Net Leverage

What Does Net Leverage Mean?

Net leverage is the ratio that shows the sum of an insurance company’s written premiums, policyholders’ surplus, and liabilities. This does not include premiums turned over to reinsurers. It is an indicator of an insurance company’s financial health.

Insuranceopedia Explains Net Leverage

An insurer’s net leverage shows how efficiently or how badly it has managed its reserves (from the policyholders’ surplus) to address claims. The goal is to have more than enough reserves to be able to pay all possible claims and still retain a profit. This is achieved by controlling the number of underwriting activities so that it will not threaten to deplete the company’s reserves. Net written premium should not be too high above the policyholders’ surplus, the assets an insurer owns, less liabilities.

A net leverage ratio below 6 is usually considered a good rating.