Which factor do insurers commonly review to determine an entity's financial stability?

Insurers commonly review capital and liquidity to determine an entity's financial stability because these factors give insight into the organization's ability to meet its short-term and long-term financial obligations. Capital refers to the amount of financial resources available to an insurer, while liquidity indicates how easily those resources can be accessed or converted into cash to settle claims or operating expenses. A strong capital position signifies that the insurer can absorb losses, maintain regulatory compliance, and sustain operations during periods of financial downturns. Likewise, adequate liquidity ensures that an insurer can promptly fulfill claims and other financial commitments without facing cash shortages. Together, these factors help evaluate the overall financial health of the entity, making them critical components in the assessment of an insurer's stability.