Insurance Regulations Require Legal Reserves and Surplus Because

question 42

Multiple Choice

Insurance regulations require legal reserves and surplus because:

• A) assets have to equal liabilities plus owners' equity
• B) reserves are long-term obligations and must be met with long-term assets
• C) they provide a cushion against bad underwriting and investment results
• D) insurers must pre-fund all agent's commissions and underwriting expenses

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Definitions:

Bonds Issuance

The process of offering bonds to investors as a means of raising capital for the issuer.

Face Amount

The nominal or dollar value stated on a financial instrument or security, such as the original amount on a bond or insurance policy.

Bond Redemption

The process of repaying the principal amount of a bond at its maturity date.

Carrying Value

The book value of an asset on a company's balance sheet, calculated as the asset’s original cost minus accumulated depreciation and impairment charges.