One of the things we can do while we're holding the money is to invest it

That tiny fraction, rather than the whole sum, is all that's available to pay claims and expenses on day one, even though we may be liable for millions of dollars worth of exposure to loss from the moment the policy becomes effective. Therefore, for every dollar you are willing to accept from a customer, you have to have a certain amount of money already sitting in your bank account that is readily available to pay claims in the future. Regulators require that insurance companies have a sufficient amount of money on hand at all times to pay for potential claims, plus a sizeable cushion for contingencies. These extra funds are called "surplus." We have to have more money in our bank account than is needed to pay known claims and expenses. Another reason we invest the money while we are "holding" it is to increase our ability to write more business and to deliver on our promise to be there when our customers need us, in other words, to settle claims. In that situation, the investment income doesn't make up the shortfall. For instance, we may earn a low return on fixed rate investments, while claims inflation is two or three times more than anticipated. Usually we make money, but sometimes we don't.

But returns are not guaranteed. We have it, but we don't have all of it until the end of the policy's period. In addition, regulators, over time, have demanded that some benefit must be realized by policyholders because you are holding this money (the premium paid but not yet earned) and making money on it. Rates also vary widely from company to company, since the industry is highly competitive and because setting them is subject to antitrust laws that prohibit insurers from even discussing the rates they plan to charge. Premium volume depends on the line of business and the type of coverage. We do everything we can to enhance the surplus through investment. Regulators also take investment returns into account in determining that the rates insurers charge are adequate but not excessive. Here again, insurance regulation imposes restrictions on what kinds of investments are permissible and in what proportions.