What methods are used to manage capital in insurance?

In the context of managing capital in insurance, the approach of capital retention and capital drawdown is particularly relevant. Capital retention refers to the strategy of keeping enough funding within the company to meet current and future claims obligations, ensuring that the insurer remains solvent and can fulfill its contractual responsibilities to policyholders. This is paramount for maintaining customer trust and upholding the insurer's reputation in the marketplace.

Capital drawdown involves strategically tapping into the capital reserves when necessary, especially during adverse conditions or significant claims events. This approach helps to sustain liquidity and maintain operations without relying heavily on external financing.

While other choices may touch on aspects related to finance and investment, they do not encapsulate the specific nuances of capital management within the insurance industry as effectively as capital retention and drawdown, which are crucial for managing risks and ensuring long-term stability.