Performance Appraisal of Insurance Companies

Topics: Tier 1 capital, Capital requirement, Tier 2 capital Pages: 3 (571 words) Published: January 28, 2011
Capital Adequacy Ratio - CAR

What Does Capital Adequacy Ratio - CAR Mean?
A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures. 


Also known as "Capital to Risk Weighted Assets Ratio (CRAR)." [pic]
Investopedia explains Capital Adequacy Ratio - CAR
This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. 

Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

Tier 1 Capital

What Does Tier 1 Capital Mean?
A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves.

Tier 2 Capital

What Does Tier 2 Capital Mean?
A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt, and more.

operating Ratio - A performance measurement for insurers which shows the sum of expenses and losses expressed as a percentage of premium.

Operating Ratio

What Does Operating Ratio Mean?
A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:

Investopedia explains Operating Ratio
The smaller the ratio, the greater the organization's ability to generate profit if revenues decrease. When using this ratio, however, investors should be aware that it doesn't take debt repayment or expansion into account.

Profitability Ratios

What Does Profitability Ratios Mean?
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant...
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