What is the main purpose of capital and surplus requirements for insurers?

The main purpose of capital and surplus requirements for insurers is to ensure they have sufficient financial resources to cover claims made by policyholders. This is fundamental to the insurance business model, as it directly relates to the insurer's ability to meet its obligations. By maintaining adequate capital and surplus, insurers can absorb losses that may occur as a result of claim payouts, ensuring they remain solvent and can provide the coverage promised to their clients.

These requirements serve as a financial cushion that helps maintain the insurer's stability, particularly during times of unexpected losses or economic downturns. This is vital for preserving the trust of policyholders and the overall integrity of the insurance market. Thus, ensuring they can cover claims not only protects the policyholders but also upholds the regulatory standards that govern the insurance industry.