Which term refers to a situation where an insurer is unable to fulfill their long-term obligations?

The term that refers to a situation where an insurer is unable to fulfill their long-term obligations is insolvency. Insolvency occurs when an insurer's liabilities exceed its assets, meaning that it does not have enough resources to cover claims and fulfill obligations to policyholders. This situation can lead to an inability to pay claims, which poses a significant risk to policyholders who rely on their insurer for financial protection.

Insolvency is a critical concept in the insurance industry, as it impacts the stability and trustworthiness of insurance providers. Monitoring the financial health of an insurer is essential to ensure that they can honor their commitments over the long term.

Other terms like bankruptcy, underinsurance, and liquidity problem have distinct meanings. Bankruptcy specifically refers to a legal process through which individuals or entities declare they cannot pay their debts. Underinsurance involves having insufficient coverage to meet potential losses, while a liquidity problem pertains to a temporary shortage of funds that prevents an organization from meeting its short-term obligations. These terms do not accurately capture the persistent inability of an insurer to meet long-term obligations, making insolvency the correct choice.