Insurers incur Operating Losses (Claims Costs Expected Claims Costs + Profit Margins + Risk Premiums) and become insolvent when they have insufficient resources to pay all their obligations. Insolvent insurers should close their doors, but may continue for many years, as may insolvent health care providers. Insolvent insurers (health care providers) put policyholders (patients) at great risk for denied or delayed care due to insurer (provider) malfeasance or negligence.
Insurers can prevent some insolvencies by maintaining highly liquid assets (``Surplus'') to cover excessive Claims Costs, but no insurer can prevent all risk of insolvency because the highly liquid assets devoted to Surplus are not available to produce goods or services. More Surplus decreases insurers' insolvency risks and profits. Most States have minimal statutory Surplus requirements, but this offers different levels of insolvency risk. I require all insurers to protect against insolvency with probability 0.9987, by maintaining Surplus assets sufficient to cover all Claims Cost from PLREs at, or below three standard errors above the Population Loss Ratio.