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X6.4 -Solvency Ratio

J

Jun Wu

Member
Dear All

Hope you are well :)

For X assignment 6 Question 4:

The solvency ratio here is given as :
This is defined as shareholders’ funds divided by premiums written in the previous year

but why use premium written from previous year? is that because the shareholders’ funds used is as at start of the year?

The notes said ' free reserves /net written premiums. I know free reserves is the shareholders’ funds, but it does not say we should use previous year net written premium?

Much appreciated!
Best regards
Jun
 
Hi Jun

The assets at the beginning of the year are those at the end of the previous year. You could write your definition of solvency ratio as the EOY shareholder funds divided by the premiums written in that year.
 
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