What is the usual range for the Gross Agents' Balances (in collection) to Policyholders Surplus Liquidity Ratio?

The Gross Agents' Balances (in collection) to Policyholders Surplus Liquidity Ratio is a financial metric that evaluates the amount of money that an insurance company expects to receive from its agents (in terms of premiums that have been collected but not yet paid to the insurance company) compared to the surplus available to policyholders.

A usual range for this ratio being less than 40% is considered indicative of a solid liquidity position. It suggests that the insurance company is not overly reliant on this balance to meet its obligations and that the policyholders’ surplus remains robust. This level indicates prudent financial management and a healthy balance between expected future revenues from agents and the funds available for claims and other liabilities.

If this ratio were to rise significantly above this benchmark, it might signal potential liquidity issues for the insurer, as it could indicate an over-dependence on collections yet to be finalized. Therefore, maintaining this ratio below 40% allows insurers to operate with a safety margin, ensuring they can meet their financial obligations even in periods of unforeseen claims.