Question

Policy reserves are the intangible amounts set aside by the _____________ out of the insurer's assets at the beginning of the policy period.

a) State insurance commissioner
b) Insurer
c) Policyholder
d) Insurance agent

Answer 1

Policy reserves are the financial safety net set aside by the insurer to cover future claims. They are influenced by law and regulations, which can affect premiums and companies' willingness to do business in a state. These reserves must also cover the company's costs and profits.

Step-by-step explanation:

Policy reserves are the intangible amounts set aside by the insurer out of the insurer's assets at the beginning of the policy period. The reserves are a financial safety net that ensure the insurance company can meet future claim obligations. Insurance companies are compelled to maintain these reserves, which are greatly influenced by state insurance regulations and the fundamental law of insurance. This law asserts that, over time, the average payouts to policyholders must not exceed the average premiums collected. Factors like investment income on reserves, administrative costs, and varying risk groups add complexity, but ultimately, these reserves must cover the predicted claims, ongoing operational costs, and generate a profit margin for the company.