What does "financial solvency" indicate about an insurance company?

Financial solvency is a critical indicator of an insurance company's health, specifically referring to its ability to meet financial obligations as they arise. When an insurance company is financially solvent, it means it possesses enough assets and cash flow to cover its liabilities, which includes claims made by policyholders and other debts. This aspect of financial management is vital because it ensures that the company can continue to operate effectively and maintain the trust of its clients and the market.

In the insurance industry, where companies promise to provide financial protection in the event of specific risks, being solvent is essential. If an insurance company were unable to pay its liabilities, it could lead to insolvency, which would undermine the confidence of policyholders and stakeholders and possibly lead to costly regulatory interventions. Thus, option B highlights the core function of financial solvency and its importance in sustaining the operations and obligations of an insurance company.