What ratios really matter

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What ratios really matter? Well it depends who is using them!This was one conclusion the working party rapidly came to. It allowed us to develop a framework as to who would use ratios and to what end. With this in mind we defined the principal users as follows:1) Security analysts,2) Investors, and;3) ManagementOur enquiries revealed (to us) that these groups not only look at differing sets of ratios but also adopt differing approaches to the utilisation of those ratios. Ratio analysis is essentially quite different for each category of user.Many of the ratios discussed in this report are used by all three categories of user but they are usually used for differing purposes. Take the solvency margin for example. The security analyst is concerned with the solvency margin as a tong term indicator of financial health and stability, the investment analyst is interested in the solvency margin as an indicator of potential performance relative to other insurance companies (can the insurer respond to a hardening market) and management (aside from the measurement of statutory solvency) are more concerned about what the security and investment analyst think about their reported solvency margin.