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Capacity of insurance company is the supply of insurance available to meet demand. Capacity depends on the industry's financial ability to accept risks. For an individual insurer, the maximum amount of risks it can underwrite based on its financial conditions.
The adequacy of an insurer capital relative to its exposure to loss is an important measure of solvency. A property or casualty insurer must maintain a certain level of capital and policy holder surplus to underwrite risks. This capital known as capacity.
When the industry is hit by high losses such as after the world trade center terrorist attack, capacity is diminished. It can be restored by increase in net income, favorable investment returns, reinsuring more risks and or rising additional capital.
The adequacy of an insurer capital relative to its exposure to loss is an important measure of solvency. A property or casualty insurer must maintain a certain level of capital and policy holder surplus to underwrite risks. This capital known as capacity.
When the industry is hit by high losses such as after the world trade center terrorist attack, capacity is diminished. It can be restored by increase in net income, favorable investment returns, reinsuring more risks and or rising additional capital.