What does the term "capital" refer to in the insurance context?

In the insurance context, "capital" primarily refers to the funds that insurers hold in reserve to ensure that they can meet their policyholder obligations. This capital is often represented through funds paid in for stock or ownership evidence, which signifies the financial backing or equity that supports an insurance company’s operations. By maintaining sufficient capital, insurers can underwrite policies confidently and absorb potential losses.

This capital helps in maintaining solvency, particularly during adverse scenarios when claims might rise significantly. It also represents a cushion for operational expenses and ensures that the company can continue functioning and servicing its clients effectively.

The other choices describe different aspects related to insurance but do not capture the essence of what capital signifies within the insurance industry. Liquid assets held by policyholders are more about individual investments, coverage limits established by regulators pertain to the maximum amounts insurers will pay out, and investment revenue generated from premiums involves the earnings from capital that has already been established. Each of these elements plays a role in insurance operations, but capital specifically pertains to the foundational financial resources an insurer has at its disposal.