Question

Solvency ratio of life insurance companies in india

Answer 1

1. Persistency ratio 
This ratio helps you understand how persistent customers have been in renewing their policies every year. It is measured at different intervals —13th month, 25th month, 37th month and 61st month. 


2. Solvency ratio 
It defines how good or bad an insurance company’s financial situation is on defined solvency norms. According to Irdai guidelines, all companies are required to maintain a solvency ratio of 150% to minimise bankruptcy risk. “Solvency ratio helps identify whether the company has enough buffer to settle all claims in extreme situations,” says Mathieu Verillaud, CFO, Bharti AXA General Insurance. Hence, it is a good indicator of an insurance company’s financial capacity to meet both its short-term and long-term liabilities. 

An indicator of a company’s financial capacity to meet both short-term and long-term liabilities 

High solvency ratio may not always mean good financial health, like in the case of Sahara. 



Two state-owned insurance firms have among the lowest solvency ratios. 



Data as of 31 Mar 2017; *Data available as of 31 Dec 2016; **Data as of 30 Sep 2016; 
Source: Public disclosures by respective companies; Compiled by ComparePolicy. 

Solvency ratio is calculated as the amount of Available Solvency Margin (ASM) in relation to the amount of Required Solvency Margin (RSM). The ASM is the value of the company’s assets over liabilities, and RSM is based on net premiums and defined as per Irdai guidelines.