Answer: Basel II and Basel III determine the regulatory capital requirements for life insurance and property-casualty insurance companies in both the U.S. and European Union (EU)

**Correct answer: C** This statement is false because **Basel II and Basel III are bank capital frameworks**, not the capital frameworks for insurance companies. - **Life insurance and property-casualty insurance companies** are generally subject to **insurance-specific regulation**, such as solvency regimes and state insurance rules in the U.S., and **Solvency II** in the European Union. - Basel standards apply primarily to **banks**. ### Why the other choices are generally true - **A**: Property-casualty insurers often hold more capital relative to life insurers because their risks can be more volatile and less predictable in the short run. - **B**: This is correct. - **Annuities** expose the insurer to **longevity risk** (policyholders living longer than expected). - **Life insurance** exposes the insurer to **mortality risk** (policyholders dying sooner or later than expected, depending on product design). - **D**: In the U.S., banks benefit from a **permanent federal deposit insurance fund** (FDIC), while insurance guaranty protection is generally organized differently and does not operate as a single permanent federal fund for all insurers. Therefore, the false statement is **C**.

Author: Manit Arora