This paper examines the interrelationships among the capacity variables of level of surplus, investment risk, underwriting risk, and expenses. The primary objective is the development of a capacity measure that recognizes all these variables and interrelationships. The study addresses the capacity issue from the perspective of insurer management rather than from the regulatory perspective that has appeared in other recent research. This theory begins with the realistic view that surplus is relatively fixed and determines the aggregrate premium volume and rate of growth that can be sustained by an insurer while maintaining a ruin probability below some specified ?. Traditional risk theory, as well as earlier research dealing with by-line loss ratios, loss reserve estimation accuracy, and investment portfolio risks, is used to develop a unified theory of capacity. Capacity of the Property-Casualty Insurance Industry1