What does "policyholder surplus" indicate?

"Policyholder surplus" is a critical measure of an insurance company's financial strength and stability. It represents the excess of an insurer's assets over its liabilities, essentially reflecting the net worth of the company from the perspective of its policyholders. A healthy policyholder surplus indicates that the company has sufficient financial resources to not only cover claims but also to absorb unexpected losses. This financial cushion is crucial for maintaining operational stability and ensuring that the company can continue to meet its obligations to policyholders, even in challenging circumstances.

The other options misrepresent the concept of policyholder surplus. The number of policies sold pertains to market penetration rather than financial health. Total premiums collected focus solely on revenue generation, while the average claim amount paid offers insight into claims handling but does not relate to overall financial stability. Thus, the key takeaway is that the policyholder surplus is an essential indicator of an insurance company's financial strength.