Risk-Based Capital

Question 1

two components of RBC system

Answer 1

1) RBC formula: standard formula to calculate minimum level of capital needed to support risks
2) RBC Model Act: gives regulator legal authority to act when the RBC ratio falls below certain thresholds

Question 2

RBC risk categories (8)

Answer 2

R_0 = subsidiaries and misc other
R_1 = asset risk: fixed income
R_2 = asset risk: equity
R_3 = asset risk: credit
R_4 = UW risk: reserves
R_5 = UW risk: net written premium
R_cat = catastrophe
operational risk