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What is Insurance Solvency Ratio?

The insurance solvency ratio is a measure of the company’s financial health. A solvency ratio will indicate if a company’s cash flow is enough to meet its liabilities and complete its financial commitments.

A low solvency ratio means that a company is more likely to default on its financial obligations.

On the other hand, a high solvency ratio means that a company is capable of meeting its debt and other financial obligations.

Instead of measuring the net income of the company, a solvency ratio measures a firm’s actual cash flow. It adds back depreciation and other non-cash expenses in order to assess a company’s capacity to stay solvent.

The table given below shows the insurance solvency ratio of life insurers in 2018-2019:

Company31.03.201931.12.201830.09.201830.06.2018
Bajaj Allianz Life8.047.497.497.74
Sahara Life8.449.429.429.24
Pramerica Life4.64.914.915.33
Canara HSBC OBC Life3.933.723.723.7
IDBI Federal Life3.343.823.822.83
Aviva Life2.992.952.892.92
Kotak Mahindra Life3.023.13.13.11
Reliance Nippon Life2.62.812.812.67
Aegon Life2.62.682.682.91
Star Union Dai-ichi Life2.532.742.742.78
Max Life2.422.612.612.62
Edelweiss Tokio Life2.292.452.452.22
ICICI Prudential Life2.152.342.342.35
SBI Life2.132.212.212.14
Exide Life2.081.81.81.93
Birla Sunlife1.982.042.042.12
PNB Met Life1.972.012.012.02
HDFC Life1.881.931.931.97
Shriram Life1.822.052.052.01
India First Life1.741.731.731.97
Bharti AXA Life1.711.621.621.62
Future Generali Life1.621.641.641.94
LIC1.61.511.511.52

The Insurance Regulatory and Development Authority of India (IRDAI) makes sure that every insurance company maintains a mandated solvency ratio of 1.5 (or a solvency margin of 150%). Different insurers might have different rankings, this is because of the various factors that might influence a company’s financial health.

To measure the true financial health of a company, you will have to compare its solvency ratio with its competitors. This will help you to get a better idea about the factors that have created the difference and why.

The insurance solvency ratio is a type of financial ratio that is usually used by potential lenders and bond investors to evaluate a company’s creditworthiness.

If you are looking to buy life insurance, you have to make sure that you purchase it from a reliable insurer. You can look at the insurer’s solvency ratio to see if it is financially stable and if it is capable of paying off its claims.

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