Solvency ratio

The solvency ratio of an insurance company is the size of its capital relative to premium written. The solvency ratio is (most often) defined as:

net assets ÷ net premium written

The solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb. The amount of premium written is a better measure than the total amount insured because the level of premiums is linked to the likelihood of claims.

It is a basic measure of how financially sound an insurer is, but this simple calculation that does not take into account the types of business the company does.

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