Solvency Ratio (Insurance)

An insurer's solvency ratio compares its available capital to the capital regulators require it to hold, given its actual risk exposure - IRDAI mandates a minimum solvency ratio of 150% (i.e., 1.5 times the required capital) for insurers to keep operating normally, with somewhat different specific requirements depending on the line of business (health, motor, and liability segments require relatively higher cushions than segments like fire or engineering). Life insurers are required to report and disclose this ratio quarterly. If an insurer's solvency ratio falls below the mandated minimum, IRDAI can require corrective action - a meaningfully low solvency ratio is a real, checkable warning sign of an insurer's financial health, worth checking alongside (not instead of) its claim settlement ratio before choosing a long-term policy.