RBC Flashcards
(36 cards)
RBC Ratio
Total Adjusted Capital / Authorized Control Level
Company Action Level
150% < RBC < 200%
Company must submit action plan within 45 days
Regulatory Action Level
100% < RBC < 150%
Commissioner has the right to issue an order specifying corrective action
Company must submit action plan within 45 days
Authorized Control Level
70% < RBC < 100%
Commissioner authorized to take control of company (not mandatory)
No company action initially
Mandatory Control Level
RBC <= 70%
Commissioner must rehabilitate or liquidate
Action plan
how to raise the needed capital, reduce operations to save money, or reduce risks to lower RBC charges
What is NOT covered by RBC test
business plans & strategy
management
internal controls
systems
reserve adequacy
access to capital
Total Adjusted Capital
Surplus - (non-tabular discount) - (tabular discount on medical reserves)
Trend Test
If 200% < RBC < 300% you need to check:
COR = L&LAE/NEP + Exp/NWP + PHDiv/NEP
If COR > 120% then company still subject to CAL
Authorized Control Level
0.5 * (RBC Required Capital)
Req Cap = [R0 + sqrt(R1^2 + R2^2 + R3^2 + R4^2 + R5^2 + Rcat^2)] + operational risk
Operational Risk
Basic charge is 3% may be adjusted down by sum of offset amounts reported by directed owned life ins. co. subsidiaries that prepare and file the Life RBC calc, adjusted for the percentage of ownership in the subsidiary
Types of risk included/excluded from operational
Includes:
Legal
Personnel
Inadequacy or failure of internal systems
Procedural
External
Excludes reputational risk from strategic decisions
R0
Subsidiary Insurance Companies & Misc other amounts
Common stocks in subsidiaries
Preferred stocks in subsidiaries
Investments in alien insurance co affiliates
Off-balance-sheet items or other items
R0 common stocks
Depends on accounting method:
common stocks (equity) = min[affilitateRBC*own%, value of common stock as recorded by reporting entity]
common stocks (market) = min[affilitateRBC * own%, affiliate surplus* own%]
R0 preferred stocks
preferred stocks = min[(affiliate RBC - total value common)*own%pref, value of pref stock as recorded by reporting entity]
R0 alien insurance affiliate
alien insurance affiliate = 0.5*carrying value of company’s interest in affiliate
R0 off-balance-sheet items
1.0% * value of each item
Non-controlled assets
Guarantees for the benefit of affiliates
Contingent liabilities
Deferred Tax Assets
R1
Fixed Income Risk - default risk/risk of change in interest rates
R1 = basic charge + BSC + ACC
basic charge = sum(asset values) * RBC factor
BSC = (bond size factor) * (total R1 charges for bonds)
ACC = sum(asset values for top 10 issuers) * RBC factor
R1 RBC basic charge items & factors
Fixed Income Assets:
cash & equivalents - 0.003
mortgage bonds - 0.05
gov’t bonds - 0.0
Class 02 unaffil bonds - 0.01
Other long-term assets, off-balance-sheet collateral and Sch DL Part1 Assets
R1 Bond Size Charge (BSC)
Applies to non-gov’t bonds classes 01-06. Exclude gov’t bonds.
(sumproduct(# issuers, weight) / total # issuers) -1
first 50 issuers - weight 2.5
next 50 - weight 1.3
next 300 - weight 1.0
> 400 - weight 0.9
Break-even point for BSC
1300; any company with more than 1300 bonds receives a discount to RBC charge
Asset Concentration Charge (ACC)
Step 1: gather all fixed income & equity investments subject to ACC
Step 2: sort by issuer from highest to lowest
Step 3: truncate, keeping only top 10
- Split out R1 and R2 items and do for each:
Step 4: Sum all; for R1, separate bonds into each class
Step 5: Multiply each sum by the appropriate RBC factor
R1 ACC RBC Factors
(NOTE: same dist for pref stock classes & RBC factors)
class 02 bonds - 0.01
class 03 bonds - 0.02
class 04 bonds - 0.045
class 05 bonds - 0.010
collateral loans - 0.05
mortgage bonds - 0.05
working capital finance investments (NAIC 02)
low income housing tax credits
Assets NOT considered in ACC calc:
class 01 bonds - 0.003 (low risk)
class 06 bonds - 0.3 (already been charged enough)
R2
Equity Risk - changes in market value of equities
R2 = basic charge + ACC
Affiliated investments
Unaffiliated stocks
Real estate
Schedule BA assets
Misc assets, including receivables for securities, aggregate write-ins for invested assets and derivatives
Replication (synthetic asset) transactions and mandatory convertible securities
