Alberta General Insurance Level 1 Practice Exam

Why do insurers need to invest capital wisely?

1. To ensure a steady stream of marketing content

2. Because the invested capital is restricted by indemnification

3. To cover operational expenses exclusively

4. To focus solely on high-risk investments

The correct answer is: Because the invested capital is restricted by indemnification

Insurers need to invest capital wisely because the invested capital is restricted by indemnification. This option is the correct answer because indemnification refers to the process of compensating someone for any losses or damages they may experience. In the context of insurance, this means that insurers are responsible for covering any claims or payouts made by their customers. Therefore, insurers must invest their capital wisely to ensure they have enough funds to pay for these potential losses. The other options are incorrect because they either do not directly relate to the concept of indemnification or are too limited in their scope. For example, option A mentions marketing, which is not directly related to the necessity of wise capital investment, and options C and D only focus on specific aspects of an insurer's expenses or investments, rather than the overall need for prudent financial management.