Solvency is defined as

Solvency is defined as

• A. The ability of an insurer to meet its obligations as they become due
• B. The insurer's profitability ratio
• C. The market share of the insurer
• D. The liquidity of investments

Answer: (A)

Solvency is the insurer's ability to meet its obligations as they become due. This means having enough assets and reserves to cover liabilities and to pay claims and policyholder obligations, even under adverse conditions. It reflects financial strength regulators and policyholders care about, beyond just the current year’s profits. Profitability looks at earnings, not whether the company can pay its promises when they come due. Market share measures size in the market, not the ability to meet obligations. Liquidity of investments supports solvency because easily used cash helps pay claims, but solvency itself is about overall capacity to meet obligations as they come due, not just how liquid the assets are.

Solvency is the insurer's ability to meet its obligations as they become due. This means having enough assets and reserves to cover liabilities and to pay claims and policyholder obligations, even under adverse conditions. It reflects financial strength regulators and policyholders care about, beyond just the current year’s profits. Profitability looks at earnings, not whether the company can pay its promises when they come due. Market share measures size in the market, not the ability to meet obligations. Liquidity of investments supports solvency because easily used cash helps pay claims, but solvency itself is about overall capacity to meet obligations as they come due, not just how liquid the assets are.