What Does Net Premiums Written to Policyholder Surplus Mean?
Net Premiums Written to Policyholder Surplus is a ratio that shows whether an insurance company can have enough financial resources to withstand future claims. It is calculated by comparing the worth of benefits written to the worth of the assets of the company.
Insuranceopedia Explains Net Premiums Written to Policyholder Surplus
Insurance regulators often investigate insurance companies to ensure that they will be able to pay for the risks they have promised to cover in the policies they have issued. Net Premiums Written to Policyholder Surplus is one of the ratios it uses to determine this.
Net premiums are what the benefits are worth, while the policyholder surplus refers to the financial assets of the company, minus liabilities.
The ratio shows how much a company can shell out of its current financial assets to pay for the benefits of the policies. The former should exceed the latter if an insurance company is to remain healthy.