Under California law, an insurer is generally considered insolvent when it:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under California law, an insurer is generally considered insolvent when its financial condition is impaired in a defined way: its minimum paid-in capital has fallen below the statutory requirement, or it is unable to discharge its matured obligations as they come due. These conditions signal that the insurer can no longer fulfill its promises to policyholders. A single unusually large claim, even a significant one, does not by itself render an insurer insolvent if its capital remains intact, and administrative violations such as a missed filing deadline are not findings of insolvency. Regulatory tools such as conservation, rehabilitation, and the guaranty association system exist to respond when an insurer is actually insolvent.
Why the other options are wrong
- B) One large claim, even if significant, does not by itself make an insurer insolvent if its capital and surplus remain above the statutory requirements. Insolvency requires an impaired capital position or an inability to meet matured obligations.
- C) Missing a quarterly report filing deadline is an administrative violation that may draw penalties, but it is not a finding of insolvency. Insolvency concerns the insurer's financial condition, not its compliance with filing schedules.
- D) Changing underwriting guidelines is an ordinary business decision unrelated to solvency. Such changes do not impair capital or the ability to pay obligations, so they do not constitute insolvency under the statutory test.
Memory hook
Insolvent means capital is impaired or bills cannot be paid.