Capital Adequacy Ratio 2020

An article on credit rating of insurance companies were written much earlier in 2018. In that article, I had mentioned the irrelevance of this rating to policy holders. What matters more to us, as policy holders and not investors, is Capital Adequacy Ratio(CAR) which had seen some revision last year.

The insurer’s CAR in layman term is the insurer’s ability to fulfill its liabilities obligation when faced with insolvency. Under MAS requirement, the minimum CAR for insurer’s in 130% and below shows the ratio of respective life companies as dated 31 Dec 2020.

In my previous article, only the ratio was shown and I decided to show the absolute value in SGD now.

While having the ratio in percentage is as accurate as it should be, the absolute amount gives a better picture. For e.g. If we compared Aviva Ltd’s 214% of CAR, it would seems much stronger than AIA Singapore’s 199%. However, AIA Singapore is almost 4 times as much cash than Aviva Ltd. And Life Insurance Corporation has the highest CAR but least cash. My point is there is no reason to be panicky if your insurer has a very low cash or CAR. I believe they are generally financial sound if they fulfilled MAS requirement. One reason an insurer having a high CAR could also be due to their business nature. For e.g. if the insurer has a strong portfolio of term plans or ILP, it may requires less cash to have a high CAR since their liabilities will be lesser than another insurer which has more participating policies in their portfolio. It is advisable to read into the other statements to have a proper assessment of an insurer company as CAR is risk-weighted.

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