What is Solvency Ratio or Solvency Capital and how is it calculated?
Solvency Ratio is a measure of capital adequacy. It is expressed as a ratio of Available Solvency Margin to Required Solvency Margin.
The excess of assets6 over liabilities7 and other liabilities of policyholders’ funds and shareholders’ funds maintained by the insurer is referred to as Available Solvency Margin (ASM). IRDAI requires all insurers to maintain a minimum excess assets over liabilities, which is referred to as Required Solvency Margin (RSM).
IRDAI mandates a minimum solvency ratio of 150%.
A high solvency ratio instils confidence in the ability of the Company to pay claims, meet future contingencies and business growth plans.
Why is it important to check the Solvency Ratio in Insurance?
Solvency ratio provides a clear picture of an insurance company's overall financial health. It takes into account the company's liabilities, cash inflows and outflows. Solvency ratio in insurance companies helps you understand whether the company can manage its financial responsibilities effectively. A high solvency ratio signifies stability, reliability and long-term financial security. A financially stable insurance company is less likely to face insolvency. This means the chances of your claim being rejected or you losing money are less likely.
Does the solvency ratio matter while buying insurance plans?
Your insurance policy is a legal contract in which you agree to pay a decided amount as a premium. In return, the insurer pledges to pay the sum assured to your nominee in case of an unfortunate event.
Now if the insurer becomes insolvent, they might not be able to keep their promise of payment of the assured sum, and your family might face a financial shortfall in case of an unfortunate event.
Hence, to safeguard your family and ensure that the sum assured will be paid in the hour of need, you must look for high solvency ratio insurance providers.
IRDAI on the solvency ratio
As per the IRDAI’s mandate, the minimum solvency ratio insurance companies must maintain is 1.5 to lower risks. In terms of solvency margin, the required value is 150%.
The solvency margin is the extra capital the companies must hold over and above the claim amounts they are likely to incur. It acts as a financial backup in extreme situations, enabling the company to settle all claims.
The solvency ratio that life insurance companies declare every quarter reflects their ability to honour their promise of sum assured in case of an unfortunate event.
Also, to cover your family’s current and future financial needs, you need a term insurance plan. The affordable premiums allow you to buy a large coverage for your family regardless of your budget.
ICICI Prudential Life declared a solvency ratio of 204.5%1 for the FY2022, well over the IRDAI’s regulatory requirement. Moreover, our claim settlement ratio (CSR) in FY2022 was 97.8%2. This ratio also establishes our commitment to our customers and their loved ones. To ensure complete financial protection of your loved ones, you can opt for ICICI Prudential Life’s term plan, ICICI Pru iProtect Smart3. This comprehensive policy provides a life cover4 while also giving you the option to secure yourself against 34 different critical illnesses5. Moreover, you get to choose from a wide range of tenures at affordable premiums.
Hence, to ensure your family is always financially secured, it is crucial to take charge of your financial life and start investing with the right insurance provider.
People like you also read...
1 ICICI Prudential Life | Solvency ratio for FY2022:
2 Claim statistics are for FY2022 and is computed basis of individual claims settled over total individual claims for the financial year. For details, refer to Public Disclosures on our Website
3 ICICI Pru iProtect Smart offers four variants namely ‘Life’, ‘Life plus’, ‘Life and health’ and ‘All in One’ with different benefits. “All in One” is one of the four variants offered under iProtect Smart. The customer can choose any one variant from the four available variants. Please refer to the product brochure for more details.
4 Life Cover is the benefit payable on the death of the life assured during the policy term.
5 Accelerated Critical Illness Benefit (ACI Benefit) is optional and available under Life & Health and All in One options. This benefit is payable, on the first occurrence of any of the 34 illnesses covered. Medical documents confirming the diagnosis of critical illness need to be submitted. The benefit is payable only on the fulfilment of the definition of the diagnosed critical illness. The ACI Benefit is accelerated and not an additional benefit, which means the policy will continue with the Death Benefit reduced by the extent of the ACI Benefit paid. The future premiums payable under the policy will reduce proportionately. If ACI Benefit paid is equal to the Death Benefit, the policy will terminate on payment of the ACI Benefit. To know more in detail about the ACI Benefit and terms & conditions governing it, kindly refer to the sales brochure. ACI Benefit term would be equal to policy term or 30 years or (75-Age at entry), whichever is lower.
ICICI Pru iProtect Smart (Non-Linked Non-Par Life Individual Pure Risk Premium Product) UIN: 105N151V06
6. Computed based on Insurance Regulatory and Development Authority of India (Assets, Liabilities, and Solvency Margin of Life Insurance Business) Regulations, 2016
7.Computed based on Insurance Regulatory and Development Authority of India (Actuarial Report and Abstract for Life Insurance Business) Regulations, 2016