Solvency

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What is solvency?

In health insurance, solvency is the ability of a health insurance plan to meet all of its financial obligations.

State insurance regulators carefully monitor the solvency of all health insurance plans and require corrective action if a plan’s financial situation becomes hazardous. In extreme circumstances, a state may seize control of a plan that is in danger of insolvency.

Background

The National Association of Insurance Commissioners (NAIC) moved to strengthen solvency regulation in the 1980s. It developed an accreditation program that requires state insurance departments to meet certain prescribed standards. It also established minimum capital requirements for insurers, known as risk-based capital (RBC) calculated according to riskiness of the insurer’s business activities. The NAIC continues to refine regulations.