Section B Flashcards
(71 cards)
RBC formula definition
calculates the minimum level of capital that the insurer should hold based on the risks to which it is exposed
RBC Model act for insurers
provides the state regulator the authority to take action if the RBC ratio falls below a threshold level
parent
entity that directly/indirectly controls the reporting entity
subsidiary
the controlled entity
affiliate
an entity that is within the same holding company system, or controls/is controlled by the reporting entity
control
the power to direct, via ownership of voting securities/contract/ common management. Control is assumed to exist if the entity owns at least 10% of the voting interests
Market valuation approach: Additional R2 component that arises from the common stock investments in the affiliates equal to
- if the total RBC of the affiliate multiplied by the % ownership exceeds the book/carrying value, the excess of the book carrying value over the R0 calculated in the marketing value approach
- Otherwise max(22.5% * excess of carrying value over the pro rata SAP surplus, excess of RBC * % ownership over the R0 value)
example of an alien insurance affiliate
captive
For an indirectly owned affiliate RBC charge
use the alien insurance affiliate formula, but adjust the 0.5 to reflect the insurer’s ownership of the holding company
3 examples of non-controlled assets
- collateral loaned to others from securities lending programs
- assets that are reported on the company’s balance sheet, but for which it does not have exclusive control
- assets sold that are subject to a put option
2 types of RBC charges associated with securities lending program
Schedule DL part 1
Off-balance sheet
NOT included in RBC: investment schedules that correspond to the collateral
RBC charges for Working Capital finance investments
NAIC 1: .0038
NAIC 2: .0125
In order to qualify as a federal guaranteed Low Income Housing Tax Credit (LIHTC),
the LIHTC needs to have a guarantee from one of NAIC’s acceptable rating organizations
To qualify as federal non guaranteed, the LIHTC must include the following 2 risk mitigation features:
- leverage ratio under 50%
- tax guarantee from a general partner / managing member that requires this party to reimburse investors for any shortfalls in tax credits due to compliance errors
To qualify for state guaranteed or state non guaranteed, the LITHC must
meet the federal requirements for guaranteed or non-guaranteed LIHTC investments
RBC charge for :
Upstream affiliate (parent)
P&C, life, health insurance affiliates not subject to RBC
Other affiliates
0.225 * carrying value of common/preferred stock
For real estate, do NOT
net out encumbrance, the entire value gross of encumbrance would be subject to loss
asset concentration factors
reflects the level of diversification. doubles the RBC charge of the 10 largest issuers that the insurer is exposed to
total charge factor for each asset after the asset concentration factor adjustment is limited to
0.3
2 reasons why assets are excluded from the asset concentration factor
low risk
factor is already 0.3
r1 assets subject to asset concentration factor
bonds (class 2-5) collateral loans mortgage loans working capital finance investments naic 02 LIHTC
r2 assets subject to the charge
unaffiliated preferred stocks and hybrid securities (class 2-5) unaffiliated common stock investment in real estate encumbrances on invested real estate schedule BA assets (excluding collateral loans) receivables for securities aggregate write-ins for invested assets derivatives
How to get the Industry reserve RBC % adjusted for company experience
multiply the adjustment for company for experience by the industry reserve rbc %
The adjustment for investment income is provided by the NAIC and is based on
5% interest rate and payment patterns
