According to Florida's Standard Valuation Law, which component is mandatory?

The mandatory component according to Florida's Standard Valuation Law is the legal reserve. This requirement ensures that insurance companies maintain sufficient funds to meet their future policyholder obligations and claims. The legal reserve acts as a financial safeguard, helping to ensure that the insurer can effectively cover its liabilities as they become due.

Legal reserves are calculated based on actuarial principles that account for the expected future payouts and the time value of money. By establishing a legal reserve, the insurer adheres to regulatory standards, promoting stability and consumer protection within the insurance market.

Other components, while important for the overall operation of an insurance company, are not mandated by the Standard Valuation Law. Risk assessment is integral to determining appropriate rates and managing potential claims, the underwriting process is necessary for evaluating and accepting risks, and the establishment of policyholder premiums is essential for an insurer's financial model but does not fall under the legal requirements set by valuation standards.