What does ratio 7 measure?

• A. The ultimate measure of the change in financial condition
• B. The solvency of the insurer
• C. The liquidity of assets
• D. The profitability of investments

Answer: (A)

Ratio 7 is designed to capture how an insurer’s financial condition changes from one period to the next. It’s a dynamic, overall indicator that reflects the net effect of underwriting results, investment performance, and any changes in capital or reserves, rather than a snapshot of a single facet.

That makes it the best choice because it answers the question of whether the financial health is improving or deteriorating over time. If the ratio shows growth, financial condition has strengthened; if it declines, it has weakened. In contrast, solvency describes long-term ability to meet obligations at a point in time, liquidity focuses on near-term cash availability, and profitability of investments concentrates on investment returns—none of which fully convey how financial condition has evolved across periods.