What Does Statutory Surplus Mean?
A statutory surplus refers to the money that remains after an accounting system by an insurance regulatory board has deducted an insurance company's liabilities from its assets. The remainder is expected to be used to offset possible losses the company might suffer in the future.
Insuranceopedia Explains Statutory Surplus
Insurance regulators employ a rigid accounting system for the insurance industry because it wants to protect the coverage of those who are insured. When an insurance company becomes insolvent, it not only affects the company but also endangers the financial security of the policyholders.
Regulators, then, check the financial health of an insurance company regularly. When it gains a profit, state regulators can request that a portion of the gains are set aside for protection against future losses.