RBC

Question 1

Regulatory actions levels for Health RBC ratios (4)

Answer 1

Actions are based on the Health RBC ratio (defined in a separate list)

1. Company Action Level (ratio of 150%-200%) - requires that a company submit a corrective action plan
2. Regulatory Action Level (ratio of 100%-150%) - allows the commissioner to examine the company and issue and order specifying corrective actions
3. Authorized Control Level (ratio of 70%-100%) - allows the commissioner to place the company under regulatory control if deemed to be in the best interests of policyholders and creditors
4. Mandatory Control Level (ratio less than 70%) - requires the commissioner to take regulatory control of the company

For a ratio between 200-300%, no regulatory action level applies, but a trend test is done and its results could trigger the company action level

Question 2

Formula for Health RBC after Covariance (RBCAC)

Answer 2

1. RBCAC = H0 + {H1^2 + H2^2 + H3^2 + H4^2} ^ (1/2)
   a. H0 is the Asset Risk for Affiliates - the risk that a stock investment in an affiliate may lose value
   b. H1 is the Asset Risk for Other Assets - the risk that investments may default or decrease in value
   c. H2 is the Underwriting Risk - the risk of having inadequate premiums in the future (most impactful risk for health insurers)
   d. H3 is the Credit Risk - the risk of not recovering the amounts owed to the insurer
   e. H4 is the Business Risk - includes several misc. types of risk, such as admin expense risk and excessive growth risk
2. Authorized control level capital = RBCAC / 2
3. Health RBC ratio = total adjusted capital / authorized control level capital

Question 3

Formulas for the H2 (U/W Risk) component of Health RBC

Answer 3

1. U/W Risk = Claim Experience Fluctuation Risk + Other U/W Risk
2. Claim Experience Fluctuation Risk is the sum of risk charges for 5 product groupings (comprehensive, Med Supp, dental and vision, Medicare Pt D, and other)
   a. For each grouping, the risk charge = premium * ratio of incurred claims to premium * risk factor * managed care risk adjustment factor
   b. The last 2 components of this formula are pulled from tables of factors that vary by coverage type (see separate lists)
3. Other U/W Risk includes:
   a. Coverages not included in claim experience fluctuation risk, such as DI, LTC, stop loss, and AD&D. Various tables of factors are used for calculating risk charges for these coverages.
   b. Adjustments for rate guarantees and premium stabilization reserves

Question 4

Calculation of risk factors (42)

Answer 4

1. The factor is based on the type of coverage and the amount of annual UW revenue
2. For each coverage type, a weighted average of the following factors is calculated based on the amount of revenue in each tier

Question 5

Calculation of managed care risk adjustment factors (43)

Answer 5

1. The managed care risk adjustment factors are 1 - the discount factors
2. All claims paid over the previous 12 months are assigned to the following categories, and a weighted average of the factors in the table below is calculated
3. The overall adjustment factor is applied to all product groupings except Medicare Part D and Other

Question 6

Risks not considered in RBC ratio (4)

Answer 6

1. Pandemic Rick
2. Biological risk
3. Greater compliance cost and regulatory oversight
4. Financial risk due to ACA provisions (min LR req, increased level of rate reviews, guaranteed issue, risk adj)