This risk of miscalculation is intrinsic to every insurance transaction. Premiums are set in advance, before the insurer knows what the actual cost of the services it has undertaken to provide will be. Economists call this an inversion of the normal production cycle. Even the most reasonable forecasts of expenditure on claims (number, cost, assessment of damage by the courts at the time of judgement as opposed to the date of an accident) and overhead costs may be exceeded. And because a very long time may elapse between payment of the premium by the policyholder and performance of the service promised by the insurer, the latter may in fact be insolvent without experiencing any cash flow problem, new premiums being used to pay out earlier claims...