What is the key measure indicating a life office's financial strength?

The free asset ratio is a critical measure of a life office's financial strength, as it assesses the amount of assets that a company can use to meet its obligations without being constrained by liabilities. This ratio represents the surplus assets over and above the minimum required for policyholder guarantees. In the context of life insurance companies, having strong free assets is vital because it demonstrates the insurer's ability to pay out claims and protect policyholders' interests, especially during times of financial distress or unforeseen events. A higher free asset ratio indicates a better financial buffer, enhancing the overall solvency and stability of the life office.

Other measures such as the solvency ratio or debt-to-equity ratio, while significant in assessing financial health, do not specifically focus on the insurer's ability to cover its liabilities with surplus assets like the free asset ratio does. Return on equity, although indicative of profitability, does not directly measure the financial strength necessary to meet future obligations to policyholders, which is essential for a life office's operational viability.