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Definition

<p style="text-align: justify;">A <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">ratio</span> used in the insurance industry to determine whether it has <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">risks</span> of claims which it may not be able to meet. The ratio is the company's after-tax <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">net income</span>, excluding <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">depreciation</span> and other book <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">expenses</span>, divided by its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">debt</span>. It is a good indication of whether the company's <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">cash flow</span> is sufficient to meet its potential <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">liabilities</span>.</p>