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:

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.