Question

The major reasons for insurer insolvency include which of the following?

1) Inadequate pricing and loss reserves
2) Rapid growth and inadequate surplus

Answer 1

The major reasons for insurer insolvency include inadequate pricing and loss reserves, rapid growth, and inadequate surplus. Inadequate pricing and loss reserves can lead to financial difficulties if claims exceed available funds. Rapid growth without sufficient financial resources can also cause insolvency.

Step-by-step explanation:

The major reasons for insurer insolvency include inadequate pricing and loss reserves, rapid growth, and inadequate surplus.

Inadequate pricing and loss reserves occur when insurers do not accurately price their policies and set aside enough funds to cover potential claims. This can lead to financial difficulties and insolvency if claims exceed the available funds.

Rapid growth and inadequate surplus refer to situations where insurers expand too quickly without sufficient financial resources to support the increased volume of policies. If the insurer is unable to handle the increased number of claims or unexpected losses, it can become insolvent.