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6. RBC Flashcards

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13
Q

IRIS vs RBC

similar 1

difference 1

difference 2

A

similar- Both are quantitative, use financial statement data

different - RBC is min capital required, IRIS looks at rsv adequacy

different - RBC gives regulators authority to intervene, IRIS does not

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14
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RBC adv

A
  1. Formula based & easy to calculate from financial statements→hard to manipulate→ easy to compare across companies.
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15
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RBC disadv (2)

A

Ignores cat risk, interest rate risk, operational risk

Isn’t customized to company via talking to management

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16
Q

RBC risk categories (6)

A

R0:asset risk – affiliates(default risk for investment in affiliates/subsidiaries)

R1:asset risk – fixed income(default risk of bonds + risk of change in interest rates) - smallest

R2:asset risk – equity(change in market value of stocks, real estate) – 2nd largest

R3:asset risk – credit(default risk of receivables & reinsurance recoverables)

R4:UW risk – reserves (risk of adverse development of rsvs)

R5:UW risk – NWP (risk that prem form future business won’t cover future losses)

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24
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25
Q

5 yr historical exhibit

Why useful in RBC?

A
  1. Has Total adjusted capital & ACL capital which can be used to calc RBC ratio
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26
Q

R1 components (not in other R) [4]

A

Unaffiliated bonds

Bond size adjustment factor

Mortgage loans

Misc assets (cash, cash equivalents, short term investments, non-admiited collateral loans)

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27
Q

R1 Bond size charge

what bonds?

reflects what?

A

Class 2-6 unaffiliated bonds + non US govt class 1

Reflects diversification of bond portfolio (larger portfolios has lower BSC)

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28
Q

R1 Bond Asset concentration charge

consists of?

doubles what?

A

Class 2-5 unaffiliated bonds + collateral loans + mortgage loans

Doubles risk charge for $ amts in top 10 issuers

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29
Q

R2 components (not in other R) (5)

A
  1. Unaffiliated stocks
  2. Real estate
  3. Schedule BA assets
  4. Misc assets
  5. Stock Asset concentration factor
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30
Q

R2 Stock Asset concentration charge

consists of?

A
  • Class 2-5 unaffiliated preferred stock +*
  • all unaffiliated common stock +*
  • real estate +*
  • derivatives +*
  • receivables for securities*
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31
Q

RSAT (replication/synthetic asset transaction)

what is it?

whcih RBC risk categories does it go to?

A

Derivative

split ½ R1 & ½ R2

32
Q

Reinsurance recoverable

how is it split?

what is it equal to?

A

Usually split ½ R3 & ½ R4 (split IF R4 for rsvs > R3 non invested assets +1/2 R3 reinsurance recoverables)

10% of reinsurance recoverables in schedule F part 3

33
Q

can be R1 or R2 components depending on if related to fixed income or equity

A
  1. Holding or parent company
  2. Investment affiliate
  3. Other non-insurance subsidiary
  4. insurance subsidiaries NOT subject to RBC
  5. OBC collateral & schedule DL Part 1 Assets
34
Q

R0 components (7)

which are off balance sheet items (3)

A

Non controlled asset (off balance sheet item)

Contingent liab (off balance sheet item)

Guarantee for benefits (off balance sheet item)

Investments in alien insurance company affiliates

Common Stock investment (in the subsidiary IF subject to RBC)

Preferred Stock investment (in the subsidiary IF subject to RBC)

Bond investment (in the subsidiary IF subject to RBC)

35
Q

Non-invested assets – less liquid

part of which risk category?

list 9

A

Part of R3

  1. Interest due and accrued
  2. Fed income tax recoverable
  3. Agg write for other than invested assets
  4. Amt receivable for uninsured plan
  5. Guaranty funds receivable or on deposit
  6. Uncollected/deferred prem & agent balance
  7. Amt recoverable from reinsurer
  8. Net deferred tax asset
  9. Receivables from parent, subsid, affiliate
53
Q

Describe average growth rate factor used if

  1. just 1 year of growth experience
  2. start up

3 no CWP in current year

A
  1. J_ust 1 yr of growth experience_→ 1 yr growth - 0.10
  2. Start up → 0.40 - 0.10
  3. No GWP in current yr→0.0
54
Q

R4 - what kind of premium is used to calculate the average growth rate factor used in the excessive prem growth charge for R4?

A

GWP = DWP + assumed prem from non-affilates

on a group basis

55
Q

Purpose of A (investment income adjustment) in R4 & R5 calculation

A
  1. Remove risk margin that exists b/c (rsvs recorded on undiscounted basis under SAP)
56
Q

Purpose of company RBC % in R4 calculation

A

Surplus cushion vs adverse development

57
Q

R4 calculation – describe L&LAE rsvs in terms of reinsurance & discounts

A
  1. Gross of non-tabular discounts
  2. Net of tabular discounts
  3. Net of reinsurance
58
Q

Purpose of loss sensitive discount for R4 & R5 calculation (2)

A

Retrospective rated policies: Loss↑ → Prem ↑→ less surplus needed

Lower discount for assumed b/c if Loss ↑→ ceding commission down→ more surplus needed

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