Which of the following best describes "solvency" in the context of life insurance?

"Solvency" in the context of life insurance refers to a company's ability to fulfill its financial obligations, particularly when it comes to paying out claims. This involves the company having sufficient assets and reserves to ensure it can cover all claims made by policyholders, not just in the present but well into the future. A solvent insurance company is one that can meet its long-term financial commitments and therefore offers a guarantee that policyholders will receive their promised benefits when they need them.

Understanding solvency is crucial because it impacts the overall stability and reliability of an insurance provider. A company that is solvent inspires confidence among policyholders, as it indicates financial health and the capacity to manage risks effectively. This contrasts with other concepts, such as service level, customer satisfaction, or risk appetite, which do not directly measure financial health or claims-paying ability.