What should be the usual range for the Surplus Aid to Policyholders' Surplus ratio?

The Surplus Aid to Policyholders' Surplus ratio is an important metric used to assess the financial strength and stability of an insurance company. It reflects how much surplus aid is available to support policyholders' claims and obligations relative to the overall surplus of the insurer. A ratio that falls within a specified range indicates sound financial management and an ability to meet policyholder obligations.

A usual range of less than 15% for this ratio implies a conservative approach to surplus management, suggesting that the insurer is maintaining adequate financial reserves without excessive reliance on surplus aid. This level of caution helps to ensure that policyholders' interests are protected, as it indicates that the insurer has a sufficient buffer to cover potential claims without straining its surplus resources.

In contrast, higher ratios may signal potential financial risk or instability, as they could indicate that an insurer is overly dependent on external aid to meet its obligations. Therefore, maintaining a Surplus Aid to Policyholders' Surplus ratio of less than 15% helps to affirm the insurer’s financial health and its capability to deliver on its commitments to policyholders.