What is the "solvency" of an insurance company?

The "solvency" of an insurance company refers to its ability to meet long-term financial obligations to policyholders. This is a critical measure of financial health as it indicates whether the company can pay out claims that may arise in the future. Solvency ensures that an insurer has sufficient assets compared to its liabilities, allowing it to fulfill its commitments to policyholders over time.

For insurance companies, which often have policies that may not be claimed for years or even decades, maintaining solvency is essential for instilling confidence among both policyholders and regulators. A solvent company assures policyholders that they will receive their benefits when needed, which is foundational to the insurance industry’s trustworthiness and long-term viability. Hence, this aspect of financial performance is closely monitored by various regulatory agencies to protect consumer interests.