Solvency Margin

The amount by which an insurance company's capital exceeds its projected liabilities, effectively a measure of its financial health. Insurance companies are sometimes required by law to maintain a minimum solvency margin, which is sometimes referred to 'the resilience test.' In a bear market insurance companies may face problems maintaining their solvency margins because their equity investments are falling in value. In a more general sense the term can also refer to any type of company's ability to meet its long-term obligations. It measures the size of a company's after-tax income compared with its total debt. Also known as solvency ratio.

See also: Resilience Test