What is the normal range for Gross Agents' Balances to PHS?

• A. < 60%
• B. < 40%
• C. < 80%
• D. < 20%

Answer: (B)

This item looks at a liquidity/solvency ratio: Gross Agents’ Balances to Policyholders’ Surplus. It measures how much money is owed by agents relative to the insurer’s financial cushion (surplus). A normal range being under forty percent means the amounts due from agents should not exceed about 0.4 times the policyholders’ surplus. Keeping this ratio below that level provides a comfortable buffer if agent remittances are delayed and helps ensure the insurer can meet obligations without tapping into surplus.

If the ratio rises above forty percent, it signals greater dependence on timely agent remittances and increases the risk of liquidity stress, especially in a downturn or delay scenario. The other thresholds (being higher like sixty, eighty, or lower like twenty) don’t reflect this conservative, commonly accepted threshold for maintaining financial robustness.