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

Insurance regulation - Essay Example-Broadly speaking, insolvency reckons inability to pay creditors.1 However, depending on the context, this colloquial usage may refer to any one of the several related concepts.2 To clarify definitional matters and to set out common terminology, it is necessary to distinguish between (1) rest sheet insolvency (2) gold flow insolvency (or financial scathe) (3) economic failure (or economic distress) (4) liquidation (5) reorganization and (6) insolvency proceedings or bankruptcy.This is an accounting concept signifying that the book encourage of a firms 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 lead due. Such inability may be inferred from the fact that a company has failed to pay, on demand, a debt which is due. Financial economists commonly use the expression financial distress to refer to the condition experienced by a firm whi ch is having difficulty in paying its creditors. Although there are some terminological differences between authors, the vocalize is often used to refer to the condition of a firm which is in substantial default on its debt obligations.To a far greater extent than the oddment 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 issue 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