What is the solvency ratio in health insurance?

Vote: 1

The solvency ratio in health insurance is a financial metric that measures the insurance company’s ability to meet its long-term financial obligations, including claim payouts.


In simple terms, the solvency ratio in health insurance tells whether a health insurer has sufficient financial ability to honour claims during both planned and emergency situations.


The solvency ratio is regulated by the Insurance Regulatory and Development Authority of India (IRDAI). According to IRDAI guidelines, each insurance provider in India needs to maintain a minimum solvency ratio of 1.5. The solvency ratio can be calculated by using the formula:


Solvency Ratio = (ASM) Available Solvency Margin ÷ (RSM) Required Solvency Margin


How is Solvency Ratio Calculated?


By using the formula: ASM ÷ RSM, you can calculate the solvency ratio.


Here, ASM means Available Solvency Margin, and


RSM means Required Solvency Margin.


Understanding the meaning of the solvency ratio enables the health insurance policyholders to analyse these figures and make a wise decision accordingly.


Available Solvency Margin represents the additional capital or surplus an insurance company possesses after settling all its obligations. On the other hand, the Required Solvency Margin is the minimum level of capital that regulatory authorities mandate insurers maintain to ensure financial stability.


Steps that may help you calculate the solvency ratio:


Total Assets = Rs 15,000 crore


Liabilities = Rs. 11,500 crore


Available Solvency Margin = Rs. 15,000- Rs. 11,500 = Rs. 3,500 crore


Required Solvency Margin = Rs.2,200 crore



  • Step 1:Now, recognise total assets

  • Step 2: Identify liabilities.

  • Step 3: To find ASM minus liabilities from assets. For example: Rs. 15,000- Rs. 11,500 = Rs. 3,500 crore.

  • Step 4: Note the regulatory RSM (Rs. 2,200 crore).

  • Step 5:Use the formula: Solvency Ratio = 3,500 ÷ 2,200 = 1.59


A solvency ratio of 1.59 clearly indicates that the insurance company is financially strong and above IRDAI’s 1.5 requirement.


Why is Solvency Ratio Important?


The insurance company's solvency ratio is very important to know because it indicates its financial health and its ability to meet all claims on the policies it has issued. In addition, it helps them to pick the appropriate insurance provider by indicating how well the company can manage its financial commitments and settle claims.


Where Can I Find the Solvency Ratio?


Individuals can know the solvency ratio by:



  • IRDAI Official Website or

  • Insurance Company Official Websites


Summing Up


Solvency ratio is a key aspect in evaluating health insurance providers. A company must maintain a good solvency ratio to guarantee claim payouts.