Definition
Solvency Margin
The solvency margin is the surplus of an insurer's assets over its liabilities that regulators require it to hold to ensure it can meet claims.
IRDAI mandates a minimum Solvency Ratio, with insurers required to maintain available solvency margin at least 1.5 times the required margin (a 150% floor). This buffer protects policyholders against adverse claims experience or investment losses.
The solvency ratio is a headline measure of an insurer's financial health, reported and monitored regularly. A consistently high ratio signals capacity to honour long-dated promises like annuities and large life claims, while a falling ratio prompts regulatory intervention and capital infusion requirements.
Related terms
- ActuaryAn actuary is a professional who applies mathematics, statistics and financial theory to price insurance, value liabilities and assess long-term risk.
- ReinsuranceReinsurance is insurance for insurers, where a reinsurer assumes part of the risk an insurer has underwritten in exchange for a share of the premium.
- IRDAIIRDAI is the Insurance Regulatory and Development Authority of India, which regulates and supervises the insurance industry and protects policyholders.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.