Many states in the U.S.impose liquid asset ratios on insurance companies which may be met by
A)cash and excess reserves.
B)cash and municipal bonds from within the state of operation.
C)cash and government securities.
D)cash and policyholder reserves.

Question

Quizplus · Accepted Answer

Liquid asset ratios are typically met by cash and government securities because these are assets that can easily be converted into cash in the event of financial stress. Option A may be partially correct because cash is a liquid asset, but excess reserves may not be easily accessible. Option B is not ideal because municipal bonds may not be as liquid as government securities and restricting bond purchases to a specific state limits diversification. Option D is not ideal because policyholder reserves are typically used to pay out claims and should not be relied upon as a source of liquidity.

Many States in the U