What does "capacity" refer to in insurance?

In the context of insurance, "capacity" specifically refers to an insurer's ability to issue policies. This encompasses the insurer's financial resources, underwriting expertise, and overall readiness to take on risks within the market. Capacity is critical for an insurer because it determines how much risk they can accept, which in turn relates to the number of policies they can write and the total amount of coverage they can provide.

Insurers need to maintain an adequate capacity to ensure they can fulfill their obligations to policyholders when claims arise. If an insurer exceeds its capacity, it may face financial instability, which could lead to challenges in meeting claims or even solvency issues.

Other choices mentioned do not accurately define "capacity" in the insurance context. While the measure of reserves reflects financial stability, it is not a direct measure of how many policies can be issued. Geographical coverage pertains to the areas where the insurance is valid, which is unrelated to the concept of capacity. The amount of premium collected, although a financial indicator, does not describe the insurer's capacity to accept new policies.