Insurance regulation Essay Example | Topics and Well Written Essays - 8250 words

Insurance regulation - Essay Example-Broadly speaking, insolvency means unfitness to constitute creditors.1 However, depending on the context, this colloquial usage may refer to any one of the several tie in concepts.2 To clarify definitional matters and to set out common terminology, it is necessary to distinguish between (1) balance sheet insolvency (2) gold flow insolvency (or financial distress) (3) economic failure (or economic distress) (4) liquidation (5) reorganization and (6) insolvency proceedings or bankruptcy.This is an account statement concept signifying that the book value of a souseds assets is less than its liabilities. It should be distinguished from so called cash-flow insolvency, in which case a firm is unable to pay its debts as they fall due. Such softness may be inferred from the fact that a company has failed to pay, on demand, a debt which is due. Financial economists commonly expend the expression financial distress to refer to the condition experien ced by a firm which is having encumbrance in paying its creditors. Although there are some terminological differences between authors, the phrase is often apply to refer to the condition of a firm which is in substantial default on its debt obligations.To a removed greater extent than the balance sheet test of insolvency, financial distress is dependent on the structure of the repayments under outstanding debt obligations, and the nature of the assets available to satisfy them. Illiquid assets and large repayments may mean that a firm which is solvent in a balance sheet sense cannot pay its debts as they fall due. Conversely, a firm which has significant growth opportunities and debt repayments spread over a number of years may be insolvent in a balance sheet sense, but nonetheless be able to pay its debt as they fall due.Solvency should be distinguished from economic viability. Insolvency is concerned with the relationship between a firms assets or cash flows, and the amount of debt in