Calculate the Solvency Ratio and Available Solvency Margin in the following situation: Net Income of the Insurance Company was of ₹ 1,00,000 Depreciation of ₹ 35,000 Capital & Reserve Fund was of ₹ 6,00,000 Short Ter
CS Professional · Banking and Insurance - Laws and Practice · PYQS · June 2026
Calculate the Solvency Ratio and Available Solvency Margin in the following situation: Net Income of the Insurance Company was of ₹ 1,00,000 Depreciation of ₹ 35,000 Capital & Reserve Fund was of ₹ 6,00,000 Short Term Liabilities of ₹ 5,00,000 Long Term Liabilities of ₹ 2,00,000 Total Assets of ₹ 13,00,000
Answer & Explanation:
Solvency Ratio: The formula for Solvency Ratio is: (Capital & Reserves + Net Income + Depreciation) / Total Liabilities (Short-term + Long-term Liabilities). Given: Capital & Reserve Fund = ₹ 6,00,000 Net Income = ₹ 1,00,000 Depreciation = ₹ 35,000 Short Term Liabilities = ₹ 5,00,000 Long Term Liabilities = ₹ 2,00,000 Total Liabilities = Short Term Liabilities + Long Term Liabilities = ₹ 5,00,000 + ₹ 2,00,000 = ₹ 7,00,000 Solvency Ratio = (₹ 6,00,000 + ₹ 1,00,000 + ₹ 35,000) / ₹ 7,00,000 = ₹ 7,35,000 / ₹ 7,00,000 = 1.05:1 Available Solvency Margin: The formula for Available Solvency Margin (ASM) is: Total Assets - Outside Liabilities. Given: Total Assets = ₹ 13,00,000 Outside Liabilities (Total Liabilities) = ₹ 7,00,000 Available Solvency Margin = ₹ 13,00,000 - ₹ 7,00,000 = ₹ 6,00,000
Topics: Insurance Solvency
Related Questions in this Topic
- How many types of solvency ratios are used in Insurance Sector ?
- What is meant by Available Solvency Margin ?
- Explain the following terms of principles of Insurance : Principle of Uberrimae fide.
- Explain the following terms of principles of Insurance : Principle of Mitigation of loss.
- Explain the following terms of principles of Insurance : Principle of Contribution.