What is the definition of Insolvency?

Insolvency refers to the company's (in this case the insurance company's) inability to pay its obligations such as claims or benefit payments and debts. This happens when the cash flow into the company and its assets are less than the expenses and liabilities.

For insurance companies, the state regulators step in once they discover that an insurance company is on the brink of insolvency. It may put the insurance company under rehabilitation or conservatorship (when the company still has assets to liquidate and salvage. The state regulators regularly require reports that they will use to compute for financial and operation ratios that serve as an early warning device that such insolvency will happen. The state regulator is tasked to help ensure the stability of insurance companies for the sake of the company's stakeholders, such as their insurance policy owners.

• Insolvency
• Misstatement of Age or Sex Provision
• Modified Premium Policies
• Moral Hazard
• Comprehensive Coverage