Odomirok 19: RBC and R0

Question 1

RBC formula

Answer 1

Minimum level of capital an insurer should hold

Question 2

RBC Model Act for Insurers

Answer 2

Provides state regulator the authority to take action if RBC ratio falls below threshold

Question 3

RBC report filing date

Answer 3

3/1

Question 4

Risks not addressed in RBC

Answer 4

Strategy, management, internal controls, systems, ability to access capital

Question 5

Asset Risk, RBC

Answer 5

R0, R1, R2, R3

Question 6

R0

Answer 6

Subsidiary insurers: default risk from investments in these companies

Question 7

R1

Answer 7

Fixed income: impact of changing interest rates on valuation, and default risk

Question 8

R2

Answer 8

Equity: change in valuation

Question 9

R3

Answer 9

Credit

Question 10

UW Risk, RBC

Answer 10

R4, R5

Question 11

R4

Answer 11

Reserve risk: risk of adverse development, assuming current values are adequate

Question 12

R5

Answer 12

NWP risk: risk that following years’ business will be unprofitable

Question 13

Covariance adjustment

Answer 13

RBC = R0 + sqrt(sum of squares of R1-R4); square root reflects diversification among risks; R0 separated because risk from subsidiaries not assumed to be independent

Question 14

Parent

Answer 14

Entity directly/indirectly controls reporting entity

Question 15

Subsidiary

Answer 15

Controlled entity

Question 16

Affiliate

Answer 16

Entity within same holding company system or is controlled by reporting entity

Question 17

Control

Answer 17

At least 10% of voting interests (measured at holding company level)

Question 18

R0 covers risk from

Answer 18

Investments in insurance subsidiary
Investments in alien insurance company affiliates
Off-balance sheet items

Question 19

RBC Charge, market valuation approach (common stock)

Answer 19

Min(Affiliate RBC, Statutory surplus) * ownership percentage

Question 20

RBC Charge, equity approach (common stock)

Answer 20

Min(Affiliate RBC * ownership, book/ACV of common stock)

Question 21

RBC charge, preferred stock

Answer 21

Min(Pro rata share of excess RBC, book/ACV of preferred stock)

Question 22

RBC charge, bond investment

Answer 22

Min(Pro rata share of excess RBC, book/ACV of bonds)

Question 23

RBC charge, alien insurance affiliates

Answer 23

Direct ownership: 0.5 * Book/ACV

Indirect ownership: 0.5 * Carrying value

Question 24

Off-balance sheet items

Answer 24

Not included in financial statements, but are still assets/potential liabilities

Question 25

Categories of off-balance sheet items in R0

Answer 25

Non-controlled assets
Contingent liabilities
Guarantees for benefit of affiliates

Question 26

RBC charge, off-balance sheet items

Answer 26

1% for all but securities lending program exceptions, 0.2%