solvency margin

Solvency margin refers to the financial cushion an insurance company maintains to ensure it can meet its future claims and obligations. It is calculated as the difference between the company's assets and liabilities, representing extra funds to absorb unexpected losses. A healthy solvency margin indicates the company’s financial stability and ability to fulfill policyholders' promises, even in adverse situations. Regulatory bodies require insurance companies to maintain a minimum solvency margin to protect policyholders and ensure the company's ongoing solvency.