Current Liquidity
What Does Current Liquidity Mean?
Current liquidity is the ratio of the total amount of cash and other readily available resources or cash equivalents to the total liabilities of an insurance company. It measures the insurer’s ability to respond to significant claims against the policies it has issued. This ratio serves as an indicator of financial strength. If the ratio is less than 100 percent, the company’s solvency depends on the collection of premiums.
Insuranceopedia Explains Current Liquidity
If an insurance company can cover its liabilities with cash or readily convertible resources or cash equivalents, it means that it does not need to rely on new or increased premiums to meet its outstanding obligations. A high current liquidity ratio indicates that the company is financially stable and able to meet its maturing liabilities. This ratio is a widely used financial metric to assess an insurer’s ability to pay claims arising from the policies it has issued.
