What does insolvency indicate in terms of an insurer's financial condition?

Insolvency refers to a situation where an insurer is unable to meet its financial obligations as they come due. This typically indicates a lack of sufficient assets to cover liabilities, leading to an inability to pay debts. When an insurer is deemed insolvent, it cannot continue its operations effectively without potentially restructuring or receiving external assistance.

Understanding insolvency is crucial in the insurance industry, as it impacts policyholders, creditors, and the overall financial health of the marketplace. Insolvency can lead to regulatory intervention, and it is a key indicator used by regulators and financial analysts to assess an insurer's viability.