Which is a reason to hold surplus beyond reserves?

• A. To Maximize Current-Year Profits
• B. To Reduce Regulatory Oversight
• C. To Cover Policyholder Obligations In Most Future Economic Scenarios
• D. To Increase Tax Deductions

Answer: (C)

Holding surplus beyond reserves creates a cushion to ensure policyholder obligations can be met through a wide range of future economic conditions. Reserves cover expected liabilities, but surplus adds protection against adverse experience—such as higher-than-anticipated claims, worse investment results, or changing economic factors—that could stress liquidity and solvency. This extra buffer helps maintain the ability to pay claims and meet obligations even in less favorable scenarios, and it can support ratings and financial flexibility. It isn’t primarily about boosting current-year profits, reducing regulatory scrutiny, or generating tax deductions, so those goals don’t fit the primary purpose of holding surplus beyond reserves.