% must file Form A and obtain prior approval from the domiciliary commissioner.
8What is the function of Schedule Y in an insurer's annual statement?
A.To report investments by NAIC SVO designation
B.To disclose the holding company organizational chart and material affiliated transactions
C.To report direct written premium by state and line of business
D.To list reinsurance ceded to non-admitted reinsurers
Explanation: Schedule Y of the annual statement contains Part 1 (organizational chart of the insurance holding company system) and Part 1A/Part 2 (detail on material affiliated transactions). Regulators use Schedule Y to map the holding company structure and trace intercompany flows.
9Which entity is responsible for adopting model laws and regulations that states then choose to enact?
A.The Federal Insurance Office
B.The National Association of Insurance Commissioners
C.The Securities and Exchange Commission
D.The American Council of Life Insurers
Explanation: The NAIC drafts and adopts model laws and regulations through its committee process. States may adopt the model verbatim, modify it, or decline to adopt it; only enactment by a state legislature or insurance commissioner gives a model legal force in that jurisdiction.
10An insurer is domiciled in State A, licensed in State B, and writes a policy delivered to a resident of State B. Which state's law typically governs the form, rate, and market conduct of that policy?
A.State A, because the insurer is domiciled there
B.State B, because the policy is delivered there and the insured resides there
C.Federal law, because the policyholder is in interstate commerce
D.The state with the lower premium tax rate
Explanation: State regulation of insurance generally follows the situs of the contract — the state where the policy is delivered or issued for delivery. State B's DOI regulates the form, rate, and market conduct treatment of the policy. State A retains primary solvency oversight as the domiciliary regulator.

About the ARC Exam

The ARC (Associate in Regulation and Compliance) designation from The Institutes prepares insurance compliance professionals to navigate state and federal regulation. The pathway combines ARC 301 (Navigating the Insurance Regulatory Environment), AIAF 320 (Insurance Accounting and Financial Reporting), and an ethics course. Coverage spans NAIC model laws, state DOI relations, market conduct exams, RBC and solvency, SERFF form/rate filing, producer licensing, GLBA and NAIC #668 data security, OFAC sanctions, and the FIO under Dodd-Frank.

Questions

100 scored questions

Time Limit

2 hours

Passing Score

70%

Exam Fee

$415 per course (~$1,500 total) (The Institutes)

ARC Exam Content Outline

20%

Insurance Regulatory Framework (NAIC, State DOIs, Federal)

McCarran-Ferguson Act and reverse preemption, NAIC role and accreditation program, state DOI authority, Federal Insurance Office under Dodd-Frank Section 502, and Holding Company Act structure

20%

Market Conduct Examinations

NAIC Market Regulation Handbook, Risk-Based Examination methodology, Market Conduct Annual Statement (MCAS), claims/underwriting/marketing reviews, exam reports, and corrective action plans

15%

Financial Regulation, Solvency & RBC

Statutory accounting, 51% surplus rule, RBC tiers (Company Action, Regulatory Action, Authorized Control, Mandatory Control), ORSA requirements, Schedule Y filings, and Form A change of control

15%

Producer Licensing & Marketing Compliance

NIPR producer licensing, NAIC Unfair Trade Practices Act, anti-rebating, anti-twisting, replacement rules, advertising disclosure, and continuing education obligations

10%

Form & Rate Filing (SERFF)

Filing types — prior approval, file & use, use & file, flex rating, and no file — plus SERFF workflow, speed-to-market initiatives, and actuarial justification standards

10%

Privacy, Cybersecurity & Data Regulations

GLBA Privacy and Safeguards Rules, NAIC Insurance Information and Privacy Protection Model #670, NAIC Insurance Data Security Model Law #668, NY DFS 23 NYCRR 500, and breach notification timelines

5%

Anti-Fraud, AML & Sanctions

OFAC SDN list screening, FinCEN AML rule for covered life insurance products, USA PATRIOT Act Section 326 Customer Identification Program, SAR filing, and state anti-fraud plan requirements

5%

Ethics & Code of Conduct

The Institutes Code of Professional Conduct, conflicts of interest, fair dealing with regulators, whistleblower protections, and disciplinary procedures

How to Pass the ARC Exam

What You Need to Know

  • Passing score: 70%
  • Exam length: 100 questions
  • Time limit: 2 hours
  • Exam fee: $415 per course (~$1,500 total)

Keys to Passing

  • Complete 500+ practice questions
  • Score 80%+ consistently before scheduling
  • Focus on highest-weighted sections
  • Use our AI tutor for tough concepts

ARC Study Tips from Top Performers

1Memorize the four RBC action tiers and the surplus thresholds that trigger each — RBC questions are highly testable
2Build a side-by-side chart of the five rate-filing types (prior approval, file & use, use & file, flex band, no file) and which states use each
3Trace a Form A change of control filing end to end — it ties together holding company structure, Schedule Y, and DOI approval
4For privacy questions, separate GLBA (federal financial), NAIC #670 (insurance privacy), NAIC #668 (insurance data security), and NY DFS 500 — they layer, not replace each other
5Practice scenario-based market conduct questions using the NAIC Market Regulation Handbook framework — Risk-Based Examination scoping comes up often

Frequently Asked Questions

What is the ARC designation and what courses are required?

The ARC (Associate in Regulation and Compliance) is a designation from The Institutes for insurance compliance professionals. It requires three courses: ARC 301 Navigating the Insurance Regulatory Environment, AIAF 320 Insurance Accounting and Financial Reporting (which counts toward the path), and an approved ethics course. The program targets compliance officers, regulatory affairs staff, and market conduct examiners.

What is the passing score and exam format for ARC courses?

Each ARC course exam requires a 70% passing score. Exams are virtual, multiple-choice, and timed at approximately two hours. The Institutes administers exams in quarterly testing windows through online proctoring or Pearson VUE testing centers. The Institutes does not publish course-level pass rates, but the average designation exam pass ratio across The Institutes is roughly 72%.

How much does the ARC designation cost in 2026?

Each ARC course costs about $415, putting the full three-course path around $1,500. Additional costs may include study materials and the ethics requirement. Many insurers reimburse ARC fees because the designation maps directly to compliance and market conduct roles.

What is the relationship between McCarran-Ferguson and the NAIC?

The McCarran-Ferguson Act of 1945 leaves insurance regulation primarily to the states and includes a reverse preemption provision: federal laws do not supersede state insurance laws unless they specifically regulate insurance. The NAIC is a voluntary association of state insurance commissioners that develops model laws and runs the accreditation program but has no direct regulatory authority itself. State DOIs adopt or modify NAIC models.

What is a Market Conduct Annual Statement (MCAS)?

The MCAS is a NAIC-administered annual data call that collects market conduct information from insurers in covered lines (life, annuities, health, P&C personal lines, lender-placed, and others). State DOIs use MCAS data to identify outliers and target Risk-Based Examinations. The Market Regulation Handbook describes how examiners use MCAS data and complaint indices to scope on-site reviews.

How does NAIC Insurance Data Security Model Law #668 differ from GLBA?

GLBA's Safeguards and Privacy Rules apply broadly to financial institutions and require an information security program plus opt-out privacy notices. NAIC Model #668 is the insurance-specific layer adopted state-by-state: it mandates a written information security program, third-party oversight, breach investigation, and notification to the commissioner within 72 hours of a cybersecurity event. NY DFS 23 NYCRR 500 is the most stringent state version.