The basic function of insurance is to organize economic compensation and pay insurance benefits. In order to fulfill this function, insurance companies need to attract a large number of policyholders by collecting insurance premiums and set up insurance funds to ensure that the insured can make compensation or pay insurance money in accordance with the prior agreement when encountering insurance accidents or property losses. This is the basis for the survival and development of insurance companies, and it is also the starting point and destination of insurance management. In order to achieve this business goal, insurance companies must always maintain the necessary solvency.

The solvency of an insurance company refers to its ability to bear the liability for compensation or pay insurance money when an insurance accident occurs after underwriting. The solvency of an insurance company depends on the balance of its actual assets minus its actual liabilities. If the balance is large, the solvency will be large, and if the balance is small, the solvency will be small. In addition, the solvency of insurance companies is also directly related to their business scale. Improper blind expansion of business scale will reduce the solvency of insurance companies. Once the solvency of an insurance company is insufficient or lost, it will be unable to fulfill the obligations stipulated in the insurance contract. Not only will insurance companies face bankruptcy, but they will also directly harm the interests of the insured and even make the entire insurance industry lose the trust of the people and society.

In order to safeguard the legitimate rights and interests of the insured and the insured, and promote the healthy development of the insurance industry, the insurance law requires all insurance companies to have the minimum solvency suitable for their business scale. In other words, the difference between the actual assets and the actual liabilities of the insurance company shall not be less than the amount stipulated by the financial supervision and regulation department; If it is less than the prescribed amount, it shall increase its capital to make up the difference.

Further reading: How to buy insurance, which is good, and teach you how to avoid these "pits" of insurance.