What Does Current Liquidity Mean?
Current liquidity is the ratio of the total amount of cash and other ready resources or cash equivalents to the total liabilities of an insurance company. It is a measure of the ability of an insurer to respond to substantial claims against it on the policies that it has written. It is a gauge of financial strength. If this ratio is less than 100 percent, the solvency of the company is dependent on the collection of premiums.
Insuranceopedia Explains Current Liquidity
If an insurance company is able to cover its liabilities with cash or readily convertible resources or cash equivalents, it means that it does not need to rely on new premiums or increased premiums to meet its outstanding obligations. A high current liquidity ratio indicates that an insurance company is financially stable and can meet its maturing liabilities. This ratio is a popular financial metric to test a company’s ability to pay claims arising from the policies it has issued.