Final answer:
An insurer's adequate capacity refers to the ability to meet financial obligations and pay claims without facing financial strain. It means having enough financial resources to cover potential claims and expenses.
Step-by-step explanation:
An insurer's adequate capacity refers to the ability of the insurer to meet its financial obligations and pay claims without facing financial strain. It means that the insurer has enough financial resources, such as reserves or capital, to cover the potential claims and expenses associated with running the company.
For example, if an insurer has a high volume of claims from policyholders, it needs to have adequate capacity to ensure that it can fulfill its obligations and pay out those claims without becoming insolvent.
Having adequate capacity is crucial for insurers to maintain their stability, reputation, and ability to provide insurance coverage to their customers.