What is the formula to calculate solvency margins?

The formula to calculate solvency margins is based on the difference between assets and liabilities. Solvency is a key measure of an insurance company's financial health, reflecting its ability to meet long-term obligations. By subtracting liabilities from assets, you determine the net worth or equity of the insurer. This remains a crucial metric because a positive solvency margin indicates that the company has sufficient assets to cover its liabilities, which is essential for maintaining trust with policyholders.

The other selections do not accurately represent the concept of solvency margin. Adding assets and liabilities does not provide any insight into financial stability; it results in a combined total without implying whether the company is solvent. Dividing assets by liabilities yields a ratio, which is a different financial measurement altogether and doesn't focus on the actual margin. Subtracting assets from liabilities gives a negative value when liabilities exceed assets, which does not offer a constructive view of solvency. Thus, the correct approach emphasizes the subtraction of liabilities from assets to gauge the financial strength of the insurer.