What does the term insurance solvency refer to?

The term "insurance solvency" specifically relates to an insurer's ability to meet its long-term financial obligations. This is a critical measure of an insurance company's financial health, ensuring that it can pay out claims and fulfill its contractual liabilities to policyholders over time. Solvency is assessed through various financial metrics, including assets, liabilities, and surplus, which indicate whether the company has sufficient resources to cover future claims.

Understanding solvency is essential because it reassures policyholders that the insurer will remain financially stable and dependable. In the context of the insurance industry, a solvent company is one that has a strong financial foundation, suggesting a reduced risk of bankruptcy or insolvency. This concept is paramount for regulators, investors, and consumers alike, as it plays a vital role in maintaining trust within the insurance market.