Additional income, or profit, that’s left over after you pay your premiums and your insurance company pays its overhead and operating expenses. Your insurer reinvests these funds and uses the interest and dividends earned on investment income to pay claims of higher-than-average amounts, as well as large numbers of claims due to a single catastrophic event.
Investment income tends to dwindle when catastrophe occurs, creating financial hardship for insurance companies. This can result in higher rates for customers—though increasing the number of policies sold can help replenish depleted investment income.