Risk-Based Capital Ratio

What Does Risk-Based Capital Ratio Mean?

The risk-based capital ratio measures an insurance company’s assets minus its liabilities. Its primary purpose is to ensure the company does not take on more risk than it can manage.

Typically, a ratio of 1.00 or higher is considered acceptable.

Insuranceopedia Explains Risk-Based Capital Ratio

If an insurance company takes on excessive risk without sufficient capital to cover it, it risks bankruptcy if a large number of claims are filed simultaneously.

Natural disasters such as tornadoes and hurricanes can trigger a sudden surge in claims. In such cases, a strong risk-based capital ratio helps safeguard both the insurance company and its policyholders from significant financial harm.