Solvency margin simply indicates how solvent an insurance company is, or how prepared it is to meet unforeseen exigencies. As per IRDA Rules all the general insurance companies and health standalone insurance companies need to maintain solvency margins. The required solvency margin shall be the highest of (a) Rupees five hundred million (Rupees one billion in case of a re-insurer), or (b) a sum equivalent to twenty per cent of net premium income, or (c) a sum equivalent to thirty per cent of net incurred claims whichever shall be highest. This shall be subject to credit for re-insurance for computing net premiums and net incurred claims being actual – but a percentage, determined by the regulations, not exceeding fifty per cent. An insurer who fails to maintain the required solvency margin will be deemed to be insolvent and may be wound up by the court.
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UK: the excess of an insurance company’s assets over its liabilities, both being valued in accordance with the relevant regulatory legislation (see also minimum solvency margin).
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UK: See: margin of solvency; required minimum margin solvency test.