Which ratio indicates the adequacy of policyholders' surplus, net of ceded premiums?

The Overall Ratio 2 is a measure that assesses the adequacy of policyholders' surplus after accounting for ceded premiums. This ratio specifically evaluates the relationship between an insurer's net premiums written, including ceded reinsurance, and the surplus available to cover potential losses and liabilities. A higher Overall Ratio 2 indicates that the insurer has ample surplus relative to its net premiums, suggesting financial stability and the ability to meet claims obligations.

In the context of surplus lines insurance, having a robust policyholders' surplus is crucial, as it serves as a buffer against underwriting risks and unexpected losses. This is especially vital in the surplus lines market, where coverage is often applied for risks that standard markets may not accept.

The other ratios listed do not provide the same targeted insight into surplus adequacy after reinsurance considerations. For instance, the Net Investment Ratio focuses on the relationship between investment income and earned premiums rather than directly addressing surplus levels. The Asset to Liability Ratio, while important for understanding overall financial health, does not give a complete picture of surplus adequacy specific to policyholders' needs. Lastly, Overall Ratio 1 assesses the loss and expense ratios in relation to premiums but does not account for ceded premiums, making it less relevant for this specific inquiry