What is the term for the ability of a company to meet its long-term financial obligations?

The correct answer is solvency, which is the term used to describe a company's ability to meet its long-term financial obligations. Solvency indicates that a company has sufficient assets to cover its liabilities, ensuring that it can operate without facing bankruptcy or financial distress. This concept is crucial for insurers, as they must demonstrate their financial health to maintain operational stability and fulfill claims made by policyholders over extended periods.

While liquidity is related to a company’s ability to cover short-term obligations, it does not directly address long-term financial commitments. Profitability refers to how much profit a company generates relative to its expenses or revenue, but it does not specifically indicate whether a company can pay off its debts. Capitalization involves the structure of a company’s funding, including equity and debt ratios. It contributes to understanding solvency but does not directly define it. Therefore, the term solvency accurately reflects the ability to meet long-term financial responsibilities.