B1. The Rs

Question 1

R0

Answer 1

Subsidiary Insurers:

• Insurance Subsidiaries (Stock Investment)
• Insurance Subsidiaries (Preferred Stock Investment)
• Insurance Subsidiaries (Bond Investment)
• Investments in Alien Insurance Affiliates
• Off Balance Sheet and Other Items

Question 2

R1

Answer 2

Fixed Income Investments:

• Holding Company
• Upstream Affiliate
• Insurance Subsidiaries not subject to RBC
• Investment Affiliates
• Other Non-Insurance Subsidiaries
• Unaffiliated Bonds and Bond Size Factor
• Mortgage Loans
• Miscellaneous Assets
• > Cash, net cash equivalents, other short term investments
• > Admitted Collateral Loans
• Replication Transactions
• Mandatorily Convertible Securities
• Off-Balance Sheet Collateral and Schedule DL, Pt 1, Assets

Question 3

R2

Answer 3

Equity Investments:

• Holding company/Certain Affiliates/Off-Balance Sheet collateral
• Replication transactions/mandatorily convertible securities
• Insurance Affiliates that are Subject to RBC(common stock excess of amount allocated to R0)
• Unaffiliated Common Stocks
• Preferred Stocks
• Real Estate, Schedule BA
• Miscellaneous assets
• > Other long term assets other than collateral loans
• > Receivables for securities
• > Agg write-ins for invested assets
• > Derivatives

Don’t forget asset concentration factor (Doubles RBC charge of 10 largest issuers)

Question 4

R3

Answer 4

Credit Risk:
Non Invested Assets
Reinsurance Recoverables
Health credit Risk

Question 5

R4

Answer 5

Reserve Risk:
Reinsurance RBC
RBC by Line

Adjust for loss sensitive
Adjust for loss concentration
Adjust for premium growth (.45)

Question 6

R5

Answer 6

Written Premium Risk:
-Net Written Premium RBC by line

Adjust for loss sensitive
Adjust for premium concentration
Adjust for excessive growth (.225)

Question 7

Asset changes: Diversification in the financial portfolio and concentration(with respect to # of insurers)

Answer 7

Bond size adjustment factor increases the RBC charge and is higher when there are a fewer number of bond issuers.

RBC Asset concentration factor doubles the asset risk charge for the company’s ten largest investments.

Question 8

Risks included in the different sections

Answer 8

R0-Subsidiary Insurers
R1-Fixed Income
R2-Equity
R3-Credit
R4-Reserve
R5-Net Written Premium

Question 9

RBC two main components

Answer 9

RBC Formula

RBC model act for insurers

Question 10

What is the rationale for Using 50% of reported value?

Answer 10

The RBC charge has averaged about 50% of the carrying value