Loss and Loss-Adjustment Reserves to Policyholder Surplus Ratio
Definition - What does Loss and Loss-Adjustment Reserves to Policyholder Surplus Ratio mean?
Loss and loss-adjustment reserves to policyholders surplus ratio is a ratio representing the financial resources of an insurance company meant to pay for losses, including the costs of assessing and evaluating claims, to the surplus from the policies owned by the insured.
Insuranceopedia explains Loss and Loss-Adjustment Reserves to Policyholder Surplus Ratio
Insurance companies must always be thorough about their actuarial matters because a government regulatory board will close them down if they fail to provide the services they promise to clients. Insurance companies, then, need to ensure they can provide coverage over a long period of time and need to do so by setting aside present earnings for future losses, rather than depending on predicted future earnings.
Regulators evaluate insurance companies to make sure they can pay for future claims. The loss and loss-adjustment reserves to policyholders surplus ratio strongly indicates the financial solvency of an insurance company because it reflects not just its current capability but also its future capacity to serve its clients well.