Which situation could threaten an insurer's solvency?

Rapid growth without administrative capacity can lead to significant challenges that threaten an insurer's solvency. When an insurance company expands quickly, it may result in an overwhelming volume of policies that the existing administrative infrastructure cannot manage effectively. This can lead to a backlog in processing claims, inadequacies in underwriting, and difficulties in maintaining proper financial controls. Consequently, if the insurer is unable to manage its operations properly, it could face mounting losses, increased claims expenses, and inadequate premium collections, all of which can pressure its financial stability and solvency.

In contrast, strong cash reserves, effective investment strategies, and compliance with actuarial standards are all factors that typically enhance an insurer's financial resilience and stability. Strong cash reserves provide liquidity to cover claims and operational costs, while effective investment strategies can generate returns that support overall financial health. Compliance with actuarial standards ensures that the insurer adequately reserves for future claims and maintains solvency in accordance with regulatory requirements. Thus, the correct answer highlights a scenario that undermines the sound management and operational integrity critical to maintaining an insurer's solvency.