Premium to Surplus Ratio

Published: | Updated: May 13, 2018

Definition - What does Premium to Surplus Ratio mean?

Premium to surplus ratio refers to how many new policies an insurance company can underwrite based on the difference between its assets and liabilities. It indicates the financial liquidity of the company. It is expressed in percentage form.

Insuranceopedia explains Premium to Surplus Ratio

Premiums are the lifeblood of an insurance company. The more premiums paid, the more it can sustain the company. However, premiums aren't automatically labeled as income on the balance sheet. A portion of it is earmarked towards the payment of benefits and claims. Premiums are even assigned as liabilities if they have not yet been earned; i.e., that they can still be turned into payments for claims.

When it turns a profit from premiums and from investments, the return can be considered money for new underwriting activities or the issuing of new policies.

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