Solvency Ratio in Life Insurance: Why It Matters for UAE Policyholders

Understanding what the solvency ratio in life insurance means, how it’s calculated, why it’s important, and how to use it can help you in making smarter insurance decisions in the UAE.

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What is the Solvency Ratio in Insurance?

The solvency ratio of insurance companies is a measure of their ability to meet long-term financial obligations, especially policyholder claims. It tells you whether the insurer has enough assets to pay out claims, even in extreme or unexpected scenarios.

A high solvency ratio means the insurer is financially strong and can be trusted
A low solvency ratio may signal that the insurer might struggle to pay claims

Why Does Solvency Ratio Matter in Life Insurance?

Choosing a policy goes beyond just comparing premiums and benefits; it is about ensuring that the insurer you choose will be there when you need them the most.

Here's why the solvency ratio in life insurance should be one of your top considerations —

✅ Ensures Claims Are Paid

A high solvency ratio means the insurer can handle large volumes of claims even in crises like pandemics or economic downturns.

✅ Indicator of Financial Health

It shows how well an insurer is managing risk, investments, and customer payouts.

✅ Regulatory Compliance

In the UAE, life insurers must meet minimum solvency margin requirements to continue operating.

✅ Peace of Mind

Ultimately, it’s about trust. A stable insurer equals a secure future for your family.

How is the Solvency Ratio Calculated?

While multiple financial ratios are used in evaluating an insurer, the core solvency ratio in life insurance is calculated as —

Solvency Ratio = (Net Income + Depreciation) / Total Liabilities

Another important method used in the insurance industry is —

Solvency Ratio = Available Solvency Margin (ASM) / Required Solvency Margin (RSM)

ASM: Excess of insurer’s assets over liabilities
RSM: Regulatory capital required to protect against potential risks

A ratio of 150% or more (1.5x) is considered healthy, as required by regulators in markets.

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Role of Underwriters & Insurance Underwriting Process

The insurance underwriting process is done by underwriters. These are specialists selected by the insurance company to evaluate the risk. They assess factors like the applicant’s financial background, lifestyle, health condition, and other relevant details.

These assessments help in making an informed decision and offering the right life cover recommendations. These recommendations are for the following –

Whether to issue the life insurance policy
Whether to increase the premium (in case of higher risk)
Whether the medical conditions affect life coverage

Once you apply for life insurance, the underwriter will carefully check your application. They may confirm details with you in person or over the phone and verify them using supporting documents.

If your form is filled out correctly, this process is quick. In case of any missing or unclear details, the underwriter will correct them after confirming with you. You will also be asked to take medical tests. The type of tests depends on factors like —

Your age
Existing health conditions
Information in your application
The type and amount of coverage you want
The insurer’s policies

Common tests that need to be done include —

Blood test: Checks for diabetes, heart or bone diseases, and smoking habits
Urine test: Detects basic health issues and possible alcohol or drug use
Height and weight: Used to calculate your BMI
Blood pressure: Helps assess your heart health

The list of required documents usually includes —

Proof of age
Address proof
Completed application form
Income proof
Medical history

After reviewing all tests and records, the underwriter decides your eligibility and premium. The key factors include —

Age: Older applicants may pay higher premiums
BMI: A healthy BMI may lead to better rates
Lifestyle: Smoking, alcohol, or drug use increases risk and premiums
Health conditions: Existing issues may lead to higher premiums or even rejection

These factors together help the insurer understand the risk and set a fair premium for your policy.

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How to Check the Solvency Ratio of Life Insurers in the UAE?

Before you buy a policy, you can easily check the solvency ratio of life insurers operating in the UAE —

1. Consult Central Bank of the UAE (CBUAE)

Visit the CBUAE website and check financial disclosures or solvency reports published by licensed insurers.

2. Check Insurance Company Website

Head to the investor relations or financial section of the insurer’s website. Leading insurers in the UAE typically publish their annual solvency ratios and financial statements.

3. Use Insurance Comparison Platforms

Sites like Policybazaar.ae help you compare different insurance providers and make better decisions.

Tip: Always verify the most recent data from official or trusted sources to get the accurate understanding of the best solvency ratio for life insurance UAE.

Example: Why the Solvency Ratio Matters?

Let’s understand the importance of the solvency ratio in life insurance with a simple example —

Ali purchases a life insurance policy from an insurance company. The policy promises to pay a sum assured to her nominee in the unfortunate event of her passing.

Now, imagine such a situation occurs, and her nominee files a claim. If the insurance company has a low solvency ratio, it might struggle to honor the payout, especially if it is already facing a high volume of claims. This could delay or even jeopardise the financial support meant for her family.

That's why it’s crucial for policyholders like Ali to evaluate the solvency ratio of life insurers before buying a plan. A strong solvency ratio reflects the insurer’s financial strength and reliability, ensuring that loved ones receive the promised benefits without hassle.

Final Thoughts: Does Solvency Ratio Matter When Choosing a Life Insurance Policy?

Absolutely. Life insurance is a promise that depends on your insurer’s ability to deliver when needed the most. If the company has a low solvency ratio, it might delay or deny claims, putting your family’s financial future at risk.

When choosing a life insurance policy in the UAE, ask yourself —

Is the insurer financially strong?
Is the solvency ratio above 150%?
Are claims settled on time?

Choosing an insurer with a high solvency ratio in life insurance isn’t just wise—it’s essential.

Quick Recap: What You Should Remember?

✅ Solvency ratio measures an insurer’s ability to pay long-term obligations

✅ A high ratio = stronger, more reliable company

✅ 150% (or 1.5x) is the commonly accepted minimum standard

✅ Check solvency via CBUAE, insurer websites, or trusted platforms

✅ Use it to compare insurers before you buy a life insurance plan

If you’re in the UAE and planning to buy life insurance, make sure the solvency ratio is part of your checklist. Because when it comes to your family’s future, financial strength matters just as much as benefits and premiums

FAQs on Solvency Ratio Insurance

The solvency ratio is a critical measure of an insurance company’s financial health. It indicates the insurer's ability to meet long-term obligations and policyholder claims, ensuring that the company can honor its commitments even during adverse conditions.

A high solvency ratio gives policyholders confidence that the insurer can settle claims reliably. It reflects the company’s financial stability and reduces the risk of insolvency, thus providing peace of mind and financial security to customers.

A higher solvency ratio is better, as it shows the insurer has a strong financial base and is more capable of settling claims. A low solvency ratio may indicate financial weakness and could signal potential risk to policyholders.

Several factors influence an insurer’s solvency ratio, including —

Underwriting risk – losses from claims and poor pricing
Investment performance – returns on invested premiums
Leverage – level of debt or reinsurance used
Claims experience – frequency and severity of claims
Reserve adequacy – proper setting aside of future claim liabilities

No, solvency is not the same as debt. Solvency refers to a company's overall ability to meet all long-term obligations, not just debt. It considers the relationship between total assets and total liabilities, including debt, operational expenses, and policyholder claims.

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