An impaired insurer is an insurance firm whose impaired financial condition may affect its ability to meet its obligations to policyholders. The insurance regulator in each state may declare that an insurer is impaired after examining its books and finding that it's suffering a financial deficiency. The regulator will notify the company of this deficiency as well as providing a time frame in which the company must return to good financial standing.
An impaired insurer is not yet insolvent but faces such a possibility. If the insurance company fails to correct its impairment within the time given, the regulator can ask the court to have the insurer placed on rehabilitation or in conservation until the company is able to get back on sound financial footing. If the company still fails to free itself from the ordered conservation or rehabilitation, the company will be declared in a state of insolvency and will be liquidated.
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