Insurance solvency ratio and dividend capacity
Required capital, own funds, the ratio and payouts.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: insurance solvency ratio and dividend capacity.Updated 30 October 2026
What it does
What an insurer may pay out. Required capital is a charge for each risk: premium risk on next year’s business, reserve risk on claims already reserved, catastrophe risk at the 1-in-200 year loss, market risk on the investments, less a credit because they do not all strike at once. Own funds are equity less intangibles plus subordinated debt. Own funds over required capital is the solvency ratio, held against a minimum and a higher target; dividends come from what stands above the target.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, rows 72–85: Motor: premium risk factor, % of net earned premium, Motor: reserve risk factor, % of net reserves, Property: premium risk factor, % of net earned premium, Property: reserve risk factor, % of net reserves…
- Capital, rows 6–11: Premium risk, Reserve risk, Catastrophe risk, Market risk…
- Capital, rows 14–25: Own funds before distributions, Solvency ratio before distributions, Dividend capacity above the target, Ordinary dividend…
What a reviewer looks for
- Dividends set from earnings with no test against the solvency ratio.
- Required capital grown with premium alone, missing reserve and market risk.
- Own funds counted including goodwill.