Net Liabilities to Policyholder Surplus

The term liability generally refers to something that a person is responsible or accountable for. It may take in money or services owed to someone. This may either be a legal liability or a public liability. Legal liability is considered to be the legal compelled obligation to pay certain debts. In law, legal liability may include payment of taxes, damages, and injuries. In commercial law, it may well include the manufacturer’s liability not to distribute and sell products with infirmities. Public liability, on the other hand, centers on civil injustices. It is deemed to be a part of the laws governing torts. Here, most cases are filed due to someone’s violation in the duty of care.

In business, a liability indicates an obligation that occurs from past business transactions or business events. It is believed to play a vital role in business operations since it is employed to facilitate in financing business operations and expansions. Liability settlements effect the use or transfer of business assets, services, and other economic benefits. This may comprise borrowings from banks, persons, and lending institutions; loans, deferred revenues, accrued expenses, accounts not yet paid, purchases in supermarkets made in account, and similar other transactions. Liabilities appear in the balance sheet, a financial statement showcasing the business’ financial position. It is categorized as current liabilities or non-current liabilities. Current liabilities are debts which are intended to be paid within a year, while non-current liabilities are debts that fall due and payable in over longer periods. Business liabilities don’t have to be lawfully enforceable. When liability in business exceeds the asset, there is a net liability.

In insurance, there is also the so called net retained liability. This refers to the insured amount retained by the reinsured company for its personal account. This also includes the unreinsured amount in whichever way, most often a term that is defined.

Liability insurance, on the other hand, is one type of insurance policy. It is a type of insurance that is paying on behalf of the insured party for a loss incurred as a result of negligence in performing his responsibility as specified in the contract or by a specific law. Its liability is limited only for the insured party’s losses, thereby protecting him from the responsibility for damages caused to other parties.

Liability insurance is regarded as one of the most admired types of insurances due to its lesser costs compared with others. Example, liability insurance in line with auto insurance has lesser costs compared to its full coverage. The reason behind this is caused by the fact that full auto insurance coverage pays for both the vehicle and the other vehicle included in the collision, plus property damages and corresponding medical expenses for injuries caused.

On the other hand, a ratio to measure an insurance company’s exposure to various estimation errors in its reserves for losses as well as other liabilities can be attained using the net liabilities to policyholder surplus. Net liabilities are comprised of total liabilities minus conditional reserves, added with real estate encumbrances, and deducted by receivables from affiliates, or receivables payable to affiliates, whichever is lower. The leverage for loss reserves is viewed as a significant component of the leverage for net liability.