Which of the following is a primary measure used to assess insurer liquidity?

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Multiple Choice

Which of the following is a primary measure used to assess insurer liquidity?

Liquidity for an insurer means having enough cash and liquid assets to meet policyholder obligations as they come due. The best measure of this is comparing cash and high-grade invested assets to policyholder obligations, because it directly shows whether there are sufficient readily available funds to cover near-term liabilities like claims and benefits. Net written premiums reflect business volume, not how quickly the insurer can pay claims. Policyholder dividends are distributions to policyholders, not a gauge of liquidity. Net investment income shows earnings from investments, which affects overall profitability and long-term cash flow, but it doesn’t directly indicate the ability to meet immediate obligations.

Liquidity for an insurer means having enough cash and liquid assets to meet policyholder obligations as they come due. The best measure of this is comparing cash and high-grade invested assets to policyholder obligations, because it directly shows whether there are sufficient readily available funds to cover near-term liabilities like claims and benefits.

Net written premiums reflect business volume, not how quickly the insurer can pay claims. Policyholder dividends are distributions to policyholders, not a gauge of liquidity. Net investment income shows earnings from investments, which affects overall profitability and long-term cash flow, but it doesn’t directly indicate the ability to meet immediate obligations.

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