R4 Flashcards
R4 generated from risk associated with
Reinsurance recoverable
Unpaid loss and LAE
Excessive premium growth
AH claim reserves
Company RBC %
Straight average of industry reserve RBC % and industry reserve RBC % adjusted for company experience
Industry RBC %
Provided by NAIC; ratio of net incurred loss and DCC development during the year to the net loss and DCC reserves from the prior year
Company development factor
(Sum of prior 9 AY loss and DCC in current year)/(Sum of initial valuations of same AYs); capped at 400%
Should not make company adjustment for Company RBC% if
Initial or current values are < 0
History is not long
Loss sensitive discount
Loss sensitive discount factor * Percent loss sensitive reserves
Loss sensitive discount factor
Direct: 30%; Assumed: 15%; assumed is lower because commissions are loss sensitive (offset)
Loss concentration factor
0.3 * max(Line % of loss & LAE reserves to total) + 0.7
Excessive premium growth
3 year average growth rate in GWP exceeding 10% (each year over year capped at 40%)
Average growth rate factor
Min(Max[Average growth over 3 years, 0.1],0.4) - 0.1
Excessive premium growth RBC charge
Average growth rate factor * 0.45 * net loss and LAE reserves
Base loss and LAE reserve RBC by line
[(Company RBC% + 1) * Adjustment for income - 1] * Net LLAE reserve; reserve from P1, gross of non-tabular discounts, net of tabular
R4 intended to measure
Risk that reserves will develop adversely
Before using reserve amounts in RBC calculations
Should be gross of non-tabular discount (balance sheet is net)
Discount for retrospectively-rated policies
0.3