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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:
|Bajaj Allianz Life||8.04||7.49||7.49||7.74|
|Canara HSBC OBC Life||3.93||3.72||3.72||3.7|
|IDBI Federal Life||3.34||3.82||3.82||2.83|
|Kotak Mahindra Life||3.02||3.1||3.1||3.11|
|Reliance Nippon Life||2.6||2.81||2.81||2.67|
|Star Union Dai-ichi Life||2.53||2.74||2.74||2.78|
|Edelweiss Tokio Life||2.29||2.45||2.45||2.22|
|ICICI Prudential Life||2.15||2.34||2.34||2.35|
|PNB Met Life||1.97||2.01||2.01||2.02|
|India First Life||1.74||1.73||1.73||1.97|
|Bharti AXA Life||1.71||1.62||1.62||1.62|
|Future Generali Life||1.62||1.64||1.64||1.94|
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.